The Bank Recovery and Resolution (No. 2) Order 2014

PART 9 U.K. Minimum requirement for own funds and eligible liabilities

CHAPTER 1 U.K. Determination of minimum requirement for an institution

Interpretation of Chapter 1 U.K.

121.—(1) In this Chapter—

[F1 “covered bond” means a regulated covered bond within the meaning of regulation 1(2) of the Regulated Covered Bonds Regulations 2008; and;]

“relevant institution” means an institution, other than a mortgage credit institution, which is authorised by the PRA or FCA and is not part of a group subject to supervision on a consolidated basis in accordance with [F2 Part 6 of the Capital Requirements Regulations 2013].

(2) “Mortgage credit institution” means an institution—

(a) which does not have permission under Part 4A of FSMA to carry on the regulated activity of accepting deposits (within the meaning given by section 22 of that Act, read with Schedule 2 and any order under section 22); and

(b) whose lending—

(i) relates to an agreement under which the obligation of the borrower to repay is secured, or is to be secured, by a legal mortgage on land; and

(ii) is financed by covered bonds M1 .

Textual Amendments

F1 Words in art. 121(1) inserted (31.12.2020) by The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 66(a); 2020 c. 1, Sch. 5 para. 1(1)

F2 Words in art. 121(1) substituted (31.12.2020) by The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 66(b); 2020 c. 1, Sch. 5 para. 1(1)

Marginal Citations

M1 For the meaning of “covered bond” see the recovery and resolution directive, Article 2.1, point (96).

Duties of the Bank in relation to minimum requirement U.K.

122.—(1) The Bank must exercise the powers conferred by section 3A of the Banking Act 2009 M2 (removal of impediments to the exercise of stabilisation powers etc)—

(a) to ensure that a relevant institution is required at all times to maintain a minimum requirement for own funds and eligible liabilities F3 ...; and

(b) with the object of ensuring that at all times the institution meets the minimum requirement specified in a direction given for that purpose.

F4 (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F3 Words in art. 122(1)(a) omitted (28.12.2020) by virtue of The Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020 (S.I. 2020/1350), regs. 1(2), 45

F4 Art. 122(2) omitted (31.12.2020) by virtue of The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 67; 2020 c. 1, Sch. 5 para. 1(1)

Marginal Citations

M2 Section 3A was inserted by S.I. 2014/3329.

Determination of minimum requirement U.K.

123.—(1) This article applies for the purpose of the determination by the Bank of the minimum requirement for own funds and eligible liabilities.

(2) The amount of the relevant institution's total liabilities must include total liabilities under any derivative contracts held by the institution.

(3) An assessment of total liabilities under a derivative contract must take account of the rights of the parties to the contract to set off or net under a title transfer collateral arrangement, set-off arrangement or netting arrangement (within the meaning given by section 48(1)(b), (c) and (d) of the Banking Act 2009).

(4) [F5 An eligible liability must be excluded] from the amount of the relevant institution's [F6 own funds and eligible liabilities] if—

(a) the instrument that creates the liability is not issued or fully paid up;

(b) the liability is owed to, or secured or guaranteed by, the institution itself;

(c) the purchase of the instrument that creates the liability was funded directly or indirectly by the institution itself;

(d) the liability has a remaining maturity of less than one year;

(e) the liability arises from a derivative contract held by the institution;

(f) the liability arises from a deposit in respect of which the depositor's rights, in any proceedings relating to the insolvency of the institution, would be preferred to the rights of other creditors; or

(g) the instrument that creates the liability is governed by the law of a third country and the Bank is not satisfied that a decision by the Bank to convert or write down the liability would be effective under that law.

(5) For the purpose of paragraph (4)(d), where the instrument that creates the liability confers on a party to the instrument a right to the repayment of a sum before maturity, the maturity date is the first date on which that party would become entitled to repayment if the right were exercised.

(6) The determination must be based on an assessment of the [F7 following criteria—

(a) the need to ensure that the relevant institution can be resolved by the application of the resolution tools including, where appropriate, by making special bail-in provision within the meaning of section 48B of the Banking Act 2009, in a way that meets the special resolution objectives;

(b) the need to ensure, in appropriate cases, that the relevant institution has sufficient eligible liabilities to ensure that, if mandatory reduction provision within the meaning of section 6B of the Banking Act 2009 or special bail-in provision were made—

(i) losses could be absorbed; and

(ii) the capital ratio and, as applicable, the leverage ratio, of the relevant institution could be restored,

to a level necessary to enable it to continue to comply with the conditions for authorisation under Part 4A of FSMA and to continue to carry out the activities for which it is authorised;

(c) the need to ensure that, if the resolution plan anticipates that certain classes of eligible liabilities might be excluded from bail-in under section 48B(10) of the Banking Act 2009 or that certain classes of eligible liabilities might be transferred to a recipient in full under a partial transfer—

(i) the relevant institution has sufficient other eligible liabilities or own funds to ensure that losses could be absorbed; and

(ii) the capital ratio and, as applicable, the leverage ratio, of the relevant institution could be restored,

to the level necessary to enable it to continue to comply with the conditions for authorisation under Part 4A of FSMA and to continue to carry out the activities for which it is authorised;

(d) the size, the business model, the funding model and the risk profile of the relevant institution; F8 ...

(e) the extent to which the failure of the relevant institution would have adverse effects on financial stability, including, due to its interconnectedness with other institutions or entities or with the rest of the financial system, through contagion to other institutions or entities;] [F9 and

(f) relevant assessment criteria specified in any Commission Regulation containing regulatory technical standards adopted by the European Commission under Article 45.2 of the recovery and resolution directive, so far as they are retained EU law.]

(7) The Bank must make that assessment in consultation with the appropriate regulator.

[F10 (8) The Bank may make technical standards relating to assessment criteria upon which it must base a determination of the minimum requirement for own funds and eligible liabilities under this article, article 126 or article 135.]

Textual Amendments

F5 Words in art. 123(4) substituted (16.12.2016) by The Bank Recovery and Resolution Order 2016 (S.I. 2016/1239), arts. 1(2), 41(14)(a)

F6 Words in art. 123(4) substituted (16.12.2016) by The Bank Recovery and Resolution Order 2016 (S.I. 2016/1239), arts. 1(2), 41(14)(b)

F7 Words in art. 123(6) substituted (28.12.2020) by The Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020 (S.I. 2020/1350), regs. 1(2), 46

F8 Word in art. 123(6)(d) omitted (31.12.2020) by virtue of S.I. 2018/1394, Sch. 3 para. 68(2)(a) (as substituted by The Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020 (S.I. 2020/1350), regs. 1(2), 77(4)(a))

F9 Art. 123(6)(f) and word inserted by S.I. 2018/1394, Sch. 3 para. 68(2)(b) (as substituted) by The Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020 (S.I. 2020/1350), regs. 1(2), 77(4)(a))

F10 Art. 123(8) inserted (31.12.2020) by The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 68(3); 2020 c. 1, Sch. 5 para. 1(1)

Review of minimum requirement U.K.

124.—(1) The Bank must review the minimum requirement for own funds and eligible liabilities when, in accordance with Chapter 4 of Part 5, it reviews the resolution plan (within the meaning given in Chapter 1 or 3 of that Part) adopted for the relevant institution.

(2) Article 123 applies for the purpose of the review, but paragraph (6) of that article has effect for that purpose as if the reference to the determination (of the minimum requirement for own funds and eligible liabilities) were a reference to the re-determination of the requirement on review.

CHAPTER 2 U.K. Determination of minimum consolidated requirement where the PRA or FCA is the consolidating supervisor

Application and interpretation of Chapter 2 U.K.

125.—(1) This Chapter applies where the PRA or FCA is the consolidating supervisor in relation to a relevant group.

(2) In this Chapter—

F11 ...

“group entity” includes an undertaking which is—

(a)

a parent undertaking of the [F12 UK] parent undertaking; and

(b)

a mixed activity holding company which has at least one subsidiary which—

(i)

is an institution; and

(ii)

is not a subsidiary of a financial holding company which is also a subsidiary of the mixed activity holding company;

“group institution” means—

(a)

the [F13 UK] parent undertaking, if it is a relevant institution;

(b)

a group subsidiary which is a relevant institution;

(c)

a group entity, other than an institution, which is—

(i)

required under article 139 F14 ... to maintain a minimum requirement for own funds and eligible liabilities; F14 ...

(ii)

F15 ...

(d)

where the group resolution plan does not provide for the separate resolution M3 of a subsidiary set up in a third country, that subsidiary if it would be a relevant institution if it were set up in [F16 the UK];

“minimum consolidated requirement” means the requirement for a minimum level of own funds and eligible liabilities of the group institutions F17 ...;

“minimum requirement”, in relation to a group institution, means a minimum requirement for own funds and eligible liabilities F18 ...; and

“netting arrangement”—

(a)

in relation to an institution authorised by the PRA or FCA, means a title transfer collateral arrangement, set-off arrangement or netting arrangement (within the meaning given by section 48(1)(b), (c) and (d) of the Banking Act 2009);

(b)

F19 ...

(3) “Relevant institution”, in the definition of “group institution”, means an institution which—

(a) if authorised by the PRA or FCA, is not a mortgage credit institution within the meaning given in Chapter 1; and

(b) if set up in a country other than the United Kingdom, does not meet criteria which are equivalent in that country to the criteria set out in article 121(2).

Textual Amendments

F11 Words in art. 125(2) omitted (31.12.2020) by virtue of The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 69(2)(a); 2020 c. 1, Sch. 5 para. 1(1)

F12 Word in art. 125(2) substituted (31.12.2020) by The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 69(2)(b); 2020 c. 1, Sch. 5 para. 1(1)

F13 Word in art. 125(2) substituted (31.12.2020) by The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 69(2)(c)(i); 2020 c. 1, Sch. 5 para. 1(1)

F14 Words in art. 125(2) omitted (31.12.2020) by virtue of The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 69(2)(c)(ii)(aa); 2020 c. 1, Sch. 5 para. 1(1)

F15 Words in art. 125(2) omitted (31.12.2020) by virtue of The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 69(2)(c)(ii)(bb); 2020 c. 1, Sch. 5 para. 1(1)

F16 Words in art. 125(2) substituted (31.12.2020) by The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 69(2)(c)(iii); 2020 c. 1, Sch. 5 para. 1(1)

F17 Words in art. 125(2) omitted (28.12.2020) by virtue of The Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020 (S.I. 2020/1350), regs. 1(2), 47(a)

F18 Words in art. 125(2) omitted (28.12.2020) by virtue of The Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020 (S.I. 2020/1350), regs. 1(2), 47(b)

F19 Words in art. 125(2) omitted (31.12.2020) by virtue of The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 69(2)(d); 2020 c. 1, Sch. 5 para. 1(1)

Marginal Citations

M3 For the meaning of “resolution” see the recovery and resolution directive, Article 2.1, point (1).

Determination of minimum consolidated requirement U.K.

126.—(1) This article applies for the purpose of determining the minimum consolidated requirement [F20 for each resolution group].

(2) F21 ... The Bank must determine the minimum consolidated requirement, and is solely responsible for the determination.

F22 (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) The amount of each group institution's total liabilities must include total liabilities under any derivative contracts held by the institution.

(5) An assessment of total liabilities under a derivative contract must take account of the rights of the parties to the contract to set off or net under a netting arrangement.

(6) [F23 An eligible liability must be excluded] from the amount of the group institution's [F24 own funds and eligible liabilities] if—

(a) the instrument that creates the liability is not issued or fully paid up;

(b) the liability is owed to, or secured or guaranteed by, the institution itself;

(c) the purchase of the instrument that creates the liability was funded directly or indirectly by the institution itself;

(d) the liability has a remaining maturity of less than one year;

(e) the liability arises from a derivative contract held by the institution;

(f) the liability arises from a deposit in respect of which the depositor's rights, in any proceedings relating to the insolvency of the institution, would be preferred to the rights of other creditors; or

(g) the instrument that creates the liability is governed by the law of a third country and the Bank is not satisfied that a decision by the Bank to convert or write down the liability would be effective under that law.

(7) For the purpose of paragraph (6)(d), where the instrument that creates the liability confers on a party to the instrument a right to the repayment of a sum before maturity, the maturity date is the first date on which that party would become entitled to repayment if the right were exercised.

(8) The determination—

(a) must be based on an assessment of the [F25 following criteria—

(i) the need to ensure that each group institution can be resolved by the application of the resolution tools including, where appropriate, by making special bail-in provision within the meaning of section 48B of the Banking Act 2009, in a way that meets the special resolution objectives;

(ii) the need to ensure, in appropriate cases, that each group institution has sufficient eligible liabilities to ensure that, if mandatory reduction provision within the meaning of section 6B of the Banking Act 2009 or special bail-in provision were made—

(aa) losses could be absorbed; and

(ab) the capital ratio and, if applicable, the leverage ratio, of the group institution could be restored,

to a level necessary to enable it to continue to comply with the conditions for authorisation under Part 4A of FSMA and to continue to carry out the activities for which it is authorised;

(iii) the need to ensure that, if the resolution plan anticipates that certain classes of eligible liabilities might be excluded from bail-in under section 48B(10) of the Banking Act 2009 or that certain classes of eligible liabilities might be transferred to a recipient in full under a partial transfer—

(aa) each group institution has sufficient other eligible liabilities or own funds to ensure that losses could be absorbed; and

(ab) the capital ratio and, if applicable, the leverage ratio, of the group institution could be restored,

to the level necessary to enable it to continue to comply with the conditions for authorisation under Part 4A of FSMA and to continue to carry out the activities for which it is authorised;

(iv) the size, the business model, the funding model and the risk profile of each group institution; F26 ...

(v) the extent to which the failure of each group institution would have an adverse effect on financial stability, including, due to its interconnectedness with other institutions or entities or with the rest of the financial system, through contagion to other institutions or entities]; [F27 and

(vi) relevant assessment criteria specified in any Commission Regulation containing regulatory technical standards adopted by the European Commission under Article 45.2 of the recovery and resolution directive, so far as they are retained EU law.] and

(b) must take account of any provision made in the group resolution plan for the separate resolution of a subsidiary set up in a third country.

(9) Where the Bank makes an assessment under paragraph (8)(a) with respect to a group institution authorised by the PRA or FCA, it must make the assessment in consultation with the appropriate regulator.

Textual Amendments

F20 Words in art. 126(1) inserted (28.12.2020) by The Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020 (S.I. 2020/1350), regs. 1(2), 48(a)

F21 Words in art. 126(2) omitted (31.12.2020) by virtue of The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 70(2); 2020 c. 1, Sch. 5 para. 1(1)

F22 Art. 126(3) omitted (31.12.2020) by virtue of The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 70(3); 2020 c. 1, Sch. 5 para. 1(1)

F23 Words in art. 126(6) substituted (16.12.2016) by The Bank Recovery and Resolution Order 2016 (S.I. 2016/1239), arts. 1(2), 41(14)(a)

F24 Words in art. 126(6) substituted (16.12.2016) by The Bank Recovery and Resolution Order 2016 (S.I. 2016/1239), arts. 1(2), 41(14)(b)

F25 Words in art. 126(8)(a) substituted (28.12.2020) by The Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020 (S.I. 2020/1350), regs. 1(2), 48(d)

F26 Word in art. 126(8)(a)(iv) omitted (31.12.2020) by virtue of S.I. 2018/1394, Sch. 3 para. 70(4)(a) (as substituted by The Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020 (S.I. 2020/1350), regs. 1(2), 77(5)(a))

F27 Art. 126(8)(a)(vi) and word inserted by virtue of S.I. 2018/1394, Sch. 3 para. 70(4)(b) (as substituted) by The Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020 (S.I. 2020/1350), regs. 1(2), 77(5)(a))

Joint determination U.K.

F28 127.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F28 Art. 127 omitted (31.12.2020) by virtue of The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 71; 2020 c. 1, Sch. 5 para. 1(1)

References to EBA: determination of minimum consolidated requirement U.K.

F29 128.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F29 Art. 128 omitted (31.12.2020) by virtue of The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 71; 2020 c. 1, Sch. 5 para. 1(1)

Review of minimum consolidated requirement U.K.

129.—(1) The Bank must review the minimum consolidated requirement [F30 for each resolution group] when, in accordance with Chapter 4 of Part 5, it reviews the group resolution plan.

(2) [F31 Article 126 applies] for the purpose of the review, but have effect for that purpose as if each reference to determining (or the determination of) the minimum consolidated requirement were a reference to re-determining (or the re-determination of) the requirement on review.

Textual Amendments

F30 Words in art. 129(1) inserted (28.12.2020) by The Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020 (S.I. 2020/1350), regs. 1(2), 51

F31 Words in art. 129(2) substituted (31.12.2020) by The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 72; 2020 c. 1, Sch. 5 para. 1(1)

F32 CHAPTER 3 U.K. Determination of minimum consolidated requirement where neither the PRA nor the FCA is the consolidating supervisor

Textual Amendments

F32 Pt. 9 Ch. 3 omitted (31.12.2020) by virtue of The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 73; 2020 c. 1, Sch. 5 para. 1(1)

Application and interpretation of Chapter 3 U.K.

F32 130.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Joint determination of minimum consolidated requirement U.K.

F32 131.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Review of minimum consolidated requirement U.K.

F32 132.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CHAPTER 4 U.K. Determination of minimum requirements for group institutions where the PRA or FCA is the consolidating supervisor

Application and interpretation of Chapter 4 U.K.

133.—(1) This Chapter applies where the PRA or FCA is the consolidating supervisor in relation to a relevant group.

(2) In this Chapter—

F33 ... “group entity” and “minimum requirement” have the same meaning for the relevant group as they have for a relevant group in Chapter 2;

[F34 “group institution” means an institution, other than a mortgage credit institution within the meaning given in Chapter 1, that—

(a)

is authorised by the PRA or FCA and

(b)

forms part of a relevant group;]

“minimum consolidated requirement” means the minimum consolidated requirement (within the meaning given in Chapter 2) which is determined for the relevant group;

“netting arrangement” has the same meaning as in Chapter 2;

F35 ...

F35 ...

Textual Amendments

F33 Words in art. 133(2) omitted (31.12.2020) by virtue of The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 74(2)(a); 2020 c. 1, Sch. 5 para. 1(1)

F34 Words in art. 133(2) substituted (31.12.2020) by The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 74(2)(b); 2020 c. 1, Sch. 5 para. 1(1)

F35 Words in art. 133(2) omitted (31.12.2020) by virtue of The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 74(3); 2020 c. 1, Sch. 5 para. 1(1)

Duties of the Bank in relation to minimum requirement U.K.

134.—(1) The Bank must exercise the powers conferred by section 3A of the Banking Act 2009—

(a) to ensure that a [F36 group institution] is required at all times to maintain a minimum requirement; and

(b) with the object of ensuring that at all times the institution meets the minimum requirement specified in a direction given for that purpose.

F37 (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F37 (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F36 Words in art. 134(1)(a) substituted (31.12.2020) by The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 75(2); 2020 c. 1, Sch. 5 para. 1(1)

F37 Art. 134(2)(3) omitted (31.12.2020) by virtue of The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 75(3); 2020 c. 1, Sch. 5 para. 1(1)

Determination of minimum requirement U.K.

135.—(1) This article applies for the purpose of determining the minimum requirement for a group institution.

(2) The amount of the institution's total liabilities must include total liabilities under any derivative contracts held by the institution.

(3) An assessment of total liabilities under a derivative contract must take account of the rights of the parties to the contract to set off or net under a netting arrangement.

(4) [F38 An eligible liability must be excluded] from the amount of the institution's [F39 own funds and eligible liabilities] if—

(a) the instrument that creates the liability is not issued or fully paid up;

(b) the liability is owed to, or secured or guaranteed by, the institution itself;

(c) the purchase of the instrument that creates the liability was funded directly or indirectly by the institution itself;

(d) the liability has a remaining maturity of less than one year;

(e) the liability arises from a derivative contract held by the institution;

(f) the liability arises from a deposit in respect of which the depositor's rights, in any proceedings relating to the insolvency of the institution, would be preferred to the rights of other creditors; or

(g) the instrument that creates the liability is governed by the law of a third country and the Bank is not satisfied that a decision by the Bank to convert or write down the liability would be effective under that law.

(5) For the purpose of paragraph (4)(d), where the instrument that creates the liability confers on a party to the instrument a right to the repayment of a sum before maturity, the maturity date is the first date on which that party would become entitled to repayment if the right were exercised.

(6) The determination—

(a) must be based on an assessment of the criteria set out in [F40 article 126(8)(a)]; and

(b) must take account of the minimum consolidated requirement.

(7) F41 ... The Bank must make the assessment under paragraph (6)(a) in consultation with—

(a) the PRA, if the institution is a PRA-authorised person;

(b) the FCA, if the institution is any other UK authorised person.

Textual Amendments

F38 Words in art. 135(4) substituted (16.12.2016) by The Bank Recovery and Resolution Order 2016 (S.I. 2016/1239), arts. 1(2), 41(14)(a)

F39 Words in art. 135(4) substituted (16.12.2016) by The Bank Recovery and Resolution Order 2016 (S.I. 2016/1239), arts. 1(2), 41(14)(b)

F40 Words in art. 135(6)(a) substituted (28.12.2020) by The Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020 (S.I. 2020/1350), regs. 1(2), 53

F41 Words in art. 135(7) omitted (31.12.2020) by virtue of The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 76(3); 2020 c. 1, Sch. 5 para. 1(1)

Joint determination of minimum requirements U.K.

F42 136.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F42 Art. 136 omitted (31.12.2020) by virtue of The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 77; 2020 c. 1, Sch. 5 para. 1(1)

References to EBA: determination of minimum requirement U.K.

F43 137.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F43 Art. 137 omitted (31.12.2020) by virtue of The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 77; 2020 c. 1, Sch. 5 para. 1(1)

Review of minimum requirements U.K.

138.—(1) The Bank must review the minimum requirements for group institutions when, in accordance with Chapter 4 of Part 5, it reviews the group resolution plan.

(2) Articles 134 [F44 and 135] apply for the purpose of the review, but have effect for that purpose as if each reference to determining (or the determination of) a minimum requirement were a reference to re-determining (or the re-determination of) the requirement on review.

Textual Amendments

F44 Words in art. 138(2) substituted (31.12.2020) by The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 78(2); 2020 c. 1, Sch. 5 para. 1(1)

Minimum requirement for other group entities set up in the United Kingdom U.K.

139.—(1) The Bank may decide, after consulting the regulator, that a group entity, other than a [F45 group institution], set up in the United Kingdom should be required to maintain a minimum requirement for own funds and eligible liabilities F46 ....

(2) Where the Bank makes a such decision, articles 134 [F47 , 135 and 138] apply for the purpose of determining and reviewing the requirement and ensuring that the requirement is maintained and met, but have effect for that purpose as if each reference to an institution F48 ... included a reference to the group entity for which the requirement is being (or has been) determined.

(3) In this article “the regulator”—

(a) where there is a PRA-authorised person and any other UK authorised person in the relevant group, means the PRA and the FCA;

(b) where there is a PRA-authorised person and no other UK authorised person in the relevant group, means the PRA;

(c) where there is no PRA-authorised person in the relevant group, means the FCA.

Textual Amendments

F45 Words in art. 139(1) substituted (31.12.2020) by The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 79(2); 2020 c. 1, Sch. 5 para. 1(1)

F46 Words in art. 139(1) omitted (28.12.2020) by virtue of The Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020 (S.I. 2020/1350), regs. 1(2), 54

F47 Words in art. 139(2) substituted (31.12.2020) by The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 79(3)(a); 2020 c. 1, Sch. 5 para. 1(1)

F48 Words in art. 139(2) omitted (31.12.2020) by virtue of The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 79(3)(b); 2020 c. 1, Sch. 5 para. 1(1)

F49 CHAPTER 5 U.K. Determination of minimum requirements for group institutions where neither the PRA nor the FCA is the consolidating supervisor

Textual Amendments

F49 Pt. 9 Ch. 5 omitted (31.12.2020) by virtue of The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 80; 2020 c. 1, Sch. 5 para. 1(1)

Application and interpretation of Chapter 5 U.K.

F49 140.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Duties of the Bank in relation to minimum requirement U.K.

F49 141.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Determination of minimum requirement U.K.

F49 142.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Joint determination of minimum requirements U.K.

F49 143.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

References to EBA: determination of minimum requirement U.K.

F49 144.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Review of minimum requirements U.K.

F49 145.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Minimum requirement for other group entities set up in the United Kingdom U.K.

F49 146.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CHAPTER 6 U.K. Minimum requirement for own funds and eligible liabilities: other provisions

Waiver of application of Chapter 4 F50 ... U.K.

147.—(1) This article applies in relation to a relevant group.

(2) The Bank may waive the application of Chapter 4 F51 ... in relation to [F52 a UK parent institution] where it—

(a) complies with the minimum consolidated requirement determined in accordance with Chapter 2 F53 ...; and

(b) benefits from the exercise of the discretion laid down in Article 7.3 of the capital requirements regulation.

(3) The Bank may waive the application of Chapter 4 F54 ... in relation to a [F55 group institution] which is a group subsidiary where—

(a) both the institution and its parent undertaking are UK authorised persons;

(b) the supervision of the institution by the PRA or FCA (“the regulator”) is part of the supervision on a consolidated basis of the parent undertaking in accordance with [F56 Part 6 of the Capital Requirements Regulations 2013];

(c) the highest level UK institution in the relevant group, if that is not the [F57 UK parent institution], complies on a sub-consolidated basis with the minimum consolidated requirement determined in accordance with Chapter 2 F58 ...;

(d) there is no legal or other material impediment, whether actual or foreseeable, to the prompt transfer of own funds or repayment of liabilities by the parent undertaking to the institution;

(e) either—

(i) the parent undertaking has satisfied the regulator that no significant risks arise from the institution's operations; or

(ii) the parent undertaking has satisfied the regulator that the institution is prudently managed, and has declared, with the consent of the regulator, that it guarantees the institution's commitments;

(f) the institution is covered by the risk evaluation, measurement and control procedures of the parent undertaking;

(g) the parent undertaking holds more than 50 per cent. of the voting rights attached to shares in the capital of the institution or has the right to appoint or remove the majority of the members of the institution's management body (within the meaning given by point (7) of Article 3.1 of the capital requirements directive); and

(h) the institution benefits from the exercise of the discretion laid down in Article 7.1 of the capital requirements regulation.

(4) In this article—

“parent undertaking”, in relation to a UK institution, means an undertaking which is a parent undertaking of the institution and has no other subsidiary which is also a parent undertaking of the institution; and

“UK institution” means an institution which is authorised by the PRA or FCA and is not a mortgage credit institution within the meaning given in Chapter 1.

Textual Amendments

F50 Words in art. 147 heading omitted (31.12.2020) by virtue of The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 81(2); 2020 c. 1, Sch. 5 para. 1(1)

F51 Words in art. 147(2) omitted (31.12.2020) by virtue of The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 81(3)(a)(i); 2020 c. 1, Sch. 5 para. 1(1)

F52 Words in art. 147(2) substituted (31.12.2020) by The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 81(3)(a)(ii); 2020 c. 1, Sch. 5 para. 1(1)

F53 Words in art. 147(2)(a) omitted (31.12.2020) by virtue of The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 81(3)(b); 2020 c. 1, Sch. 5 para. 1(1)

F54 Words in art. 147(3) omitted (31.12.2020) by virtue of The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 81(4)(a)(i); 2020 c. 1, Sch. 5 para. 1(1)

F55 Words in art. 147(3) substituted (31.12.2020) by The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 81(4)(a)(ii); 2020 c. 1, Sch. 5 para. 1(1)

F56 Words in art. 147(3)(b) substituted (31.12.2020) by The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 81(4)(b); 2020 c. 1, Sch. 5 para. 1(1)

F57 Words in art. 147(3)(c) substituted (31.12.2020) by The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 81(4)(c)(i); 2020 c. 1, Sch. 5 para. 1(1)

F58 Words in art. 147(3)(c) omitted (31.12.2020) by virtue of The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 81(4)(c)(ii); 2020 c. 1, Sch. 5 para. 1(1)

Meeting minimum requirement through contractual bail-in instruments etc U.K.

148.—(1) This article applies where—

(a) a minimum requirement is determined in accordance with Chapter 1 for an institution authorised by the PRA or FCA;

(b) a minimum requirement is determined in accordance with Chapter 4 F59 ... for an undertaking set up in the United Kingdom; or

(c) a minimum consolidated requirement is determined in accordance with Chapter 2 F60 ... for a relevant group.

(2) The Bank may determine that a minimum requirement or minimum consolidated requirement to which this article applies must be met partially through contractual bail-in instruments or composed wholly or partially of own funds or a specified kind of liability.

(3) In this article “contractual bail-in instrument” means an instrument which —

(a) contains a contract term that where the Bank decides to apply the stabilisation option referred to in paragraph (c) of section 1(3) of the Banking Act 2009 M4 (the bail-in option) in respect of the institution, undertaking or relevant group concerned, the instrument is to be written down or converted to the extent required before other eligible liabilities are written down or converted; and

(b) is subject to a binding subordination agreement, undertaking or provision under which, in the event that normal insolvency proceedings are commenced, the instrument ranks below other eligible liabilities and cannot be repaid until other eligible liabilities outstanding on the date of commencement of the insolvency proceedings have been repaid.

[F61 (4) “Normal insolvency proceedings” has the meaning given in section 3(1) of the Banking Act 2009.]

Textual Amendments

F59 Words in art. 148(1)(b) omitted (31.12.2020) by virtue of The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 82(2)(a); 2020 c. 1, Sch. 5 para. 1(1)

F60 Words in art. 148(1)(c) omitted (31.12.2020) by virtue of The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 82(2)(b); 2020 c. 1, Sch. 5 para. 1(1)

F61 Art. 148(4) inserted (31.12.2020) by The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1394), reg. 1(2), Sch. 3 para. 82(3); 2020 c. 1, Sch. 5 para. 1(1)

Marginal Citations

M4 Section 1(3) was substituted by the Financial Services (Banking Reform) Act 2013, Schedule 2, paragraphs 1 and 12(1) and (3); and was amended by S.I. 2014/3329.