The Banking Act 2009 (Restriction of Special Bail-in Provision, etc. ) Order 2014

Set-off and netting U.K.

4.—(1) An instrument to which this Order applies may not make special bail-in provision in respect of a protected liability (subject to paragraph (6)).

(2) In this article a “protected liability” is [F1 a bail-in liability] which is not within paragraph (3), and meets the following conditions—

(a) condition 1 is that the liability is owed by the relevant banking institution to a particular person (“the person”);

(b) condition 2 is that the liability is a liability which either the person or the relevant banking institution is entitled to set-off or net under particular set-off arrangements, netting arrangements or title transfer collateral arrangements into which the person has entered with the relevant banking institution (“the relevant arrangements”);

(c) condition 3 is that—

(i) where the liability relates to a derivative, financial contract or qualifying master agreement (see article 5), it has not been converted into a net debt, claim or obligation, whether in accordance with the relevant arrangements or through the making of special bail-in provision or otherwise;

(ii) where the liability relates to any other type of contract, it has neither been converted nor treated as if it had been converted into a net debt, claim or obligation, whether in accordance with the relevant arrangements or through the making of special bail-in provision or otherwise.

(3) The following liabilities are not protected liabilities—

(a) liabilities in relation to an unsecured debt instrument which is a transferable security issued by that banking institution, and for these purposes a “debt instrument” is any instrument falling within article 77 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 M1 ;

(b) liabilities in relation to a capital instrument issued by that banking institution;

(c) liabilities owed in relation to subordinated debt;

(d) unsecured liabilities in relation to any instrument or contract which—

(i) at the date on which it was issued or made, had a maturity period of 12 months or more, and

(ii) is not a derivative, financial contract or qualifying master agreement;

(e) unsecured liabilities owed to another member of the same group as the relevant banking institution which are not owed in relation to derivatives, financial contracts or qualifying master agreements;

(f) liabilities which relate to a claim for damages or an award of damages or a claim under an indemnity.

(4) For the purposes of paragraph (2)—

(a) it does not matter whether—

(i) the arrangements which permit the person or the banking institution to set-off or net the liability also permit the person or the banking institution to set-off or net rights and liabilities with another person,

(ii) the right of the person or the banking institution to set-off or net is exercisable only on the occurrence of a particular event;

(b) a liability is treated as if it is converted into a net debt, claim or obligation if the amount due in relation to the liability is reduced by reference to any sums which the debtor would be able to set off against the liability in the event that the debtor decided to exercise set-off or netting rights.

(5) For the purposes of paragraph (3), undertakings are in the same group if they are group undertakings in respect of each other, and “group undertaking” has the meaning given in section 1161(5) of the Companies Act 2006.

(6) Paragraph (1) does not prevent special bail-in provision from being made in order to convert, or in connection with converting, the protected liability into—

(a) the net debt, claim or obligation that would be due under the set-off arrangements, netting arrangements or title transfer collateral arrangements at the time the special bail-in provision providing for this is made, or

(b) an estimate of that net debt, claim or obligation.

Textual Amendments

F1 Words in art. 4(2) substituted (28.12.2020) by The Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020 (S.I. 2020/1350), regs. 1(2), 28(3)

Marginal Citations

M1 SI 2001/544. Article 77 was amended by SI 2010/86; 2011/133.