Part 6Banknotes: Scotland and Northern Ireland

Specific issues

I1217Backing assets

1

Banknote regulations must require authorised banks to have backing assets.

2

“Backing assets” means assets of a kind specified by banknote regulations; and the regulations may, in particular, specify—

a

banknotes issued by the Bank of England,

b

current coins of the United Kingdom, and

c

funds in a specified kind of account held with the Bank of England or with another specified institution or class of institution.

3

The regulations must—

a

require banknote rules to include provision for determining the value of backing assets to be held,

b

require backing assets in the form of banknotes to be held either—

i

by the Bank of England, or

ii

at one or more locations approved by the Bank of England, and

c

require backing assets held in the form of coins to be held at one or more locations approved by the Bank of England.

4

The regulations may make other provision about backing assets; including, in particular—

a

provision requiring a proportion of a bank's backing assets to consist of assets of a specified kind;

b

provision about the manner in which backing assets may or must be held;

c

provision about ownership of and interests in backing assets;

d

provision permitting backing assets to be held by an agent of an authorised bank.

5

Banknote regulations may make provision about the treatment of backing assets in relation to insolvency; in particular, the regulations may—

a

modify or disapply a provision or rule of law about insolvency;

b

protect backing assets from being treated in the same way as other assets of the bank;

c

provide for banknotes to be exchanged by bearers within a specified period;

d

allow the Treasury to extend the period for exchange;

e

provide for exchange to be funded from backing assets;

f

provide for the Bank of England to acquire or control a bank's backing assets for the purpose of administering arrangements for exchange.

6

In subsection (5) a reference to “insolvency” includes a reference to—

a

liquidation,

b

bank insolvency,

c

administration,

d

bank administration,

e

receivership,

f

a composition between a bank and its creditors,

g

a scheme of arrangement of a bank's affairs, and

h

a process under the law of a country or territory outside the United Kingdom which the Treasury identify, in banknote regulations, as serving a similar purpose to any of the processes listed in paragraphs (a) to (g).