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(1)Where the principal amount of a relevant capital instrument [F2or a relevant internal liability] is reduced under section 6B—
(a)the reduction must be permanent, subject to any provision made by virtue of section 48Y(1)(a);
(b)no liability to the holder of the relevant capital instrument [F3or the relevant internal liability] remains under, or in connection with, so much of the amount of the instrument [F4or relevant internal liability] as constitutes the reduction, except for—
(i)any liability already accrued in a case where the principal amount of the instrument [F4or the relevant internal liability] is not reduced or converted (or both) to the full extent of its capacity, and
(ii)any liability for damages that may arise as a result of any challenge to the legality of the exercise of the power of reduction;
(c)no compensation is to be paid to any holder of the relevant capital instrument [F5or the relevant internal liability] other than in accordance with subsection (4).
(2)Nothing in subsection (1)(b) prevents the provision of Common Equity Tier 1 instruments to a holder of relevant capital instruments [F6or relevant internal liabilities] in accordance with subsection (4).
(3)In order to effect a conversion of relevant capital instruments [F7or relevant internal liabilities] under section 6B, the Bank of England may require the bank, or a UK parent undertaking, to issue Common Equity Tier 1 instruments to the holders of the relevant capital instruments [F7or relevant internal liabilities].
(4)The relevant capital instruments [F8or relevant internal liabilities] may only be so converted if—
(a)the Common Equity Tier 1 instruments are issued by the bank, or by a parent undertaking of the bank with the agreement of the resolution authority in respect of that parent undertaking,
(b)the Common Equity Tier 1 instruments are issued prior to the issue of any shares by the bank, or by a parent undertaking of the bank, for the purposes of provision of own funds by the State or a government entity,
(c)the Common Equity Tier 1 instruments are awarded and transferred without delay following the exercise of the conversion power, and
(d)the conversion rate that determines the number of Common Equity Tier 1 instruments that are provided in respect of each relevant capital instrument [F9or relevant internal liability] complies with—
(i)the principles set out in Article 50 of the recovery and resolution directive, and
(ii)any guidelines issued by the European Banking Authority under Article 50(4) of the resolution and recovery directive, other than any guidelines which the Bank of England has notified the Authority it does not intend to comply with.
(5)For the purposes of the provision of Common Equity Tier 1 instruments in accordance with subsections (2), (3) and (4), the Bank of England may require the bank or a UK parent undertaking of the bank to maintain at all times the necessary prior authorisation to issue the relevant number of Common Equity Tier 1 instruments.
(6)Before making a mandatory reduction instrument, the Bank must consult—
(a)the PRA,
(b)the FCA, and
(c)the Treasury.
(7)In this section—
“parent undertaking” has the meaning given by Article 4.1(15)(a) of the capital requirements regulation,
“resolution authority” has the meaning given by Article 2.1(18) of the recovery and resolution directive,
“UK parent undertaking” means a parent undertaking that is incorporated in, or formed under the law of, any part of the United Kingdom.]
Textual Amendments
F1Ss. 6A-6D and cross-heading inserted (1.1.2015) by The Bank Recovery and Resolution Order 2014 (S.I. 2014/3329), arts. 1(2), 10
F2Words in s. 6C(1) inserted (28.12.2020) by The Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020 (S.I. 2020/1350), regs. 1(2), 8(a)
F3Words in s. 6C(1)(b) inserted (28.12.2020) by The Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020 (S.I. 2020/1350), regs. 1(2), 8(b)
F4Words in s. 6C(1)(b) inserted (28.12.2020) by The Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020 (S.I. 2020/1350), regs. 1(2), 8(c)
F5Words in s. 6C(1)(c) inserted (28.12.2020) by The Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020 (S.I. 2020/1350), regs. 1(2), 8(b)
F6Words in s. 6C(2) inserted (28.12.2020) by The Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020 (S.I. 2020/1350), regs. 1(2), 8(d)
F7Words in s. 6C(3) inserted (28.12.2020) by The Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020 (S.I. 2020/1350), regs. 1(2), 8(e)
F8Words in s. 6C(4) inserted (28.12.2020) by The Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020 (S.I. 2020/1350), regs. 1(2), 8(f)
F9Words in s. 6C(4)(d) inserted (28.12.2020) by The Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020 (S.I. 2020/1350), regs. 1(2), 8(g)
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