Financial Services and Markets Act 2023

Valid from 31/12/2023

Write-down power U.K.

34 (1) The seventh stabilisation option is for the Bank to make one or more write-down instruments.

(2) A write-down instrument is an instrument that makes any of the following provision (or any combination of the following)—

(a) provision cancelling an unsecured liability owed by the CCP;

(b) provision modifying or changing the form of an unsecured liability owed by the CCP;

(c) provision that a contract under which the CCP has an unsecured liability is to have effect as if a specified right had been exercised under it;

(d) provision under paragraph 35(1).

(3) The power under this paragraph may be exercised only for the purpose of recovering losses arising otherwise than as a result of a clearing member defaulting on the member’s obligations to the CCP.

(4) The power under sub-paragraph (2) may not be exercised so as to affect the following liabilities—

(a) liabilities to employees or workers, including liabilities owed to a pension scheme in respect of those persons;

(b) liabilities to commercial or trade creditors arising from the provision to the CCP of goods or services that are critical to the continuity of the CCP’s critical clearing services;

(c) HMRC debts which are preferential debts within the meaning of section 386 of the Insolvency Act 1986;

(d) liabilities to designated systems, operators of designated systems, or participants in such systems to the extent that the liabilities arise from their participation in the system;

(e) liabilities to interoperable CCPs;

(f) liabilities to central banks;

(g) liabilities to clearing members so far as these relate to initial margin requirements;

(h) liabilities to small enterprises.

(5) The reference to modifying a liability owed by the CCP includes a reference to modifying the terms (or the effect of the terms) of a contract under which the CCP has a liability.

(6) The reference to changing the form of a liability owed by the CCP includes, for example—

(a) converting an instrument under which a CCP owes a liability from one form or class to another,

(b) replacing such an instrument with another instrument of a different form or class,

(c) creating a new security (of any form or class) in connection with the modification of such an instrument, or

(d) converting those liabilities into securities issued by the CCP or a bridge central counterparty or UK parent of the CCP.

(7) The Treasury may by regulations amend sub-paragraph (4) by—

(a) adding to the list of liabilities;

(b) amending or omitting any liability listed.

(8) Regulations under this paragraph are subject to the affirmative procedure.

(9) In this paragraph—

• “designated system” has the meaning given by regulation 2 of the Financial Markets and Insolvency (Settlement Finality) Regulations 1999 (S.I. 1999/2979) as amended from time to time;

• “initial margin requirements” means margins provided by clearing members to a CCP to cover the CCP’s potential future exposure in the event of default by those members;

• “small enterprise” means an enterprise which employs fewer than 50 people and whose annual turnover or annual balance sheet total does not exceed £10 million.

Commencement Information

I1 Sch. 11 para. 34 not in force at Royal Assent, see s. 86(3)