PART 9Minimum requirement for own funds and eligible liabilities

CHAPTER 1Determination of minimum requirement for an institution

Interpretation of Chapter 1121

1

In this Chapter—

  • F4“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 F1the capital requirements regulation and CRR rules.

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.

Duties of the Bank in relation to minimum requirement122

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 F20...; 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.

F222

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Determination of minimum requirement123

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

F42An eligible liability must be excluded from the amount of the relevant institution's F19own 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 F5following 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; F12...

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;F55and

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.

F78

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.

Review of minimum requirement124

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 2Determination of minimum consolidated requirement where the PRA or FCA is the consolidating supervisor

Application and interpretation of Chapter 2125

1

This Chapter applies where the PRA or FCA is the consolidating supervisor in relation to a relevant group.

2

In this Chapter—

  • F48...

  • “group entity” includes an undertaking which is—

    1. a

      a parent undertaking of the F59UK parent undertaking; and

    2. b

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

      1. i

        is an institution; and

      2. ii

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

  • “group institution” means—

    1. a

      the F9UK parent undertaking, if it is a relevant institution;

    2. b

      a group subsidiary which is a relevant institution;

    3. c

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

      1. i

        required under article 139 F60... to maintain a minimum requirement for own funds and eligible liabilities; F60...

      2. ii

        F13...

    4. 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 F51the UK;

  • “minimum consolidated requirement” means the requirement for a minimum level of own funds and eligible liabilities of the group institutions F36...;

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

  • “netting arrangement”—

    1. 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);

    2. b

      F43...

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).

Determination of minimum consolidated requirement126

1

This article applies for the purpose of determining the minimum consolidated requirement F21for each resolution group.

2

F31... The Bank must determine the minimum consolidated requirement, and is solely responsible for the determination.

F473

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

F26An eligible liability must be excluded from the amount of the group institution's F39own 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 F46following 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; F53...

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; F24 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.

Joint determinationF3127

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

References to EBA: determination of minimum consolidated requirementF6128

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Review of minimum consolidated requirement129

1

The Bank must review the minimum consolidated requirement F41for each resolution group when, in accordance with Chapter 4 of Part 5, it reviews the group resolution plan.

2

F33Article 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.

F16CHAPTER 3Determination of minimum consolidated requirement where neither the PRA nor the FCA is the consolidating supervisor

Annotations:
Amendments (Textual)

Application and interpretation of Chapter 3F16130

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Joint determination of minimum consolidated requirementF16131

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Review of minimum consolidated requirementF16132

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

Application and interpretation of Chapter 4133

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

  • F25“group institution” means an institution, other than a mortgage credit institution within the meaning given in Chapter 1, that—

    1. a

      is authorised by the PRA or FCA and

    2. 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;

  • F61...

  • F61...

Duties of the Bank in relation to minimum requirement134

1

The Bank must exercise the powers conferred by section 3A of the Banking Act 2009—

a

to ensure that a F14group 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.

F372

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F373

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Determination of minimum requirement135

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

F23An eligible liability must be excluded from the amount of the institution's F17own 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 F28article 126(8)(a); and

b

must take account of the minimum consolidated requirement.

7

F35... 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.

Joint determination of minimum requirementsF15136

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

References to EBA: determination of minimum requirementF34137

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Review of minimum requirements138

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 F56and 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.

Minimum requirement for other group entities set up in the United Kingdom139

1

The Bank may decide, after consulting the regulator, that a group entity, other than a F8group institution, set up in the United Kingdom should be required to maintain a minimum requirement for own funds and eligible liabilities F57....

2

Where the Bank makes a such decision, articles 134 F52, 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 F50... 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.

F40CHAPTER 5Determination of minimum requirements for group institutions where neither the PRA nor the FCA is the consolidating supervisor

Annotations:
Amendments (Textual)

Application and interpretation of Chapter 5F40140

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Duties of the Bank in relation to minimum requirementF40141

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Determination of minimum requirementF40142

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Joint determination of minimum requirementsF40143

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

References to EBA: determination of minimum requirementF40144

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Review of minimum requirementsF40145

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Minimum requirement for other group entities set up in the United KingdomF40146

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

Waiver of application of Chapter 4 F45...147

1

This article applies in relation to a relevant group.

2

The Bank may waive the application of Chapter 4 F10... in relation to F27a UK parent institution where it—

a

complies with the minimum consolidated requirement determined in accordance with Chapter 2 F30...; 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 F32... in relation to a F29group 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 F58the capital requirements regulation and CRR rules;

c

the highest level UK institution in the relevant group, if that is not the F54UK parent institution, complies on a sub-consolidated basis with the minimum consolidated requirement determined in accordance with Chapter 2 F44...;

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.

Meeting minimum requirement through contractual bail-in instruments etc148

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 F38... for an undertaking set up in the United Kingdom; or

c

a minimum consolidated requirement is determined in accordance with Chapter 2 F2... 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.

F494

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