142.101-106

House of Commons

Session 2013 - 14
Internet Publications
Other Bills before Parliament

Lords Amendments to the Financial Services (Banking Reform) Bill

101

(4)
A power to make special bail-in provision—

(a)
may be exercised only for the purpose of, or in connection

with, reducing, deferring or cancelling a liability of the

bank;

(b)
may not be exercised so as to affect any excluded liability.

(5)
The following rules apply to the interpretation of subsection (1).


1. The reference to cancelling a liability owed by the bank

includes a reference to cancelling a contract under which the

bank has a liability.


2. The reference to modifying a liability owed by the bank

includes a reference to modifying the terms (or the effect of the

terms) of a contract under which the bank has a liability.


3. The reference to changing the form of a liability owed by the

bank, includes, for example—

(a)
converting an instrument under which the bank owes a

liability from one form or class to another,

(b)
replacing such an instrument with another instrument of

a different form or class, or

(c)
creating a new security (of any form or class) in

connection with the modification of such an instrument.

(6)
Examples of special bail-in provision include—

(a)
provision that transactions or events of any specified kind

have or do not have (directly or indirectly) specified

consequences or are to be treated in a specified manner

for specified purposes;

(b)
provision discharging persons from further performance

of obligations under a contract and dealing with the

consequences of persons being so discharged.

(7)
The form and class of the instrument (“the resulting instrument”)

into which an instrument is converted, or with which it is

replaced, do not matter for the purposes of paragraphs (a) and (b)

of rule 3 in subsection (5); for instance, the resulting instrument

may (if it is a security) fall within Class 1 or any other Class in

section 14.

(8)
The following liabilities of the bank are “excluded liabilities”—

(a)
liabilities representing protected deposits;

(b)
any liability, so far as it is secured;

(c)
liabilities that the bank has by virtue of holding client

assets;

(d)
liabilities with an original maturity of less than 7 days

owed by the bank to a credit institution or investment

firm;

(e)
liabilities arising from participation in designated

settlement systems and owed to such systems or to

operators of, or participants in, such systems;

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(f)
liabilities owed to central counterparties recognised by

the European Securities and Markets Authority in

accordance with Article 25 of Regulation (EU) 648/2012

of the European Parliament and the Council;

(g)
liabilities owed to an employee or former employee in

relation to salary or other remuneration, except variable

remuneration;

(h)
liabilities owed to an employee or former employee in

relation to rights under a pension scheme, except rights to

discretionary benefits;

(i)
liabilities owed to creditors arising from the provision to

the bank of goods or services (other than financial

services) that are critical to the daily functioning of the

bank’s operations.

(9)
The following special rules apply in cases involving banking

group companies—

(a)
a liability mentioned in subsection (8)(d) is not an

excluded liability if the credit institution or investment

firm to which the liability is owed is a banking group

company in relation to the bank (see section 81D);

(b)
in subsection (8)(i) the reference to creditors does not

include companies which are banking group companies

in relation to the bank.

48C
Meaning of “protected deposit”

(1)
A deposit is “protected” so far as it is covered by the Financial

Services Compensation Scheme.

(2)
A deposit is “protected” so far as it is covered by a scheme

which—

(a)
operates outside the United Kingdom, and

(b)
is comparable to the Financial Services Compensation

Scheme.

(3)
If one or both of subsections (1) and (2) apply to a deposit, the

amount of the deposit “protected” is the highest amount which

results from either of those subsections.

(4)
In subsections (1) and (2) and section 48B(8)(a), “deposit” has the

meaning given by article 5(2) of the Financial Services and

Markets Act 2000 (Regulated Activities) Order 2001 (S.I. 2001/

544), but ignoring the exclusions in article 6.

48D
General interpretation of section 48B

(1)
In section 48B—

“client assets” means assets which the bank has undertaken

to hold on trust for, or on behalf of, a client;

“contract” includes any instrument;

“credit institution” means any credit institution as defined

in Article 4.1(1) of Regulation (EU) No 575/2013 of the

European Parliament and of the Council, other than an

entity mentioned in Article 2.5(2) to (23) of Directive

2013/36/EU of the European Parliament and of the

Council;

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“designated settlement system” means a system designated

in accordance with Directive 98/26/EC of the European

Parliament and of the Council (as amended by Directives

2009/44/EC and 2010/78/EU);

“employee” includes the holder of an office;

“investment firm” means an investment firm as defined in

Article 4.1(2) of Regulation (EU) No 575/2013 of the

European Parliament and of the Council that is subject to

the initial capital requirement specified in Article 28(2) of

Directive 2013/36/EU of the European Parliament and of

the Council;

“pension scheme” includes any arrangement for the

payment of pensions, allowances and gratuities;

“secured” means secured against property or rights, or

otherwise covered by collateral arrangements.

(2)
In subsection (1)—

“assets” has the same meaning as in section 232(4) (ignoring

for these purposes section 232(5A)(b));

“collateral arrangements” includes arrangements which are

title transfer collateral arrangements for the purposes of

section 48.

(3)
For the purposes of section 48B(8)(h), a benefit under a pension

scheme is discretionary so far as the employee’s right to the

benefit resulted from the exercise of a discretion.

48E
Report on special bail-in provision

(1)
This section applies where the Bank of England makes a

resolution instrument containing special bail-in provision (see

section 48B).

(2)
The Bank of England must report to the Chancellor of the

Exchequer stating the reasons why that provision has been made

in the case of the liabilities concerned.

(3)
If the provision departs from the insolvency treatment principles,

the report must state the reasons why it does so.

(4)
The insolvency treatment principles are that where an

instrument includes special bail-in provision—

(a)
the provision made by the instrument must be consistent

with treating all the liabilities of the bank in accordance

with the priority they would enjoy on a liquidation, and

(b)
any creditors who would have equal priority on a

liquidation are to bear losses on an equal footing with

each other.

(5)
A report must comply with any other requirements as to content

that may be specified by the Treasury.

(6)
A report must be made as soon as reasonably practicable after the

making of the resolution instrument to which it relates.

(7)
The Chancellor of the Exchequer must lay a copy of each report

under subsection (2) before Parliament.

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48F
Power to amend definition of “excluded liabilities”

(1)
The Treasury may by order amend section 48B(8) by—

(a)
adding to the list of excluded liabilities;

(b)
amending or omitting any paragraph of that subsection,

other than paragraphs (a) to (c).

(2)
The Treasury may by order amend section 48C or 48D.

(3)
The powers conferred by subsections (1) and (2) include power

to make consequential and transitional provision.

(4)
An order under this section—

(a)
is to be made by statutory instrument, and

(b)
may not be made unless a draft has been laid before and

approved by resolution of each House of Parliament.

(5)
The Treasury must consult before laying a draft order under this

section before Parliament.

48G
Priority between creditors

(1)
The Treasury may, for the purpose of ensuring that the treatment

of liabilities in any instrument that contains special bail-in

provision is aligned to an appropriate degree with the treatment

of liabilities on an insolvency, by order specify matters or

principles to which the Bank of England is to be required to have

regard in making any such instrument.

(2)
An order may, for example, specify the insolvency treatment

principles (as defined in section 48E(4)) or alternative principles.

(3)
An order may specify the meaning of “insolvency” for one or

more purposes of the order.

(4)
An order may amend sections 44C(4) and 48E(4).

(5)
An order—

(a)
is to be made by statutory instrument, and

(b)
may not be made unless a draft has been laid before and

approved by resolution of each House of Parliament.

48H
Business reorganisation plans

(1)
A resolution instrument may require a bail-in administrator, or

one or more directors of the bank, to—

(a)
draw up a business reorganisation plan with respect to

the bank, and

(b)
submit it to the Bank of England within the period

allowed by (or under) the instrument.

(2)
“Business reorganisation plan” means a plan that includes—

(a)
an assessment of the factors that caused Condition 1 in

section 7 to be met in the case of the bank,

(b)
a description of the measures to be adopted with a view

to restoring the viability of the bank, and

(c)
a timetable for the implementation of those measures.

105

(3)
Where a person has submitted a business reorganisation plan to

the Bank of England under subsection (1) (or has re-submitted a

plan under subsection (4)), the Bank of England—

(a)
must approve the plan if satisfied that the plan is

appropriately designed for meeting the objective

mentioned in subsection (2)(b);

(b)
must otherwise require the person to amend the plan in a

specified manner.

(4)
Where the Bank of England has required a person to amend a

business re-organisation plan, the person must re-submit the

amended plan within the period allowed by (or under) the

resolution instrument.

(5)
Before deciding what action to take under subsection (3) the Bank

of England must (for each submission or re-submission of a plan)

consult—

(a)
the PRA, and

(b)
the FCA.

(6)
A business reorganisation plan may include recommendations

by the person submitting the plan as to the exercise by the Bank

of England of any of its powers under this Part in relation to the

bank.

(7)
Where a resolution instrument contains provision under

subsection (1), the instrument may—

(a)
specify further matters (in addition to those mentioned in

subsection (2)) that must be dealt with in the business

reorganisation plan;

(b)
make provision about the timing of actions to be taken in

connection with the making and approval of the plan;

(c)
enable any provision that the Bank of England has power

under paragraph (a) or (b) to make in the instrument to be

made instead in an agreement between the Bank of

England and the person required to draw up the business

reorganisation plan.

(8)
For the purposes of subsection (2)(b) the viability of a bank is to

be assessed by reference to whether the bank satisfies, and (if so)

for how long it may be expected to continue to satisfy, the

threshold conditions (as defined in section 55B of the Financial

Services and Markets Act 2000).

48I
Bail-in administrator: further functions

(1)
A resolution instrument may—

(a)
authorise a bail-in administrator to manage the bank’s

business (or confer on a bail-in administrator any other

power with respect to the management of the bank’s

business);

(b)
authorise a bail-in administrator to exercise any other

powers of the bank;

(c)
confer on a bail-in administrator any other power the

Bank of England may consider appropriate;

106

(d)
provide that the exercise of any power conferred by the

instrument in accordance with this section is to be subject

to conditions specified in the instrument.

(2)
A resolution instrument may require a bail-in administrator to

make reports to the Bank of England—

(a)
on any matter specified in the instrument, and

(b)
at the times or intervals specified in the instrument.

(3)
If a resolution instrument specifies a matter in accordance with

subsection (2)(a), it may provide for further requirements as to

the contents of the report on that matter to be specified in an

agreement between the Bank of England and the bail-in

administrator.

(4)
A resolution instrument may—

(a)
require a bail-in administrator to consult specified

persons before exercising specified functions (and may

specify particular matters on which the specified person

must be consulted);

(b)
provide that a bail-in administrator is not to exercise

specified functions without the consent of a specified

person.

48J
Bail-in administrator: supplementary

(1)
A bail-in administrator may do anything necessary or desirable

for the purposes of or in connection with the performance of the

functions of the office.

(2)
A bail-in administrator is not a servant or agent of the Crown

(and, in particular, is not a civil servant).

(3)
Where a bail-in administrator is appointed under this Part, the

Bank of England—

(a)
must make provision in a resolution instrument for

resignation and replacement of the bail-in administrator;

(b)
may remove the bail-in administrator from office only (i)

on the ground of incapacity or misconduct, or (ii) on the

ground that there is no further need for a person to

perform the functions conferred on the bail-in

administrator.

48K
Bail-in administrator: money

(1)
A resolution instrument may provide for the payment of

remuneration and allowances to a bail-in administrator.

(2)
Provision made under subsection (1) may provide that the

amounts are—

(a)
to be paid by the Bank of England, or

(b)
to be determined by the Bank of England and paid by the

bank.

(3)
A bail-in administrator is not liable for damages in respect of

anything done in good faith for the purposes of or in connection

with the functions of the office (subject to section 8 of the Human

Rights Act 1998).