142.114-118

House of Commons

Session 2013 - 14
Internet Publications
Other Bills before Parliament

Lords Amendments to the Financial Services (Banking Reform) Bill

114

“41A
Transfer of property subsequent to resolution instrument

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

resolution instrument.

(2)
The Bank of England may make one or more property transfer

instruments in respect of property, rights or liabilities of the

bank.

(3)
Sections 7 and 8A do not apply to a property transfer instrument

under subsection (2).

(4)
Before making a property transfer instrument under subsection

(2) the Bank of England must consult—

(a)
the PRA,

(b)
the FCA, and

(c)
the Treasury.”

      (2)
In section 42 (supplemental property transfer instruments)—

(a)
in subsection (1) for “12(2)” substitute “12(2) or 41A(2)”;

(b)
in subsection (4) for “and 8” substitute “, 8 and 8A”;

(c)
in subsection (6) for “or 12(2)” substitute “, 12(2) or 41A(2)”.

      (3)
After section 44 insert—

“44A
Bail in: reverse property transfer

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

property transfer instrument in accordance with section 41A(2)

(“the original instrument”).

(2)
The Bank of England may make one or more bail-in reverse

property transfer instruments in respect of property, rights or

liabilities of the transferee under the original instrument.

(3)
A bail-in reverse property transfer instrument is a property

transfer instrument which—

(a)
provides for a transfer to the transferor under the original

instrument;

(b)
makes other provision for the purposes of, or in

connection with, the transfer of property, rights or

liabilities which are, or could be or could have been,

transferred under paragraph (a) (whether the transfer has

been or is to be effected by that instrument or otherwise).

(4)
The Bank of England may make a bail-in reverse property

transfer instrument only with the written consent of the

transferee under the original instrument.

(5)
Sections 7 and 8A do not apply to a bail-in reverse property

transfer instrument (but it is to be treated in the same way as any

other property transfer instrument for all other purposes,

including for the purposes of the application of a power under

this Part).

(6)
Before making a bail-in reverse property transfer instrument the

Bank of England must consult—

(a)
the PRA,

(b)
the FCA, and

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(c)
the Treasury.

(7)
Section 42 (supplemental instruments) applies where the Bank of

England has made a bail-in reverse property transfer instrument.

44B
Property transfer instruments: special bail-in provision

(1)
A property transfer instrument under section 12(2) or 41A(2), or

an associated supplemental property transfer instrument, may

make special bail-in provision with respect to the bank (see

section 48B).

(2)
The reference in subsection (1) to an “associated” supplemental

property transfer instrument is to a supplemental property

transfer instrument in relation to which the original instrument

(as defined in section 42(1)) is a property transfer instrument

under section 12(2) or 41A(2).

(3)
In the case of a property transfer instrument under section 12(2),

or a supplemental property transfer instrument in relation to

which the original instrument is a property transfer instrument

under section 12(2), the power under subsection (1) to make the

provision described in section 48B(1)(b) (see also rule 3(a) and (b)

of section 48B(5)) includes power to make provision replacing a

liability (of any form) of the bank mentioned in subsection (1)

with a security (of any form or class) of the bridge bank

mentioned in section 12(1).

(4)
Where securities of the bridge bank (“B”) are, as a result of

subsection (3), held by a person other than the Bank of England,

that does not prevent B from being regarded for the purposes of

this Part (see particularly section 12(1)) as being wholly owned

by the Bank of England, as long as the Bank of England continues

to hold all the ordinary shares issued by B.

44C
Report on special bail-in provision

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

transfer instrument containing provision made in reliance on

section 44B.

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

Exchequer stating the reasons why that provision was 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.

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

making of the property transfer instrument to which it relates.

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

under subsection (2) before Parliament.”

      (4)
In section 48A (creation of liabilities), in subsection (1), after “44(4)(c)”

insert “, 44A(3)(b)”.

Compensation

6    (1)
In section 49 (orders)—

(a)
in subsection (1), for “three” substitute “four” and for “and

property transfer instruments” substitute “, property transfer

instruments and orders and resolution instruments”;

(b)
after subsection (2) insert—

“(2A)
A “bail-in compensation order” is an order establishing a

scheme for determining, in accordance with section 52A,

whether any transferors or others should be paid

compensation.”

      (2)
In section 52 (transfer to bridge bank), in subsection (3)(b), for “specified

classes of creditor,” substitute “persons of a specified description,”.

      (3)
After section 52 insert—

“52A
Bail-in option

(1)
Subsection (2) applies if the Bank of England makes—

(a)
a resolution instrument under section 12A(2), or

(b)
a property transfer instrument under section 41A(2).

(2)
The Treasury must make a bail-in compensation order (see

section 49(2A)).

(3)
A bail-in compensation order may include provision for—

(a)
an independent valuer (in which case sections 54 to 56 are

to apply);

(b)
valuation principles (in which case section 57(2) to (5) is

to apply).”

      (4)
In section 53 (onward and reverse transfers), in subsection (1)—

(a)
before paragraph (za) insert—

“(zza)
the Bank of England makes a supplemental share

transfer instrument under section 26,”;

(b)
after paragraph (za) insert—

“(zb)
the Treasury makes a supplemental share transfer

order under section 27,”;

(c)
after paragraph (d) insert—

“(dza)
the Bank of England makes a supplemental

property transfer instrument under section 42,”;

(d)
after paragraph (f) insert—

“(fa)
the Bank of England makes a reverse property

transfer instrument under section 44A(2),”;

(e)
omit the “or” after paragraph (g);

(f)
after paragraph (h) insert—

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“(i)
the Bank of England makes a supplemental

resolution instrument under section 48U,

(j)
the Bank of England makes an onward transfer

resolution instrument under section 48V(2), or

(k)
the Bank of England makes a reverse transfer

resolution instrument under section 48W(2) or

(3).”;

(g)
in the heading, after “transfers” insert “etc”.

      (5)
In section 54 (independent valuer)—

(a)
in subsection (1), after “compensation scheme order” insert “or

bail-in compensation order”;

(b)
in subsection (4)(b), after “order” insert “or bail-in compensation

order”.

      (6)
In section 56 (independent valuer: money), in subsection (2)(b) for “or

third party compensation order” substitute “, third party compensation

order or bail-in compensation order”.

      (7)
In section 57 (valuation principles), in subsection (1), after “order” insert

“or bail-in compensation order”.

      (8)
After section 60 insert—

“60A
Further mandatory provision: bail-in provision

(1)
The Treasury may make regulations about compensation

arrangements in the case of—

(a)
resolution instruments under section 12A(2) and

supplemental resolution instruments under section

48U(2), and

(b)
instruments (made under any provision) that include

special bail-in provision.

(2)
Regulations may—

(a)
require a resolution fund order, a compensation scheme

order, a third party compensation order or a bail-in

compensation order to include provision of a specified

kind or to specified effect;

(b)
make provision that is to be treated as forming part of any

such order (whether (i) generally, (ii) only if applied, (iii)

unless disapplied, or (iv) subject to express modification).

(3)
Regulations may provide for whether compensation is to be

paid, and if so what amount is to be paid, to be determined by

reference to any factors or combination of factors; in particular,

the regulations may provide for entitlement—

(a)
to depend in part upon the amounts which are or may be

payable under a resolution fund order;

(b)
to be contingent upon the occurrence or non-occurrence

of specified events;

(c)
to be determined wholly or partly by an independent

valuer (within the meaning of sections 54 to 56)

appointed in accordance with a compensation scheme

order or bail-in compensation order.

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(4)
Regulations may make provision about payment including, in

particular, provision for payments—

(a)
on account subject to terms and conditions;

(b)
by instalment.

(5)
Regulations—

(a)
are 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.

60B
Principle of no less favourable treatment

(1)
In making regulations under section 60A the Treasury must, in

particular, have regard to the desirability of ensuring that pre-

resolution shareholders and creditors of a bank do not receive

less favourable treatment than they would have received had the

bank entered insolvency immediately before the coming into

effect of the initial instrument.

(2)
References in this section to the initial instrument are—

(a)
in relation to compensation arrangements in the case of

property transfer instruments under section 12(2), to the

first instrument to be made under that provision with

respect to the bank;

(b)
in relation to compensation arrangements in other cases,

to the first resolution instrument to be made under

section 12A with respect to the bank.

(3)
The “pre-resolution shareholders and creditors” of a bank are the

persons who held securities issued by the bank, or were creditors

of the bank, immediately before the coming into effect of the

initial instrument.

(4)
References in this section to insolvency include a reference to (i)

liquidation, (ii) bank insolvency, (iii) administration, (iv) bank

administration, (v) receivership, (vi) composition with creditors,

and (vii) a scheme of arrangement.”

      (9)
In section 61(1) (sources of compensation),—

(a)
omit the “and” at the end of paragraph (c);

(b)
after paragraph (c) insert—

“(ca)
bail-in compensation orders,”;

(c)
after paragraph (d) insert, “, and

(e)
regulations under section 60A.”

    (10)
In section 62(1) (procedure), omit the “and” at the end of paragraph (b),

and after that paragraph insert—

“(ba)
bail-in compensation orders, and”.

Groups

7    (1)
After section 81B insert—