142.119-125

House of Commons

Session 2013 - 14
Internet Publications
Other Bills before Parliament

Lords Amendments to the Financial Services (Banking Reform) Bill

119

“81BA
Bail-in option

(1)
The Bank of England may exercise a stabilisation power in

respect of a banking group company in accordance with section

12A(2) if the following conditions are met.

(2)
Condition 1 is that the PRA is satisfied that the general conditions

for the exercise of a stabilisation power set out in section 7 are

met in respect of a bank in the same group.

(3)
Condition 2 is that the Bank of England is satisfied that the

exercise of the power in respect of the banking group company is

necessary, having regard to the public interest in—

(a)
the stability of the financial systems of the United

Kingdom,

(b)
the maintenance of public confidence in the stability of

those systems,

(c)
the protection of depositors, or

(d)
the protection of any client assets that may be affected.

(4)
Condition 3 is that the banking group company is an

undertaking incorporated in, or formed under the law of any

part of, the United Kingdom.

(5)
Before determining whether Condition 2 is met, and if so how to

react, the Bank of England must consult—

(a)
the Treasury,

(b)
the PRA, and

(c)
the FCA.

(6)
In exercising a stabilisation power in reliance on this section the

Bank of England must have regard to the need to minimise the

effect of the exercise of the power on other undertakings in the

same group.”

      (2)
After section 81C insert—

“81CA
Section 81BA: supplemental

(1)
This section applies where the Bank of England has power under

section 81BA to exercise a stabilisation power in respect of a

banking group company.

(2)
The provisions relating to the stabilisation powers and the bank

administration procedure contained in this Act (except sections 7

and 8A) and any other enactment apply (with any necessary

modifications) as if the banking group company were a bank.

(3)
Where the banking group company mentioned in subsection (1)

is a parent undertaking of the bank mentioned in section 81BA(2)

(“the bank”)—

(a)
the provisions in this Act relating to resolution

instruments are to be read in accordance with the general

rule in subsection (4), but

(b)
that is subject to the modifications in subsection (5);


and provisions in this Act and any other enactment are to be read

with any modifications that may be necessary as a result of

paragraphs (a) and (b).

120

(4)
The general rule is that the provisions in this Act relating to

resolution instruments (including supplemental resolution

instruments) are to be read (so far as the context permits)—

(a)
as applying in relation to the bank as they apply in

relation to the parent undertaking, and

(b)
so, in particular, as allowing any provision that may be

made in a resolution instrument in relation to the parent

undertaking to be made (also or instead) in relation to the

bank.

(5)
Where the banking group company mentioned in subsection (1)

is a parent undertaking of the bank mentioned in section 81BA(2)

(“the bank”)—

(a)
section 41A (transfer of property subsequent to resolution

instrument) applies as if the reference in subsection (2) to

the bank were to the parent undertaking, the bank and

any other bank which is or was in the same group;

(b)
section 48V (onward transfer)—

(i)
applies as if the references in subsection (3) to “the

bank” included the bank, the parent undertaking

and any other bank which is or was in the same

group, and with the omission of subsection (4) of

that section, and

(ii)
is to be read as permitting the transfer of securities

only if they are held by (or for the benefit of) the

parent undertaking or a subsidiary company of

the parent undertaking;

(c)
section 48W (reverse transfer) applies as if the references

in subsections (2) and (3) to “the bank” included the bank,

the parent undertaking and any other bank which is or

was in the same group.

(6)
Where section 48B (special bail-in provision) applies in

accordance with subsection (4) (so that section 48B applies in

relation to the bank mentioned in section 81BA(2) as it applies in

relation to the parent undertaking mentioned in subsection (3)),

the provision that may be made in accordance with section

48B(1)(b) (see also rule 3(a) and (b) of section 48B(5)) includes

provision replacing a liability (of any form) of that bank with a

security (of any form or class) of the parent undertaking.

(7)
Where the banking group company mentioned in subsection (1)

is a parent undertaking of the bank mentioned in section

81BA(2)—

(a)
section 214B of the Financial Services and Markets Act

2000 (contribution to costs of special resolution regime)

applies, and

(b)
the reference in subsection (1)(b) of that section to the

bank, and later references in that section, are treated as

including references to any other bank which is a

subsidiary undertaking of the parent undertaking (but

not the parent undertaking itself).”

      (3)
In section 81D (interpretation: “banking group company” etc)—

(a)
in subsection (6), for “, 81C” substitute “to 81CA”;

121

(b)
in subsection (7) for “section 81B” substitute “sections 81B to

81CA”.

Banks regulated by the Financial Conduct Authority

8
In section 83A (modifications of Part 1 as it applies to banks not

regulated by the Prudential Regulation Authority), in the table in

subsection (2) insert the following entries at the appropriate places—

“Section 8A
Subsection (3)(a) does not

apply unless the bank has as a

member of its immediate group

a PRA-authorised person.”

“Section 41A
Subsection (4)(a) does not

apply unless the bank has as a

member of its immediate group

a PRA-authorised person.”

“Section 44A
Subsection (6)(a) does not

apply unless the bank has as a

member of its immediate group

a PRA-authorised person.”

“Section 48H
Subsection (5)(a) does not

apply unless the bank has as a

member of its immediate group

a PRA-authorised person.

Section 48U
Subsection (4)(a) does not

apply unless the bank has as a

member of its immediate group

a PRA-authorised person.

Section 48V
Subsection (6)(a) does not

apply unless the bank has as a

member of its immediate group

a PRA-authorised person.

Section 48W
Subsection (9)(a) does not

apply unless the bank has as a

member of its immediate group

a PRA-authorised person.”

“Section 81BA
Subsection (5)(b) does not

apply unless the bank has as a

member of its immediate group

a PRA-authorised person.”

122

Recognised central counterparties

9
In section 89B (application of Part 1 of the Act to recognised central

counterparties)—

(a)
in subsection (1), before paragraph (a) insert—

“(za)
subsection (1A),”;

(b)
after subsection (1) insert—

“(1A)
The provisions relating to the third stabilisation option

(bail-in) are to be disregarded in the application of this

Part to recognised central counterparties.”;

(c)
in subsection (2), in the substituted section 13(1), for “third”

substitute “fourth”.

Insolvency proceedings

10
In section 120 (notice to Prudential Regulation Authority of preliminary

steps to certain insolvency proceedings)—

(a)
in subsection (7)(b)(ii), after “Part 1” insert “(and Condition 5 has

been met, if applicable)”;

(b)
after subsection (8) insert—

“(8A)
Condition 5—

(a)
applies only if a resolution instrument has been

made under section 12A with respect to the bank

in the 3 months ending with the date on which the

PRA receives the notification under Condition 1,

and

(b)
is that the Bank of England has informed the

person who gave the notice that it consents to the

insolvency procedure to which the notice relates

going ahead.”;

(c)
in subsection (10), omit the “and” at the end of paragraph (b), and

after paragraph (c) insert “, and

(d)
if Condition 5 applies, the Bank of England must,

within the period in Condition 3(a), inform the

person who gave the notice whether or not it

consents to the insolvency procedure to which the

notice relates going ahead.”;

(d)
after subsection (10) insert—

“(11)
References in this section to the insolvency procedure to

which the notice relates are to the procedure for the

determination, resolution or appointment in question

(see subsections (1) to (4)).”

State aid

11
After section 256 insert—

“State aid

256A
State aid

(1)
This section applies where—

123

(a)
the Treasury are of the opinion that anything done, or

proposed to be done, in connection with the exercise in

relation to an institution of one or more of the

stabilisation powers may constitute the granting of aid to

which any of the provisions of Article 107 or 108 of the

Treaty on the Functioning of the European Union applies

(“State aid”), and

(b)
section 145A (power to direct bank administrator) does

not apply.

(2)
The Treasury may, in writing, direct any bail-in administrator, or

any director of the institution, to take specified action to enable

the United Kingdom to pursue any of the purposes specified in

subsection (3) of section 145A (read with subsection (9) of that

section).

(3)
Before giving a direction under this section the Treasury must

consult the person to whom the direction is to be given.

(4)
The person must comply with the direction within the period of

time specified in the direction, or, if no period of time is specified,

as soon as is reasonably practicable.

(5)
A direction under this section is enforceable on an application

made by the Treasury, by injunction or, in Scotland, by an order

for specific performance under section 45 of the Court of Session

Act 1988.

(6)
A direction under this section may specify circumstances in

which the person given the direction is immune from liability in

damages.

(7)
Immunity by virtue of subsection (6) does not extend to action—

(a)
in bad faith, or

(b)
in contravention of section 6(1) of the Human Rights Act

1998.

(8)
Where a direction under this section is given to a director of the

institution, the director is not to be regarded as failing to comply

with any duty owed to any person (for example, a shareholder,

creditor or employee of the institution) by virtue of any action in

compliance with the direction.”

Other amendments of the Act

12  (1)
Section 1 (overview) is amended as follows.

      (2)
In subsection (2)(a), for “three” substitute “four”.

      (3)
For subsection (3) substitute—

“(3)
The four “stabilisation options” are—

(a)
transfer to a private sector purchaser (section 11),

(b)
transfer to a bridge bank (section 12),

(c)
the bail-in option (section 12A), and

(d)
transfer to temporary public ownership (section 13).”

      (4)
In subsection (4)—

124

(a)
for “three” substitute “four”;

(b)
before paragraph (a) insert—

“(za)
the resolution instrument powers (sections 12A(2)

and 48U to 48W),”;

(c)
in paragraph (b), after “33” insert “, 41A”.

13
In section 13 (temporary public ownership), in subsection (1), for “third”

substitute “fourth”.

14
In section 17 (share transfers: effect)—

(a)
in subsection (1), after “order” insert, “or by a resolution

instrument”;

(b)
in subsection (5), after “order” insert “or a resolution

instrument”;

(c)
in subsection (6), after “order” insert “or a resolution

instrument”.

15
In section 18 (share transfers: continuity), after subsection (5) insert—

“(6)
This section applies to a resolution instrument as it applies to a

share transfer instrument; and in relation to a resolution

instrument references in this section to a “transfer” are to a

transfer of securities (whether made by that or another resolution

instrument) and “transferor” and “transferee” are to be read

accordingly.”

16
In section 44 (reverse property transfer)—

(a)
in subsection (2), after “more” insert “bridge bank”;

(b)
in subsection (3), after “more” insert “bridge bank”;

(c)
in subsection (4), for “A reverse” substitute “A bridge bank

reverse”;

(d)
in subsection (4A)—

(i)
after “make a” insert “bridge bank”, and

(ii)
in paragraph (b), for “the reverse” substitute “the bridge

bank reverse”;

(e)
in subsection (5), for “a reverse” substitute “a bridge bank

reverse”;

(f)
in subsection (6), for “a reverse” substitute “a bridge bank

reverse”;

(g)
in subsection (7), for “a reverse” substitute “a bridge bank

reverse”;

(h)
in the heading, for “Reverse” substitute “Bridge bank: reverse”.

17
In section 63 (general continuity obligation: property transfers), in

subsection (1)(a), for “or 12(2)” substitute “, 12(2) or 41A(2)”.

18
In section 66 (general continuity obligation: share transfers)—

(a)
in subsection (1)(a), after “13(2)” insert “, or which falls within

subsection (1A)”;

(b)
in subsection (1)(d)(i), after “11(2)(a)” insert “, or in a case falling

within subsection (1A)”;

(c)
after subsection (1) insert—

“(1A)
A bank falls within this subsection if a resolution

instrument (or supplemental resolution instrument) has

changed the ownership of the bank (wholly or partly) by

125

providing for the transfer, cancellation or conversion

from one form or class to another of securities issued by

the bank (and the reference in subsection (1)(b) to “the

transfer” includes such a cancellation or conversion).”

19
In section 67 (special continuity obligation: share transfers), in

subsection (4)(c), after “order” insert “or resolution instrument”.

20
In section 68 (continuity obligations: onward share transfers), in

subsection (1)(a), after “transferred by” insert “a resolution instrument

under section 12A(2) or supplemental resolution instrument under

section 48U(2) or a”.

21
In section 71 (pensions), in subsection (1)—

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

(b)
after paragraph (c) insert “, and

(d)
resolution instruments.”

22
In section 72 (enforcement), in subsection (1)—

(a)
omit the “or” at the end of paragraph (b);

(b)
after paragraph (c) insert “, or

(d)
a resolution instrument.”

23
In section 73 (disputes), in subsection (1)—

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

(b)
after paragraph (c) insert “, and

(d)
resolution instruments.”

24
In section 74 (tax), in subsection (6), for “or 45” substitute “, 45, 48U or

48V”.

25
After section 80 insert—

“80A
Transfer for bail-in purposes: report

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

more resolution instruments under section 12A(2) in respect of a

bank.

(2)
The Bank of England must, on request by the Treasury, report to

the Chancellor of the Exchequer about—

(a)
the exercise of the power to make a resolution instrument

under section 12A(2),

(b)
the activities of the bank, and

(c)
any other matters in relation to the bank that the Treasury

may specify.

(3)
In relation to the matters in subsection (2)(a) and (b), the report

must comply with any requirements that the Treasury may

specify.

(4)
The Chancellor of the Exchequer must lay a copy of each report

under subsection (2) before Parliament.”

26
In section 81A (accounting information to be included in reports under

sections 80 and 81)—

(a)
in subsection (1), for “or 81” substitute “, 80A(2)(b) or 81”;

(b)
in the heading, for “and 81” substitute “, 80A(2)(b) and 81”.