Financial Services (Banking Reform) Bill

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Session 2013 - 14
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Financial Services (Banking Reform) Bill

Financial Services (Banking Reform) Bill
Schedule 2 — Bail-in stabilisation option
Part 1 — Amendments of Banking Act 2009
120

Groups
7     (1)
After section 81B insert—
“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
5
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
10
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,
15
(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.
20
(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.
25
(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
30
(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
35
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”)—
40
(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);

Financial Services (Banking Reform) Bill
Schedule 2 — Bail-in stabilisation option
Part 1 — Amendments of Banking Act 2009
121


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).
(4)
The general rule is that the provisions in this Act relating to
resolution instruments (including supplemental resolution
5
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
10
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”)—
15
(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)—
20
(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
25
(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
30
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
35
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(3)) includes provision replacing a liability (of any
form) of that bank with a security (of any form or class) of the parent
40
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,
45
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
50
undertaking itself).”

Financial Services (Banking Reform) Bill
Schedule 2 — Bail-in stabilisation option
Part 1 — Amendments of Banking Act 2009
122

      (3)
In section 81D (interpretation: “banking group company” etc)—
(a)
in subsection (6), for “, 81C” substitute “to 81CA”;
(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
5
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

10

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.”

15

“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

20

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

25

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

30

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.”

35

Financial Services (Banking Reform) Bill
Schedule 2 — Bail-in stabilisation option
Part 1 — Amendments of Banking Act 2009
123

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

apply unless the bank has as a

member of its immediate group

a PRA-authorised person.”

Recognised central counterparties
5
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—
10
“(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”.
15
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)”;
20
(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
25
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
30
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
35
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
40
subsections (1) to (4)).”

Financial Services (Banking Reform) Bill
Schedule 2 — Bail-in stabilisation option
Part 1 — Amendments of Banking Act 2009
124

State aid
11
After section 256 insert—
“State aid
256A
State aid
(1)
This section applies where—
5
(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
10
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
15
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.
20
(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
25
performance under section 45 of the Court of Session Act 1988.”
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—
30
“(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).”
35
      (4)
In subsection (4)—
(a)
for “three” substitute “four”;
(b)
before paragraph (a) insert—
“(za)
the resolution instrument powers (sections 12A(2)
and 48U to 48W),”;
40
(c)
in paragraph (b), after “33” insert “, 41A”.

Financial Services (Banking Reform) Bill
Schedule 2 — Bail-in stabilisation option
Part 1 — Amendments of Banking Act 2009
125

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”;
5
(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 that provides for a
transfer of securities as it applies to a share transfer instrument (and
references to transfers, transferors and transferees are to be read
10
accordingly).”
16
In section 21 (ancillary instruments: production, registration etc), after
subsection (5) insert—
“(6)
This section applies to a resolution instrument that provides for a
transfer of securities as it applies to a share transfer instrument.”
15
17
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)—
20
(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”;
25
(g)
in subsection (7), for “a reverse” substitute “a bridge bank reverse”;
(h)
in the heading, for “Reverse” substitute “Bridge bank: reverse”.
18
In section 63 (general continuity obligation: property transfers), in
subsection (1)(a), for “or 12(2)” substitute “, 12(2) or 41A(2)”.
19
In section 66 (general continuity obligation: share transfers)—
30
(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—
35
“(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 providing for the
transfer, cancellation or conversion from one form or class to
another of securities issued by the bank (and the reference in
40
subsection (1)(b) to “the transfer” includes such a cancellation
or conversion).”
20
In section 67 (special continuity obligation: share transfers), in subsection
(4)(c), after “order” insert “or resolution instrument”.

Financial Services (Banking Reform) Bill
Schedule 2 — Bail-in stabilisation option
Part 1 — Amendments of Banking Act 2009
126

21
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”.
22
In section 71 (pensions), in subsection (1)—
(a)
omit the “and” at the end of paragraph (b);
5
(b)
after paragraph (c) insert “, and
(d)
resolution instruments.”
23
In section 72 (enforcement), in subsection (1)—
(a)
omit the “or” at the end of paragraph (b);
(b)
after paragraph (c) insert “, or
10
(d)
a resolution instrument.”
24
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.”
15
25
In section 74 (tax), in subsection (6), for “or 45” substitute “, 45, 48U or 48V”.
26
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.
20
(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
25
(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
30
under subsection (2) before Parliament.”
27
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”.
35
28
In section 85 (temporary public ownership), in subsection (1), for “third”
substitute “fourth”.
29
In section 136 (overview), in the Table in subsection (3), for “152” substitute
“152A”.
30
After section 152 insert—
40
“152A
Property transfer from transferred institution
(1)
This section applies where the Bank of England—