(7) A thing is not done by virtue of a resolution instrument for the
purposes of subsection (5)(b) merely by virtue of being done under a
contract or other agreement rights or obligations under which have
been affected by the instrument.

48N 5Directors

(1) A resolution instrument may enable the Bank of England—

(a) to remove a director of a specified bank;

(b) to vary the service contract of a director of a specified bank;

(c) to terminate the service contract of a director of a specified
10bank;

(d) to appoint a director of a specified bank.

(2) Subsection (1) also applies to a director of any undertaking which is
a banking group company in respect of a specified bank.

(3) Appointments under subsection (1)(d) are to be on terms and
15conditions agreed with the Bank of England.

48O Directions in or under resolution instrument

(1) A resolution instrument may—

(a) require one or more directors of the bank to comply with any
general or specific directions that may be set out in the
20instrument;

(b) enable the Bank of England to give written directions
(whether general or specific) to one or more directors of the
bank.

(2) A director—

(a) 25is not to be regarded as failing to comply with any duty owed
to any person (for example, a shareholder, creditor or
employee of the bank) by virtue of any action or inaction in
compliance with a direction given under subsection (1)(a) or
(b);

(b) 30is to be immune from liability in damages in respect of action
or inaction in accordance with a direction.

(3) A director must comply with a direction within the period of time
specified in the direction, or if no period of time is specified, as soon
as reasonably practicable.

(4) 35A direction under subsection (1)(a) or (b) is enforceable on an
application made by the Bank of England, by injunction or, in
Scotland, by an order for specific performance under section 45 of the
Court of Session Act 1988.

48P Orders for safeguarding certain financial arrangements

(1) 40In this section “protected arrangements” means security interests,
title transfer collateral arrangements, set-off arrangements and
netting arrangements.

(2) In subsection (1)—

• “netting arrangements” means arrangements under which a
  45number of claims or obligations can be converted into a net
  claim or obligation, and includes, in particular, “close-out”

  Financial Services (Banking Reform) BillPage 121

  netting arrangements, under which actual or theoretical
  debts are calculated during the course of a contract for the
  purpose of enabling them to be set off against each other or to
  be converted into a net debt;

• 5“security interests” means arrangements under which one
  person acquires, by way of security, an actual or contingent
  interest in the property of another;

• “set-off arrangements” means arrangements under which two
  or more debts, claims or obligations can be set off against
  10each other;

• “title transfer collateral arrangements” means arrangements
  under which Person 1 transfers assets to Person 2 on terms
  providing for Person 2 to transfer assets if specified
  obligations are discharged.

(3) 15The Treasury may by order—

(a) restrict the exercise of any power within the scope of this
paragraph in cases that involve, or where the exercise of the
power might affect, protected arrangements;

(b) impose conditions on the exercise of any power within the
20scope of this paragraph in cases that involve, or where the
exercise of the power might affect, protected arrangements;

(c) require any instrument that makes special bail-in provision
to include specified provision, or provision to a specified
effect, in respect of or for purposes connected with protected
25arrangements;

(d) provide for an instrument to be void or voidable, or for other
consequences to arise, if or in so far as the instrument is made
or purported to be made in contravention of a provision of
the order (or of another order under this section);

(e) 30specify principles to which the Bank of England is to be
required to have regard in exercising specified powers—

(i) that involve protected arrangements, or

(ii) where the exercise of the powers might affect
protected arrangements.

(4) 35References to exercising a power within the scope of paragraph (a) or
(b) of subsection (3) are to making an instrument containing
provision made in reliance on section 12A(3)(a) or 44B (special bail-
in provision).

(5) An order may apply to protected arrangements generally or only to
40arrangements—

(a) of a specified kind, or

(b) made or applying in specified circumstances.

(6) An order may include provision for determining which
arrangements are to be, or not to be, treated as protected
45arrangements; in particular, an order may provide for arrangements
to be classified not according to their description by the parties but
according to one or more indications of how they are treated, or are
intended to be treated, in commercial practice.

(7) In this section “arrangements” includes arrangements which—

(a) are formed wholly or partly by one or more contracts or
trusts;

(b) arise under or are wholly or partly governed by the law of a
country or territory outside the United Kingdom;

(c) 5wholly or partly arise automatically as a matter of law;

(d) involve any number of parties;

(e) operate partly by reference to other arrangements between
parties.

(8) An order—

(a) 10is 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.

48Q Continuity

(1) A resolution instrument may provide for anything (including legal
15proceedings) that relates to anything affected by the instrument and
is in the process of being done immediately before the instrument
takes effect to be continued from the time the instrument takes effect.

(2) A resolution instrument may modify references (express or implied)
in an instrument or document.

(3) 20A resolution instrument may require or permit any person to
provide information and assistance to the Bank of England or
another person, for the purposes of or in connection with provision
made or to be made in that or another resolution instrument.

48R Execution and registration of instruments etc

(1) 25A resolution instrument (other than an instrument that provides for
securities to be transferred) may permit or require the execution,
issue or delivery of an instrument.

(2) A resolution instrument may provide for any provision in the
instrument to have effect irrespective of—

(a) 30whether an instrument has been produced, delivered,
transferred or otherwise dealt with;

(b) registration.

(3) A resolution instrument may provide for the effect of an instrument
executed, issued or delivered in accordance with the resolution
35instrument.

(4) A resolution instrument may—

(a) entitle a person to be registered in respect of a security;

(b) require a person to effect registration.

48S Resolution instruments: general matters

(1) 40Provision made in a resolution instrument takes effect despite any
restriction arising by virtue of contract or legislation or in any other
way.

(2) A resolution instrument may include incidental, consequential or
transitional provision.

(3) In relying on subsection (2) a resolution instrument—

(a) may make provision generally or only for specified purposes,
cases or circumstances, and

(b) may make different provision for different purposes, cases or
5circumstances.

48T Procedure

(1) As soon as is reasonably practicable after making a resolution
instrument in respect of a bank the Bank of England must send a
copy to—

(a) 10the bank,

(b) the Treasury,

(c) the PRA,

(d) the FCA, and

(e) any other person specified in the code of practice under
15section 5.

(2) As soon as is reasonably practicable after making a resolution
instrument the Bank of England must publish a copy—

(a) on the Bank’s internet website, and

(b) in two newspapers, chosen by the Bank of England to
20maximise the likelihood of the instrument coming to the
attention of persons likely to be affected.

(3) Where the Treasury receive a copy of a resolution instrument under
subsection (1) they must lay a copy before Parliament.

48U Supplemental resolution instruments

(1) 25This section applies where the Bank of England has made a
resolution instrument (“the original instrument”) with respect to a
bank.

(2) The Bank of England may make, with respect to the bank, one or
more resolution instruments designated by the Bank of England as
30supplemental resolution instruments.

(3) Sections 7 and 8A do not apply to a supplemental resolution
instrument (but it is to be treated in the same way as a resolution
instrument for all other purposes, including for the purposes of the
application of a power under this Part).

(4) 35Before making a supplemental resolution instrument the Bank of
England must consult—

(a) the PRA,

(b) the FCA, and

(c) the Treasury.

(5) 40The possibility of making a supplemental resolution instrument in
reliance on subsection (2) is without prejudice to the possibility of
making a new instrument in accordance with section 12A(2) (and not
in reliance on subsection (2) above).

48V Onward transfer

(1) 45This section applies where the Bank of England has made a
resolution instrument (“the original instrument”) providing for
securities issued by a specified bank to be transferred to any person.

(2) The Bank of England may make one or more onward transfer
resolution instruments.

(3) 50An onward transfer resolution instrument is a resolution instrument
which—

(a) provides for the transfer of—

(i) securities which were issued by the bank before the
original instrument and have been transferred by the
55original instrument or a supplemental resolution
instrument, or

(ii) securities which were issued by the bank after the
original instrument;

(b) makes other provision for the purposes of, or in connection
60with, the transfer of securities issued by the bank (whether
the transfer has been or is to be effected by that instrument,
by another instrument or otherwise).

(4) An onward transfer resolution instrument may not transfer
securities to the transferor under the original instrument.

(5) 65Sections 7 and 8A do not apply to an onward transfer resolution
instrument (but it is to be treated in the same way as any other
resolution instrument for all other purposes, including for the
purposes of the application of a power under this Part).

(6) Before making an onward transfer resolution instrument the Bank of
70England must consult—

(a) the PRA,

(b) the FCA, and

(c) the Treasury.

(7) Section 48U applies where the Bank of England has made an onward
75transfer resolution instrument.

48W Reverse transfer

(1) This section applies where the Bank of England has made an
instrument (“the original instrument”) that is either—

(a) a resolution instrument providing for the transfer of
80securities issued by a bank to a person (“the transferee”), or

(b) an onward transfer resolution instrument (see section 48V)
providing for the transfer of securities issued by a bank to a
person (“the onward transferee”).

(2) In a case falling within subsection (1)(a) the Bank of England may
85make one or more reverse transfer resolution instruments in respect
of securities issued by the bank and held by the transferee (whether
or not they were transferred by the original instrument).

(3) In a case falling within subsection (1)(b), the Bank of England may
make one or more reverse transfer resolution instruments in respect
of securities issued by the bank and held by the onward transferee.

(4) A reverse transfer resolution instrument is a resolution instrument
5which—

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

(b) makes other provision for the purposes of, or in connection
with, the transfer of securities which are, or could be or could
10have been, transferred under paragraph (a).

(5) Except where subsection (6) applies, the Bank of England may make
a reverse transfer resolution instrument under subsection (2) only
with the written consent of the transferee.

(6) This subsection applies where the transferee is—

(a) 15a bail-in administrator, or

(b) a person who is not to be authorised to exercise any rights
attaching to the securities except on the Bank of England’s
instructions.

(7) The Bank of England may make a reverse transfer resolution
20instrument under subsection (3) only with the written consent of the
onward transferee.

(8) Sections 7 and 8A do not apply to a reverse transfer resolution
instrument (but it is to be treated in the same way as any other
resolution instrument for all other purposes including for the
25purposes of an application of a power under this Part).

(9) Before making a reverse transfer resolution instrument the Bank of
England must consult—

(a) the PRA,

(b) the FCA, and

(c) 30the Treasury.

(10) Section 48U applies where the Bank of England has made a reverse
transfer resolution instrument.”

Transfers of property

5 (1) After section 41 insert—

“41A Transfer of property subsequent to resolution instrument

(1) This section applies where the Bank of England has made a
5resolution 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) 10Before 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) 5in 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
10transfer 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) 15A 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
20with, 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
25instrument 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
30purposes 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

(c) 35the 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) may
40make special bail-in provision with respect to the bank (see section
48B).

(2) In the case of 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
45power 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).

(3) Where securities of the bridge bank (“B”) are, as a result of subsection
(2), held by a person other than the Bank of England, that does not
5prevent 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) 10This 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
15liabilities 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) 20the 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) 25A 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 property transfer instrument to which it relates.

(7) The Chancellor of the Exchequer must lay a copy of each report
30under 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) 35in 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
40scheme for determining, in accordance with section 52A,
whether any transferors or others should be paid
compensation.”

(2) 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),

(b) 5a property transfer instrument under section 41A(2), or

(c) a supplemental resolution instrument under section 48U(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) 10an 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).”

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

(a) 15after paragraph (f) insert—

“(fa) the Bank of England makes a reverse property
transfer instrument under section 44A(2),

(fb) the Bank of England makes a supplemental property
transfer instrument by virtue of section 44A(7),”;

(b) 20omit the “or” after paragraph (g);

(c) after paragraph (h) insert—

“(i) the Bank of England makes an onward transfer
resolution instrument under section 48V(2),”

“the Bank of England makes a reverse transfer
25resolution instrument under section 48W(2) or (3), or

(k) the Bank of England makes a supplemental resolution
instrument by virtue of section 48V(7) or 48W(10).”

(4) In section 54 (independent valuer)—

(a) in subsection (1), after “compensation scheme order” insert “or bail-
30in compensation order”;

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

(5) In section 56 (independent valuer: money), in subsection (2)(b) for “or third
party compensation order” substitute “, third party compensation order or
35bail-in compensation order”.

(6) In section 57 (valuation principles), in subsection (1), after “order” insert “or
bail-in compensation order”.

(7) After section 60 insert—

“60A Further mandatory provision: bail-in provision

(1) 40The 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 compensation scheme order, a third party
5compensation 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) 10Regulations 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 be contingent upon the occurrence or non-occurrence of
15specified events;

(b) 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.

(4) 20Regulations 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) 25are 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
30particular, 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) 35References 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) 40in 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
45the bank, immediately before the coming into effect of the initial
instrument.