Financial Services (Banking Reform) Bill (HL Bill 62)

(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.”

(8) 5In 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) 10regulations under section 60A.”

(9) 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) 15After 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
following conditions are met.

(2) 20Condition 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,
25having 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) 30the 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
35react, 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
40of 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
5group 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) 10Where 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
15subsection (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).

(4) 20The 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) 25so, 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
30parent 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
35bank 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,
40and 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
45parent 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
5made 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
10parent 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,
15and 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) 20in 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
the Prudential Regulation Authority), in the table in subsection (2) insert the
25following entries at the appropriate places—

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) 25subsection (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) 30in 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) 35in 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
40under 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
5procedure 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
10who 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
15which 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—

20““State aid

256A State aid

(1) This section applies where—

(a) the Treasury are of the opinion that anything done, or
proposed to be done, in connection with the exercise in
25relation 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
30apply.

(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
35section).

(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
40as 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
45the 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) 5Where 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.”

10Other 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) 15transfer 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)—

(a) 20for “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 25In 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) 30in 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
35accordingly).”

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.”

17 40In 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
5reverse”;

(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”.

18 10In 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)—

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

(b) 15in 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
20ownership 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
subsection (1)(b) to “the transfer” includes such a cancellation
or conversion).”

20 25In section 67 (special continuity obligation: share transfers), in subsection
(4)(c), after “order” insert “or resolution instrument”.

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 30In 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.”

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

(a) 35omit the “or” at the end of paragraph (b);

(b) after paragraph (c) insert “, or

(d) a resolution instrument.”

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

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

(b) 40after paragraph (c) insert “, and

(d) resolution instruments.”

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.

(2) 5The 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) 10any 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
15under 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”.

28 20In 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—

“152A 25 Property transfer from transferred institution

(1) This section applies where the Bank of England—

(a) makes a resolution instrument that transfers securities issued
by a bank (or a bank’s parent undertaking), in accordance
with section 12A(2), and

(b) 30later makes a property transfer instrument from the bank or
from another bank which is or was in the same group as the
bank, in accordance with section 41A(2).

(2) This Part applies to the transferor under the property transfer
instrument made in accordance with section 41A(2) as to the
35transferor under a property transfer instrument made in accordance
with section 12(2).

(3) For that purpose this Part applies with any modifications specified
by the Treasury in regulations; and any regulations—

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

(b) 40may not be made unless a draft has been laid before and
approved by resolution of each House of Parliament.”

31 In section 220 (insolvency etc), after subsection (4) insert—

“(4A) The fact that ownership of an authorised bank is transferred or
otherwise changed as a result of a resolution instrument (or an

instrument treated as a resolution instrument) does not itself prevent
the bank from relying on section 213.”

32 In section 259 (statutory instruments)—

(a) in the Table in subsection (3), in Part 1, in the entry relating to section
560 for “Third party compensation” substitute “Third party
compensation: partial property transfers”;

(b) in the Table in subsection (3), in Part 1, at the appropriate places
insert—

(c) in the Table in subsection (3), in Part 3, at the appropriate place
insert—

(d) in subsection (5), after paragraph (d) insert—

“(da) section 60A (special resolution regime: instruments
containing special bail-in provision),”;

(e) in subsection (5), after paragraph (k) insert—

“(ka) 35section 152A (bank administration: property transfer
from transferred institution),”.

33 In section 261 (index of defined terms), in the Table, at the appropriate places

insert—

Part 2 10Modification of Investment Bank Special Administration Regulations 2011

34 (1) This paragraph modifies the application of the Investment Bank Special
Administration Regulations 2011 (S.I. 2011/245S.I. 2011/245) (“the regulations”) in cases
where a resolution instrument has been made under section 12A of the
Banking Act 2009 with respect to the investment bank in the relevant 3-
15month period.

(2) In sub-paragraph (1) “the relevant 3-month period” means the 3 months
ending with the date on which the FCA receives the notification under
Condition 1 in regulation 8 of the regulations.

(3) In their application to those cases, the regulations have effect with the
20modifications in sub-paragraph (4); and any enactment that refers to the
regulations is to be read accordingly.

(4) In regulation 8 (in its application to those cases)—

(a) in paragraph (5)(c)(ii), for “appropriate regulator” substitute “Bank
of England” and after “notice” insert “and the appropriate
25regulator”;

(b) in paragraph (6), omit sub-paragraph (a) (but continue to read “that”
in sub-paragraph (b) as a reference to the insolvency procedure to
which the notice relates);

(c) after paragraph (6) insert—

“(6A) 30Where the FCA receives notice under Condition 1, it must
also inform the Bank of England of the contents of the notice.

(6B) Where the Bank of England receives notice under paragraph
(6A), it must, within the period in Condition 3, inform the
person who gave the notice and the appropriate regulator
35whether or not it consents to the insolvency procedure to
which the notice relates going ahead.”