Q1: In the Explanatory Memorandum (EM) you say: “This instrument amends the UK’s Special Resolution Regime that was established by the Banking Act 2009 and then amended in 2014 as part of the UK implementation of the BRRD [Bank Recovery and Resolution Directive].” You also say: “The BRRD established an EU wide framework for the recovery and resolution of credit institutions and investment firms that are failing or likely to fail, reflecting the Financial Stability Board’s Key Attributes of Effective Resolution Regimes for financial institutions (FSB Key Attributes).” Did the UK’s Special Resolution Regime of 2009 itself reflect the FSB Key Attributes? Did amendment of the UK’s Special Resolution Regime in 2014 make any significant changes to the policy aims underlying the UK’s regime, rather than simply embedding the regime in a EU context? And is it indeed the case that “the policy aims of the BRRD will remain a core element” of any future standalone regime, so that the UK will not revert to any policy differences that may have existed prior to 2014?
A1: The FSB Key Attributes of Effective Resolution Regimes for Financial Institutions was first published in October 2011, whereas the UK’s Special Resolution Regime was established by the Banking Act 2009. In this sense the UK Special Resolution Regime was not designed to reflect the FSB Key Attributes because it preceded the publication of the Key Attributes. Nonetheless, the provisions of the UK Special Resolution Regime were largely in line with those set out in the FSB Key Attributes, and indeed the UK played an important role in developing the latter. The latest FSB review of resolution regimes identified no gaps in the United Kingdom’s policy toolkit for bank resolution, while the 2016 IMF United Kingdom Financial Sector Assessment Program (FSAP) report noted that the United Kingdom’s bank resolution regime was robust and that the Bank of England’s work to implement policies ensuring firms can be resolved is advanced.
The amendments of the UK’s Special Resolution Regime in 2014 did not result in any significant changes to the policy aims underlying the UK’s regime. Rather, the primary purpose of these amendments was to embed the regime in a EU context, which required some changes to the legislation. For further detail of these changes the Committee may wish to consider the relevant impact assessment which can be found at the following address ().
Examples of changes made to ensure that the UK’s Special Resolution Regime met the requirements of the BRRD include:
These changes are maintained through this SI, which only makes the amendments necessary to ensure that the legislation remains fully functional and without deficiencies after exit.
Reverting to any policy differences that existed prior to implementation of the BRRD in 2014 would not be within the vires of the power in section 8 of the European Union (Withdrawal) Act 2018 and would therefore not be possible in this SI.
HM Treasury is satisfied that the current Special Resolution Regime provides the Bank of England, the Prudential Regulation Authority (PRA), the Financial Conduct Authority (FCA) and HM Treasury with an effective set of tools to protect financial stability in the United Kingdom. International standards are nonetheless constantly evolving, and consequently HM Treasury will continue to monitor whether the effectiveness of the regime can be further improved in the future.
Q2: In the EM, you refer to the possibility of refusal of third country resolution actions. What follow-on steps would be taken by the UK’s regulators if they refused such an action?
A2: There is an existing framework for recognising third country resolution actions within the Special Resolution Regime. This applies where those actions are broadly comparable in terms of their objectives and anticipated results to actions taken under the UK regime. The mechanism is contained at section 89H of the Banking Act 2009. Under this SI, EEA resolution actions would become subject to the third country regime, to reflect their change in status following exit.
Refusal of third country resolution actions (or part of them) is only possible where the Bank of England and HM Treasury are satisfied that one or more statutory grounds for refusal exist. These are set out in section 89H(4) of the Banking Act 2009 and cover:
If one or more of these conditions are met and recognition is refused (in whole or in part), the Bank of England is obliged to make an instrument documenting this. The instrument is subject to various procedural requirements, which include sending a copy to the relevant institution and other UK regulators, publication on the Bank of England website and in two UK newspapers, and HM Treasury laying a copy before Parliament.
Where recognition of a third country resolution action is refused, the Bank of England has powers (with approval from HM Treasury) to independently resolve a UK branch of a third country institution where appropriate. This is provided for in section 89JA of the Banking Act 2009. These are “back-stop” powers to be used in the event that co-operation between resolution authorities proves ineffective, and where action is required in the public interest.
Q3: In the EM, you say that the Government will publish a revised version of the Special Resolution Regime’s Code of Practice document in the context of the draft instrument. When will this be published? Will it be before the Regulations are brought into effect (if this becomes necessary)?
A3: In the event of a ‘no-deal’ outcome of the UK’s negotiations with the EU then this legislation will come into effect on exit day. In such a scenario HM Treasury will ensure that a revision of the Special Resolution Regime’s Code of Practice is published before exit day.
26 October 2018