Explanatory note

These Regulations amend the Bank Recovery and Resolution (No. 2) Order 2014 (S.I. 2014/3348) (“the 2014 Order”). They make certain changes to the provisions in the 2014 Order which relate to the requirement for the Bank of England (“the Bank”) to set a minimum requirement for own funds and eligible liabilities (“MREL”) for relevant financial institutions. MREL is a requirement set by the Bank for relevant institutions to maintain sufficient equity and subordinated debt to support the effective use of the Bank’s write-down and conversion powers under the Banking Act 2009 (c. 1) in the event that such an institution fails and it is necessary for the Bank to take resolution action.

Regulation 2(3)(a) makes provision relating to the Bank’s ability to set a transitional period and transitional MREL requirement for relevant institutions by amending Article 123 of the 2014 Order (determination of minimum requirement). Article 123 of the 2014 Order sets out the basis upon which the Bank can make a determination of full (“end-state”) MREL requirements in respect of a financial institution. In particular, the assessment criteria which apply to end-state MREL requirements are set out in Article 123(6) of the 2014 Order. Regulation 2(3)(b) inserts new paragraphs (1A) to (1D) into Article 123 which make provision for the Bank to set a transitional MREL requirement. This is a requirement for the relevant institution to hold a specified amount of MREL for a specified transitional period, reflecting the approach taken by the Bank where a particular institution is building up its MREL resources to the level needed to meet its end-state MREL requirements. Regulation 2(2) makes a related amendment to the definition of “minimum own funds and eligible liabilities” in Article 121 (interpretation) to include transitional MREL within that definition.

Regulation 2(3)(b) makes amendments to Article 123(6) of the 2014 Order to ensure that the Bank can take account of the potential availability of recapitalisation payments under section 214E (recapitalisation payments) of the Financial Services and Markets Act 2000 (c. 8) when making an MREL determination, and to require the Bank to base any MREL determination on (in addition to other factors already set out in Article 123(6)) the Bank of England’s Statement of Policy on its approach to setting a minimum requirement for own funds and eligible liabilities issued under section 3B(9) of the Banking Act 2009. That Statement of Policy can be obtained at https://www.bankofengland.co.uk/paper/2021/the-boes-approach-to-setting-mrel-sop or in hard copy from the Bank of England, Threadneedle Street, London, EC2R 8AH.

Regulation 2(3)(c) omits the Bank’s power to make technical standards relating to the assessment criteria upon which it must base a determination of MREL requirements.

Regulation 2(4) and (5) makes equivalent amendments to Chapter 2 of Part 9 of the 2014 Order, which sets out the Bank’s duties in relation to the determination of MREL requirements for relevant groups where the PRA or FCA is the consolidating supervisor.

Regulation 2(6) makes equivalent amendments to Chapter 4 of Part 9 of the 2014 Order, which relates to the determination of MREL requirements for group institutions where the PRA or FCA is the consolidating supervisor.

No impact assessment has been prepared for these Regulations as there is no, or no significant, impact predicted on businesses, charities, voluntary bodies or the public sector.