On 13 June 2018, the Bank of England (BoE) published:

• Policy Statement – The BoE’s approach to setting a minimum requirement for own funds and eligible liabilities (responses to consultation on ‘Internal MREL – the BoE’s approach to setting MREL within groups, and further issues’ and Statement of Policy); and
• Statement of Policy (updating November 2016) – The BoE’s approach to setting a minimum requirement for own funds and eligible liabilities.

The Statement of Policy sets out the BoE’s updated policy for exercising its power, under the EU Bank Recovery and Resolution Directive and associated UK legislation, to direct firms to maintain a minimum requirement for own funds and eligible liabilities (MREL) and to take other steps for that purpose under section 3A of the Banking Act 2009.

In the Policy Statement the BoE provides feedback on the main issues raised in its earlier consultation, setting out where it has made changes to its policy, and clarifying its approach where relevant.

Key points in the BoE’s feedback include:

• the BoE will retain the approach to the scope of internal MREL that was proposed in its consultation;
• the BoE will retain the approach to the calibration of internal MREL that was proposed in the consultation. However, the BoE has decided not to set requirements around the location and form of surplus MREL at this stage. The BoE thinks it is appropriate to consider in more detail the issues relating to surplus MREL, in consultation with other authorities in crisis management groups;
• the BoE will retain the proposed approach to avoid double counting of MREL resources in groups. This means that the BoE expects that internal MREL for an institution will be increased by the amount of any internal MREL or equivalent investments it has made in other entities in the same group. The BoE is clarifying that this applies where the investments are not covered by arrangements that ensure this outcome (such as capital deductions regime for investments in own funds instruments in subsidiaries);
• the BoE will retain the general approach to internal MREL instrument eligibility that was proposed in the consultation but has clarified its approach in certain areas including the holder of the internal MREL instrument and the inclusion of contractual triggers;
• the BoE will retain the approach to the transitional arrangements for internal MREL that was proposed in the consultation (summarised in Figure 1 in the Policy Statement);
• the BoE has decided not to take forward its consultation proposal that critical service providers supporting the delivery of the group’s critical functions must maintain financial resources equivalent to at least 25% of the annual operating costs of providing services. The BoE intends to review this further, its expectations on financial resources for operational continuity (Supervisory Statement 9/16) are unaffected;
• the BoE confirms that in the calculation of group consolidated MREL for multiple point of entry groups, the ‘sum of requirements’ is the sum of the binding MRELs (or equivalent requirements) or capital requirements for each of the resolution groups or other entities or sub-groups outside these resolution groups;
• clarifying external MREL instrument eligibility, statutorily subordinated external MREL instruments and clean holding company requirements

In paragraphs 3.17 to 3.20 the BoE discusses the feedback to its consultation as regards ring-fenced bodies and UK groups with simple structure. In paragraphs 3.21 to 3.22 the BoE covers UK subsidiaries of foreign groups and non-UK subsidiaries of UK groups.

In terms of next steps the BoE intends to communicate to institutions the following:

• in H2 2018, the interim internal MREL which the BoE expects to apply from 1 January 2019 for relevant subsidiaries of G-SIBs, subject to an EU joint decision for relevant subsidiaries on the basis of the Statement of Policy; and
• in early 2019, the interim internal MREL which the BoE expects to apply from 1 January 2020 for relevant subsidiaries of non G-SIBs, subject to an EU joint decision process for relevant subsidiaries on the basis of the Statement of Policy.