On 7 September 2021, HM Treasury issued a consultation paper regarding proposed amendments to section 48D of the Banking Act 2009 (the 2009 Act).
Following its earlier consultation on the implementation of the Investment Firms Prudential Regime and Basel 3 Standards, the Government has decided to remove FCA regulated 730k firms from the scope of the UK resolution regime. The removal of FCA 730k investment firms from the resolution regime will require a number of consequential amendments to both primary and secondary legislation. One of these amendments raises the question of whether short-term liabilities owed to FCA investment firms should continue to be excluded from the Bank of England’s (BoE) bail-in power under section 48B of the 2009 Act. Sections 48B and 48D of the 2009 Act relate to the liabilities owed to firms within the scope of the UK resolution regime. Currently section 48B(8)(d) of the 2009 Act means the BoE’s bail-in power cannot be used to bail-in liabilities with an original maturity of less than 7 days owed by the bank to a credit institution or 730k investment firm.
In its consultation HM Treasury is proposing to amend the definition of ‘investment firm’ in section 48D to capture PRA-designated investment firms and FCA-regulated investment firms with permission to underwrite or deal on own account (i.e. those that will be subject to the new £750,000 initial capital requirement under the FCA’s new rules). This would mean that short-term liabilities owed to these firms will continue to be exempt from bail-in. The proposed amendment would be made using the ‘Power to amend the definition of “excluded liabilities”’ under section 48F(1) of the 2009 Act. HM Treasury is required to consult before using this power.
The deadline for comments on the consultation paper is 5 October 2021.