On 11 January 2024, HM Treasury (HMT) published a consultation on enhancing the Special Resolution Regime. The consultation sets out HMT’s proposals to enhance the UK’s resolution regime for banking institutions (i.e., banks, building societies, and Prudential Regulation Authority-designated investment firms), with the aim of ensuring that the UK continues to have world-class arrangements to manage the failure of financial firms.
Under the proposals, a new mechanism would be introduced to facilitate the use of certain existing stabilisation powers to manage the failure of small banks, which would enable certain associated costs to be met by industry rather than the taxpayer. The consultation seeks feedback on the proposed source of funds and scope of application.
HMT flags that the UK already has an effective resolution regime, as demonstrated by a successful resolution in 2023. However, the Government believes that the proposed targeted enhancement would give the Bank of England (BoE) greater flexibility to manage the failure of small banks effectively. It also notes that the enhancement would in turn reinforce the UK’s robust regulatory regime and ensure there continues to be sufficient protections for financial stability, customers and public funds when banks fail.
The consultation closes on 7 March 2024.
The BoE has issued a statement welcoming the consultation paper and confirming that it supports measures to continue to enhance the UK bank resolution regime.