On 9 October 2018, there was published on legislation.gov.uk a draft of The Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018, together with an explanatory memorandum.
The draft Regulations form part of a series of draft statutory instruments that HM Treasury is publishing as part of its contingency planning for a no-deal Brexit. The statutory instruments are made by HM Treasury in exercise of its powers conferred by the European Union (Withdrawal) Act 2018.
These draft Regulations amend the UK’s implementation of the Bank Recovery and Resolution Directive (BRRD) which established an EU wide framework for the recovery and resolution of credit institutions and investment firms that are failing or likely to fail. HM Treasury’s approach to onshoring the BRRD is to ensure that the UK’s special resolution regime is legally and practically workable on a standalone basis once the UK has left the EU.
The draft Regulations amends a number of domestic acts implementing the BRRD including the:
- Banking Act 2009;
- Insolvency Act 1986;
- Financial Services (Banking Reform) Act 2013; and
- Bank Recovery and Resolution (No. 2) Order 2014.
The overall approach put forward by the draft Regulations is that the UK would treat EEA Member States as it does other third countries. Generally speaking, aligning the treatment for EEA Member States with that for ‘third countries’ means that EEA-led resolutions will be recognised in the UK, unless doing so is contrary to one or more statutory safeguards.
The conditions for refusing recognition are set out in section 89H(4) of the Banking Act 2009, which the draft Regulations amend to reflect the UK’s new position, such as by replacing references to the ‘EEA’ with ‘UK’. These conditions will be that recognition may only be refused if one or more of the following are met:
- recognition would have an adverse effect on financial stability in the UK;
- in order to achieve one or more of the special resolution objectives, it is necessary for UK authorities to take action in respect of a branch of the bank in question located in the UK;
- the third country resolution action treats creditors (particularly depositors) who are located or payable in the UK less favourably than creditors who are located or payable in the third country and have similar legal rights;
- recognition would have material fiscal implications for the UK; and / or
- recognition would be unlawful under section 6 of the Human Rights Act 1998 (public authority not to act contrary to Human Rights Convention).
The draft Regulations also remove the current operational and procedural mechanisms set out in the BRRD for UK regulators to cooperate with EEA authorities. However, such removal will not prevent cooperation between UK regulators and their EEA counterparts as this is already provided for in the Financial Services and Markets Act 2000 and the Banking Act 2009.
The draft Regulations also remove numerous cross references to the BRRD that appear in UK legislation. However, cross references to the Capital Requirements Regulation (CRR), such as in relation to consolidated group supervision, will not be copied out of UK legislation but will instead refer to the onshored version of the CRR.
The BRRD includes mandates for binding technical standards (BTS) to resolution and supervisory matters. Responsibility for BTS relating to the powers of the resolution authority have been transferred to the Bank of England. Responsibility for BTS relating to supervisory matters have been transferred to the PRA and FCA as appropriate.