# The Banking Act 2009 (Restriction of Special Bail-in Provision, etc.) Order 2014

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U.K.

Statutory Instruments

# 2014 No. 3350

Banks And Banking

# The Banking Act 2009 (Restriction of Special Bail-in Provision, etc.) Order 2014                     

Made

17th December 2014

Coming into force

1st January 2015

The Treasury, in exercise of the powers conferred by sections 47(2) and (4), 48(2), (3) and (4), 48P(3), (5) and (6) and 259(1)                           of the Banking Act 2009 F1, makes the following Order:                        

A draft of this Order has been laid before and approved by a resolution of each House of Parliament in accordance with 47(5),                           48(6) and 48P(8) of the Banking Act 2009.                        

F12009 c.1; section 48P was inserted by the Financial Services (Banking Reform) Act 2013 (c.33), **Schedule 2**, paragraph 4.

## Citation and commencementU.K.

1.—(1) This Order may be cited as the Banking Act 2009 (Restriction of Special Bail-in Provision, etc.) Order 2014.                  

(2) This Order comes into force on 1st January 2015.

## InterpretationU.K.

2.—(1) In this Order—                  

“the Act” means the Banking Act 2009;                  

“the Bank” means the Bank of England;                  

“banking institution” means—                  

a bank F2;                           

an investment firm F3;                           

a banking group company;

[F4a third-country institution (within the meaning of section 89JA of the Act (resolution of UK branches of third-country institutions)).]                            

“eligible liabilities” has the meaning given in Article 2.1(71) of directive 2014/59/EU of the European Parliament and of the Council of 15th May 2014 establishing a framework for the recovery and resolution of                     credit institutions and investment firms F5;                  

“netting arrangements” has the meaning given in section 48P(2) of the Act;                  

“relevant banking institution” has the meaning given in article 3(2);                  

“set-off arrangements” has the meaning given in section 48P(2) of the Act;                  

“title transfer collateral arrangements” has the meaning given in section 48P(2) of the Act;                  

“transferable securities” has the meaning given in Article 4.1(44) of Directive 2014/65/EU of the European Parliament and of the Council on markets                     in financial instruments F6, but does not include securities (within the meaning of section 14 of the Act F7) issued by the relevant banking institution.                  

(2) References to sections of the Act include, as the context requires, those sections [F8as applied with or without modifications by that Act, as that Act has effect on the day on which the Bank Recovery and Resolution                        Order 2016 comes into force.].                  

F2Defined in section 2 of the Act.

F3Defined in section 258A of the Act. Section 258A was inserted by the Financial Services Act 2012 (c.21), **section 101**.

F4Words in art. 2(1) inserted (16.12.2016) by The Bank Recovery and Resolution Order 2016 (S.I. 2016/1239), arts. 1(2), **39(2)(a)**

F5OJ L 190, 12.6.2014, p.190.

F6OJ L 173, 12.6.2014, p.349.

F7Amended by SI 2013/3115.

F8Words in art. 2(2) substituted (16.12.2016) by The Bank Recovery and Resolution Order 2016 (S.I. 2016/1239), arts. 1(2), **39(2)(b)**

## Application, etc.U.K.

3.—(1) This Order applies to an instrument which makes special bail-in provision.                  

(2) In this Order “relevant banking institution” means, in relation to an instrument to which this Order applies, the banking institution in respect of which special bail-in                     provision is made by the instrument.                  

## Set-off and nettingU.K.

4.—(1) An instrument to which this Order applies may not make special bail-in provision in respect of a protected liability (subject                     to paragraph (6)).                  

(2) In this article a “protected liability” is an eligible liability which is not within paragraph (3), and meets the following                     conditions—                  

(a)condition 1 is that the liability is owed by the relevant banking institution to a particular person (“the person”);                  

(b)condition 2 is that the liability is a liability which either the person or the relevant banking institution is entitled to                        set-off or net under particular set-off arrangements, netting arrangements or title transfer collateral arrangements into                        which the person has entered with the relevant banking institution (“the relevant arrangements”);                  

(c)condition 3 is that—                  

(i)where the liability relates to a derivative, financial contract or qualifying master agreement (see article 5), it has not                        been converted into a net debt, claim or obligation, whether in accordance with the relevant arrangements or through the making                        of special bail-in provision or otherwise;                  

(ii)where the liability relates to any other type of contract, it has neither been converted nor treated as if it had been converted                        into a net debt, claim or obligation, whether in accordance with the relevant arrangements or through the making of special                        bail-in provision or otherwise.                  

(3) The following liabilities are not protected liabilities—

(a)liabilities in relation to an unsecured debt instrument which is a transferable security issued by that banking institution,                        and for these purposes a “debt instrument” is any instrument falling within article 77 of the Financial Services and Markets                        Act 2000 (Regulated Activities) Order 2001 F9;                  

(b)liabilities in relation to a capital instrument issued by that banking institution;                  

(c)liabilities owed in relation to subordinated debt;                  

(d)unsecured liabilities in relation to any instrument or contract which—                  

(i)at the date on which it was issued or made, had a maturity period of 12 months or more, and                  

(ii)is not a derivative, financial contract or qualifying master agreement;                  

(e)unsecured liabilities owed to another member of the same group as the relevant banking institution which are not owed in relation                        to derivatives, financial contracts or qualifying master agreements;                  

(f)liabilities which relate to a claim for damages or an award of damages or a claim under an indemnity.                  

(4) For the purposes of paragraph (2)—

(a)it does not matter whether—                  

(i)the arrangements which permit the person or the banking institution to set-off or net the liability also permit the person                        or the banking institution to set-off or net rights and liabilities with another person,                  

(ii)the right of the person or the banking institution to set-off or net is exercisable only on the occurrence of a particular                        event;                  

(b)a liability is treated as if it is converted into a net debt, claim or obligation if the amount due in relation to the liability                        is reduced by reference to any sums which the debtor would be able to set off against the liability in the event that the                        debtor decided to exercise set-off or netting rights.                  

(5) For the purposes of paragraph (3), undertakings are in the same group if they are group undertakings in respect of each other,                     and “group undertaking” has the meaning given in section 1161(5) of the Companies Act 2006.                  

(6) Paragraph (1) does not prevent special bail-in provision from being made in order to convert, or in connection with converting,                     the protected liability into—                  

(a)the net debt, claim or obligation that would be due under the set-off arrangements, netting arrangements or title transfer                        collateral arrangements at the time the special bail-in provision providing for this is made, or                  

(b)an estimate of that net debt, claim or obligation.                  

F9SI 2001/544. Article 77 was amended by SI 2010/86; 2011/133.

## Set-off and netting: meaning of “derivative”, “financial contract” and “qualifying master agreement”U.K.

5.—(1) In this Order “derivative” means a derivative as defined in Article 2(5) of Regulation (EU) No 648/2012 of the European Parliament and of the Council                     of 4th July 2012 on OTC derivatives, central counterparties and trade repositories F10.                  

(2) In this Order “financial contract” means any or any combination of the following (other than a derivative)—                  

(a)a contract for the purchase, sale, transfer or loan of a transferable security, a group of transferable securities or index                        of transferable securities;                  

(b)a repurchase or reverse repurchase transaction on any transferable security, group of transferable securities or index of                        transferable securities;                  

(c)a commodities contract of a financial nature, including—                  

(i)a contract for the purchase, sale, transfer or loan of a commodity, a group of commodities or an index of commodities for                        future delivery;                  

(ii)a swap or option on a commodity, a group of commodities or an index of commodities;                  

(iii)a repurchase or reverse repurchase transaction on any such commodity, group or index;                  

(d)a futures contract, including a contract (other than a commodities contract) for the purchase, sale or transfer of property                        of any description under which delivery is to be made at a future date and at a price agreed when the contract is made.                  

(3) In article 4 “qualifying master agreement” means a master agreement in so far as it relates to—                  

(a)a derivative,                  

(b)a financial contract, or                  

(c)a contract for the sale, purchase or delivery of the currency of the United Kingdom or any other country, territory or monetary                        union.                  

F10OJ L 201, 27.7.2012, p.1.

## RemedyU.K.

6.—(1) This article applies where any person (“the person”) considers that an instrument to which this Order applies has been made                     in contravention of any provision of this Order and that as a result the liabilities owed to the person have been affected                     by the making of special bail-in provision.                  

(2) The person may give notice to the Bank of the alleged contravention of this Order.

(3) The notice under paragraph (2) (“the notice”) must—                  

(a)be given within a period of 60 days beginning with the day on which the instrument was made;                  

(b)be in writing;                  

(c)specify the provision of this Order which is alleged to have been contravened and the manner in which that contravention is                        alleged to have occurred; and                  

(d)identify the liability to which the alleged contravention relates.                  

(4) The person shall also, on request, provide such additional information as the Bank may reasonably require.

(5) Within the relevant period and acting as soon as reasonably practicable, the Bank must—

(a)if it does not agree that a provision of this Order has been contravened in the manner specified in the notice, take the steps                        specified in paragraph (6);                  

(b)if it agrees that a provision of this Order has been contravened in the manner specified in the notice, take the steps specified                        in—                  

(i)paragraph (7), where special bail-in provision is not made in conjunction with the bridge bank stabilisation option, or                  

(ii)paragraph (8), where special bail-in provision is made in conjunction with the bridge bank stabilisation option F11.                  

(6) The steps are to give reasons to the person as to why the Bank considers that no provision of this Order has been contravened                     in the manner specified in the notice.                  

(7) The steps are to remedy the contravention—

(a)where practicable—                  

(i)by requiring the relevant banking institution to issue securities, or                  

(ii)by transferring securities issued by the relevant banking institution,                  

which the Bank estimates to have a value equal to the relevant sum, to the person, or

(b)otherwise, by requiring the relevant banking institution to transfer the relevant sum to the person;                  

whether by exercising a power under Part 1 of the Act or otherwise.

(8) The steps are to remedy the contravention by either—

(a)requiring the relevant banking institution or bridge bank to issue securities which the Bank estimates to have a value equal                        to the relevant sum to the person,                  

(b)transferring securities issued by the relevant banking institution or bridge bank which the Bank estimates to have a value                        equal to the relevant sum to the person, or                  

(c)requiring the relevant banking institution or bridge bank to transfer the relevant sum to the relevant person;                  

whether by exercising a power under Part 1 of the Act or otherwise.

(9) In this article—

“relevant period” has the meaning given in article 7;                  

“relevant sum” means such sum as the Bank considers necessary to put the person in the position the person would have been in had the contravention                     not occurred.                  

(10) In paragraph (5)(b)(ii), special bail-in provision is made in conjunction with the bridge bank stabilisation option when special                     bail-in provision is made in reliance on section 44B of the Act F12 in—                  

(a)a property transfer instrument under section 12(2) of the Act, F13...                  

(b)a supplemental property transfer instrument in relation to which the original instrument (as defined in section 42(1) F14 of the Act) is a property transfer instrument under section 12(2) of the Act;                  

[F15(c)an onward property transfer instrument under section 43(2) of the Act in relation to which the original instrument (as defined                           in section 43(1)) is a property transfer instrument under section 12(2) of that Act, or                  

(d)a bridge bank supplemental property transfer instrument under section 44D(2) of the Act.]                  

and the reference in paragraph (5)(b)(i) to special bail-in provision not being made in conjunction with the bridge bank stabilisation                     option is to be construed accordingly.                  

F11Defined in section 12 of the Act, amended by article 18 of the Bank Recovery and Resolution Order 2014.

F12Section 44B was inserted by the Financial Services (Banking Reform) Act 2013 (c. 33), **Schedule 2**, paragraph 5(3), and is amended by article 46 of the Bank Recovery and Resolution Order 2014.

F13Word in art. 6(10)(a) omitted (16.12.2016) by virtue of The Bank Recovery and Resolution Order 2016 (S.I. 2016/1239), arts. 1(2), **39(3)(a)**

F14Section 42 was amended by the Financial Services (Banking Reform) Act 2013, Schedule 2, paragraph 5(2), and is amended by                              article 42 of the Bank Recovery and Resolution Order 2014.

F15Art. 6(10)(c)(d) inserted (16.12.2016) by The Bank Recovery and Resolution Order 2016 (S.I. 2016/1239), arts. 1(2), **39(3)(b)**

## Remedy: relevant periodU.K.

7.—(1) In article 6(5) the “relevant period” means—                  

(a)a period of 120 days beginning with the day on which the notice under article 6(2) is received (“the initial period”), and                  

(b)any period by which the initial period is extended under paragraph (2) or paragraphs (2) and (3).                  

(2) The Bank may extend the initial period by a period of up to 120 days if the condition in paragraph (4) is met (“the initial                     period and first extended period”).                  

(3) The Bank may extend the initial period and first extended period by a period of up to 120 days if the condition in paragraph                     (4) is met.                  

(4) The condition is that the Bank considers that the matters raised in the notice under article 7(2) are of such complexity that                     it is impracticable to take a decision without granting the extension.                  

(5) Where the Bank extends time under paragraph (2) or (3), the Bank must as soon as reasonably practicable inform the person                     who gave the notice of the extension and the duration of the extension.                  

## ReviewU.K.

8.—(1) The Treasury must from time to time—                  

(a)carry out a review of the effectiveness of articles 2 to 7,                  

(b)set out the conclusions of the review in a report, and                  

(c)publish the report.                  

(2) In carrying out the review the Treasury must, so far as is reasonable, have regard to how the recovery and resolution directive                     (which is partially implemented by means of articles 2 to 7) is implemented in other EEA states.                  

(3) The report must in particular—

(a)set out the objectives intended to be achieved by the regulatory system established by articles 2 to 7,                  

(b)assess the extent to which those objectives are achieved, and                  

(c)assess whether those objectives remain appropriate and, if so, the extent to which they could be achieved with a system that                        imposes less regulation.                  

(4) The first report under this article must be published before the end of the period of five years beginning with the day on                     which this Order comes into force.                  

(5) Reports under this article are afterwards to be published at intervals not exceeding five years.

Harriet Baldwin

Mark Lancaster

 Two of the Lords Commissioners of Her Majesty's Treasury

## Explanatory Note

(This note is not part of the Order)

This Order imposes restrictions on the making of special bail-in provision in any instrument made by the Bank under Part 1                        of the Act. In doing so, it implements, in part, Directive 2014/59/EU of the European Parliament and of the Council of 15th                        May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms (“BRRD”) (OJ L 173, 12.6.2014 p.190). Special bail-in provision can be made in relation to banks and investment firms. This Order will                        also apply where special bail-in provision is made in respect of banking group companies (by virtue of section 81CA(2) of                        the Act).                     

Article 4 provides that special bail-in provision cannot be made in respect of protected liabilities. Protected liabilities                        are liabilities subject to set-off or netting, which are not excluded from protection (under paragraph (3)), and in the case                        of liabilities relating to derivatives, other financial contracts or certain master agreements, which have not been set-off                        or netted. Article 4 does not prevent special bail-in provision from being made to convert the protected liability into the                        net sum that would be due following set-off or netting (or into an estimate of the net sum).                     

Article 5 defines derivatives by reference to Article 2(5) of Regulation (EU) No 648/2012 of the European Parliament and of                        the Council of 4th July 2012 on OTC derivatives, central counterparties and trade repositories (OJ L 201, 27.7.2012, p.1),                        as is the case under Article 2.1(64) and (65) of the BRRD. Financial contracts are defined to include certain securities contracts                        (including repos), commodities contracts (including repos) and futures contracts.                     

Article 6 (as supplemented by article 7) provides the remedy for contraventions of the provisions of the Order.

Article 8 requires the Treasury to review the regulatory system established by the Order at least once every 5 years.

A Transposition Table setting out how the recovery and resolution directive is transposed into UK law is available from HM Treasury, 1 Horse Guards Road, London, SW1A 2HQ.

A full impact assessment of the effect that these Regulations will have on the costs of business and the voluntary sector                        is available from Her Majesty's Treasury, 1 Horse Guards Road, London SW1A 2HQ or on http://www.hm-treasury.gov.uk/ and is                        published alongside the Regulations on http://www.legislation.gov.uk/.