Contractual Recognition Of Bail-In

1.1

Unless otherwise stated, this Part applies to a BRRD undertaking which is:

1. (1) a CRR firm;
2. (2) a financial holding company;
3. (3) a mixed financial holding company; or
4. (4) a mixed activity holding company which has at least one subsidiary which is an institution which is not the subsidiary of a financial holding company which is also a subsidiary of the mixed activity holding company.

1.2

In this Part, the following definitions shall apply:

debt instrument

means any form of transferable debt security or instrument, whether registered or bearer, including commercial paper, bills of exchange, bankers acceptances, certificates of deposit and bonds, including additional tier 1 instruments and tier 2 instruments.

eligible deposit

has the meaning given in point 4 of Article 2(1) of Directive 2014/49/EU.

excluded deposit

means

1. (1) an eligible deposit from natural persons and micro, small and medium-sized enterprises; or
2. (2) a deposit that would be an eligible deposits from natural persons or micro, small and medium-sized enterprises if the deposit had not been made through a branch of the firm located in a third country.

excluded liability

means any liability listed in section 48B(8) of the Banking Act 2009 except, in respect of liabilities created after 31 July 2016, a liability shall not be regarded as secured for the purposes of section 48(B)(8)(b) of the Banking Act 2009 if, at the time at which it is created, it is not a fully secured liability.

fully secured liability

means a liability which, at the time it is created, is fully secured and governed by contractual terms that oblige the debtor to maintain the liability fully collateralised on a continuous basis in compliance with regulatory requirements of EU law or of the law of a third country achieving effects that can be deemed equivalent to EU law.

liability

means any debt or liability to which the BRRD undertaking is subject, whether it is present or future, certain or contingent, ascertained or sounding only in damages.

mandatory reduction provision

has the meaning give in section 6B(2) of the Banking Act 2009.

material amendment

means an amendment to an agreement, including an automatic amendment, which affects the substantive rights and obligations of a party to the agreement. Amendments which are not material amendments include a change to the contact details of a signatory or the addressee for the service of documents, typographical changes to correct drafting errors or automatic adjustment to interest rates.

micro, small and medium-sized enterprises

means micro, small and medium-sized enterprises as defined with regard to the annual turnover criterion referred to in Article 2(1) of the Annex to Commission Recommendation 2003/361/EC.

phase two liability

means an unsecured liability that is not a debt instrument.

special bail-in provision

has the meaning given in section 48B(1) of the Banking Act 2009.

unsecured liability

means

1. (1) in respect of liabilities created on or before 31 July 2016, a liability under which the right of the creditor to payment or other form of performance is not (i) secured by a charge, pledge, lien or mortgage, or (ii) subject to other collateral arrangements, including liabilities arising from repurchase transactions and other title transfer collateral arrangements; and
2. (2) in respect of liabilities created after 31 July 2016, a liability that is not a fully secured liability.

1.3

Unless otherwise defined, any italicised expression used in this Part and in the CRR has the same meaning as in the CRR.

2.1

Except in the circumstances described in 2.1A a BRRD undertaking must include in the contract governing a liability a term by which the creditor or party to the agreement creating the liability recognises that the liability may be subject to the exercise of a power by the Bank of England to make special bail-in provision or mandatory reduction provision and agrees to be bound by any reduction of the principal or outstanding amount due or by any conversion or cancellation effected by the exercise of that power, provided that such liability is:

1. (1) not an excluded liability;
2. (2) not an excluded deposit;
3. (3) governed by the law of a third country; and
4. (4) a liability of a type described in 2.3.

[Note: Art. 55(1) (part) of the BRRD]

2.1A

2.1 does not apply in respect of a phase two liability where it would be impracticable for the BRRD undertaking to comply with 2.1 in respect of that phase two liability.

2.2

In respect of a liability that is:

1. (1) an additional tier 1 instrument; or
2. (2) a tier 2 instrument,

a BRRD undertaking that is a CRR firm must provide to the PRA a properly reasoned independent legal opinion from an individual appropriately qualified in the relevant third country on the enforceability and effectiveness of the term referred to in 2.1.

2.3

A liability in 2.1(4) is:

1. (1) a liability (other than a liability under a debt instrument) created after 31 December 2015, regardless of whether it is created under an agreement entered into on or before 31 December 2015 (including under a master or framework agreement between the contracting parties governing multiple liabilities);
2. (2) a liability (other than a liability under a debt instrument) created on or before 31 December 2015 if the agreement governing the liability is subject to a material amendment after 31 July 2016;
3. (3) a liability under a debt instrument issued on or after 19 February 2015;
4. (4) a liability under a debt instrument issued before 19 February 2015 which is subject to a material amendment after 31 July 2016.