PRA launched a consultation (CP18/20) setting out proposals for the "Contractual Recognition of Bail-in" and "Stay in Resolution" Rules. These proposals support the transposition of the revised Bank Recovery and Resolution Directive or BRRD2, which the UK is required to transpose by December 28, 2020. The statutory instrument of HM Treasury for BRRD2 was laid in Parliament on October 15, 2020 and will result in changes to the primary legislation that will affect the existing PRA regime for Contractual Recognition of Bail-in and Stay in Resolution. Comments are requested until November 30, 2020.
To ensure a faithful transposition of BRRD2, most of the elements of the statutory instrument that are relevant to Contractual Recognition of Bail-in and Stay in Resolution will come into force on December 28, 2020, but will subsequently cease to have effect from December 31, 2020 (implementation period completion day). In CP18/20, PRA refers to this process as “sunsetting.” The proposals included in CP18/20 would:
- Temporarily suspend part of the Contractual Recognition of Bail-in Part of the PRA Rulebook with effect from December 28, 2020 until the implementation period completion day.
- Reinstate the existing Contractual Recognition of Bail-in Part, with minor amendments, to come into force immediately after implementation period completion day. The new rules post implementation period completion day would be otherwise unchanged from the existing rules. The amendment proposed in CP18/20 is a minor change to reflect the statutory reference to the Banking Act definition of “excluded liability” in the Contractual Recognition Part of the PRA Rulebook. The reinstated Contractual Recognition of Bail-in Rules would, therefore, be updated to account for the statutory instrument amendments.
- Amend the Stay in Resolution Part of the PRA Rulebook to reflect the temporary statutory instrument change to the definition of “crisis management measure” in the Banking Act 2009, to come into force from December 28, 2020 until the implementation period completion day.
- Reintroduce the existing Stay in Resolution Part, as it was before December 28, 2020, to come into force immediately after implementation period completion day.
The proposals set out in CP18/20 have been designed in the context of withdrawal of UK from EU and entry into the transition period, during which time UK remains subject to European law. PRA will keep the policy under review to assess whether any changes would be required due to changes in the UK regulatory framework at the end of the transition period, including those arising once any new arrangements with the EU take effect. PRA has assessed that the proposals would not need to be amended under the EU (Withdrawal) Act 2018.
Comment Due Date: November 30, 2020
Keywords: Europe, UK, Banking, BRRD2, BRRD2 Transposition, Resolution Framework, Basel, Brexit, Bail-In, PRA Rulebook, PRA