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    BoE Publishes Policy Statement on Approach to Setting MREL

    December 03, 2021

    The Bank of England (BoE) published a Policy Statement offering an overview of the revised approach to setting the minimum requirement for own funds and eligible liabilities (MREL), which covers resolution strategy thresholds, calibration of MREL, MREL eligibility, and intragroup MREL distribution, among other factors. The Policy Statement, which also provides feedback on the consultation paper on approach to setting MREL, concludes the second stage of the MREL Review. The Annex to the Policy Statement includes the final MREL Statement of Policy, which will be effective from January 01, 2022. BoE also published a statement seeking ideas to support its work to improve depositor outcomes in the event of bank or building society insolvency.

    Following the July 2021 consultation paper on the review of the BoE approach to setting MREL, BoE has received 20 responses from financial firms, consulting firms, industry bodies, and others. The Policy Statement on MREL setting approach provides feedback on the key issues raised during the consultation process, sets out the resulting changes, and clarifies the policy approach, where relevant. The policy changes are intended to help ensure that all firms, including mid-tier firms and major UK firms, can be resolved in an orderly manner. The final MREL policy incorporates two significant changes to ensure it is proportionate. It provides new and growing firms with a clear, stepped, and flexible glide-path to meeting their end-state MRELs. Growing firms will now have an advance “notice period” of ordinarily three years before the start of their transition to end-state MREL and six years starting from the point at which their transition begins to meet their end-state MREL in full, with either one or two intermediate steps to smooth any “cliff-edge.” There will also be scope for firms to request a flexible two year add-on, should circumstances warrant it. The policy statement concludes the final stage of the MREL review.

    The BoE Policy Statement on its review of its approach to setting MREL states that “the Bank considers that recent innovations in technology in the banking system may afford opportunities to mitigate disruptions that may occur in the insolvency of a failing mid-tier firm whose business model is dominated by transactional account banking. These developments include Open Banking and "linked accounts" technology. The Bank has initiated work to be carried out in consultation with the banking industry, Financial Services Compensation Scheme (FSCS), Financial Conduct Authority, Prudential Regulation Authority and other interested parties with a view to developing alternative processes which may reduce disruption to transactional accounts in the event of an insolvency procedure. Subject to the outcomes of this work, the Bank is considering whether it could significantly raise or remove the transactional accounts threshold.” BoE is considering whether it could significantly raise or remove the indicative 40,000 to 80,000 transactional accounts threshold for the adoption of a partial transfer strategy and, therefore, an MREL that is above a firm’s total capital requirement. This work will take some time to complete; thus, BoE does not envisage being able to make any consequential changes to resolution strategies and MRELs for individual firms before the end of 2022. At this initial stage, BoE is interested in hearing from anyone, not limited to the financial sector, who may be able to suggest how best innovative, cost-effective, and efficient solutions could be developed and implemented. As this work develops, it will be subject to formal procedures, such as public consultation, as appropriate. 

     

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    Effective Date: January 01, 2022 (Statement of Policy)

    Keywords: Europe, UK, Banking, MREL, Regulatory Capital, Basel, Proportionality, Statement of Policy, Resolution Framework, BoE

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