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; or
3. (3) a mixed financial holding company.

1.2

In this Part, the following definitions shall apply:

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

has the meaning given in section 48B(7A)(a) of the Banking Act 2009.

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.

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.

special bail-in provision

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

1.3

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

3.1

In this Chapter, the following definitions shall apply:

debt instruments

means any form of transferable debt security or instrument, whether registered or bearer, including commercial paper, bills of exchange, banker’s acceptances, certificates of deposit and bonds, with the exception of debt securities or instruments which are Additional Tier 1 instruments or Tier 2 instruments.

unsecured liability

means a liability where the right of the creditor to payment or other form of performance is not secured by a charge, pledge, lien or mortgage, or collateral arrangements including liabilities arising from repurchase transactions and other title transfer collateral arrangements.

3.2

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 power by the Bank of England to make a 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;
4. (4) issued, entered into or arising after 19 February 2015; and
5. (5) either a debt instrument which is an unsecured liability, or an additional Tier 1 instrument or a tier 2 instrument.

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

3.3

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.