BoE publishes updated operational guides to enhance resolution readiness

The Bank of England (BoE) has published new and updated guidance on how it could implement the UK's resolution regime in the event of a bank failure. The guidance includes:

• A new operational guide to transfer resolution. This new guidance provides clarity on how the BoE might execute a transfer resolution. This could include a scenario where some or all of a failing firm's business is transferred to a private sector purchaser, or to a temporary BoE owned bridge bank, and includes how it may require a recapitalisation payment. The guide also expands on the use of resolution powers to execute sales in bank failure scenarios.
• An updated operational guide to bail-resolution. This updated guidance sets out information on how the BoE could execute a bail-in resolution under the Banking Act 2009. The key addition in this updated guidance is the introduction of an alternate approach to bail-in where affected creditors receive non-transferable contingent beneficial interests. These interests simplify the bail-in process and represent a potential right to shares, or proceeds from the sale of shares, once the resolution is concluded. These interests would be created upon entry into resolution and exist until the share allocation for relevant creditors is finalised.

Alongside these changes, the BoE requested and was granted a No-Action Letter (dated 10 April) from the U.S. Securities and Exchange Commission (SEC). The letter provides comfort that SEC staff consider that non-transferable contingent beneficial interests can be created for investors without the need for registration under U.S. securities law. In an accompanying statement, SEC Chairman, Paul Atkins, highlights that bail in regimes differ significantly across jurisdictions and therefore, a rulemaking recommendation will be prepared that would establish a potential exemption from the Securities Act of 1933 registration requirements, for securities issued or sold in connection with a regulatory bail in. Pending any such rulemaking, other foreign regulators and regulated firms are encouraged to contact the SEC to discuss their specific bail in processes or frameworks.

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