The Bank of England (“BoE”) recently published a consultation paper1 (“Consultation”), detailing its approach to setting a minimum requirement for own funds and eligible liabilities (“MREL”) to be maintained by UK banks and other covered entities pursuant to the EU’s Bank Recovery and Resolution Directive (“BRRD”). The MREL requirements will apply to all UK institutions within the scope of the bail-in provisions of the Banking Act 2009, which implemented the BRRD into UK law, and the BoE’s powers to set MREL for each such institution derive from its status as the national resolution authority for the UK. The Consultation remains open for comment until 11 March 2016.
Background -
The BRRD was partially implemented into the laws of the UK in January 2015, pursuant to the Banking Act 2009, with the provisions on MREL taking effect from 1 January 2016. Under the BRRD, each national resolution authority is required to set the applicable level of MREL in relation to each bank and investment firm headquartered in its jurisdiction. In the UK, the BoE’s MREL-setting powers apply to (i) banks, building societies and so-called 730K investment firms, (ii) parent companies of such institutions that are financial holding companies or mixed financial holding companies, and (iii) financial institutions that are authorised by the Prudential Regulation Authority (“PRA”) or the Financial Conduct Authority (“FCA”), and that are subsidiaries of such institutions or such parent companies. For the purpose of this alert, we will generally refer to all of the above entities as “banks”.
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