On January 5, 2015, HM Treasury published the Bank Recovery and Resolution Order 2014 ("BRRO") and the Banks and Building Societies (Depositor Preference and Priorities) Order 2014 ("BBSO"). The Banking Act 2009 (Restriction of Special Bail-in Provision, etc.) Order 2014 and the Banking Act 2009 (Mandatory Compensation Arrangements following Bail-in) Regulations 2014 were published in December 2014. These statutory instruments implement the Bank Recovery and Resolution Directive ("BRRD") which establishes a common framework across the EU for the recovery and resolution of troubled banks and investment firms.
The BRRO includes amendments to the Special Resolution Regime ("SRR") contained in the Banking Act 2009 to ensure compliance with the BRRD. The SSR provides the Bank of England ("BoE") with various stabilization options to manage a firm's failure. The BRRO creates a new stabilization option (the transferring of business to an asset management vehicle) in addition to those already in place (i.e. transferring ownership to a private purchaser, transferring some/all of the business to a bridge bank, bail-in of liabilities). The BRRO also includes additional pre-resolution powers, which will enable the BoE to intervene before resolution of a failing firm is required.
The BBSO includes amendments to the Insolvency Act 1986, amending the law on preferential debts by creating a new class of preferential debt. This new class is the part of a bank deposit which exceeds £85,000 and is therefore not covered by the Financial Services Compensation Scheme ("FSCS"). This part of a deposit is treated as Secondary Preferential Debt and will rank after all other Ordinary Preferential Debts, including deposits covered by the FSCS, in the event of a firm's insolvency.
The BBRO, BBSO and explanatory memorandums are available at: http://www.legislation.gov.uk/uksi/2014/3329/contents/made; http://www.legislation.gov.uk/uksi/2014/3486/contents/made; http://www.legislation.gov.uk/uksi/2014/3329/memorandum/contents; and http://www.legislation.gov.uk/uksi/2014/3486/memorandum/contents.
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