UK: BRRD - The UK's Approach To MREL

Last Updated: 11 January 2016
Article by Jeremy C. Jennings-Mares and Peter Green

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.


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".

It is worth noting here the extensive degree of overlap between the MREL provisions of the BRRD, and the final TLAC Principles published in November 2015 by the Financial Stability Board2. Both sets of provisions aim to establish an appropriate level of liabilities that can be bailed-in, i.e. converted into equity instruments or written down, and thereby absorb losses in order to achieve an effective resolution of the relevant entity. However, there are significant differences between the two sets of provisions, in particular in relation to their scope. The FSB's principles currently apply only to the 30 entities designated by the FSB as Global Systemically Important Banks ("G-SIBs"), whereas the MREL provisions apply to all European banks. The BoE must set MREL for all UK banks in accordance with the final binding technical standards drafted by the European Banking Authority ("EBA") pursuant to the BRRD but it states in the Consultation that it will use its MREL-setting powers to implement the FSB's TLAC Principles in relation to UK G-SIBs.


According to the EBA's draft regulatory technical standards in respect of the setting of MREL, a bank's MREL must consist of both an amount necessary for loss absorption prior to and during resolution, and also an amount necessary for the subsequent recapitalisation of the bank. The loss absorption amount must at least equal the minimal capital requirement pursuant to the Capital Requirements Regulation3 ("CRR"), including any applicable leverage ratio requirement set by the relevant UK competent authority4.

The BoE considers that UK banks would be resolved by one of three resolution strategies – either a modified insolvency procedure, a deposit book transfer or a bail-in.

For those banks that are small or simple enough that their failure would not require the use of stabilisation powers in the public interest, such banks would enter into one of the UK's modified insolvency procedures, depending upon whether the entity is a bank, a building society or an investment firm. Since these entities would be entering into insolvency proceedings, there would be no recapitalisation element of their MREL requirement. Therefore, the BoE proposes to set their MREL at a level equal to their existing minimum capital requirements5, and would not require any additional MREL issuance.

The BoE considers that where a bank provides more than 40,000 transactional accounts, it is likely that one or more of the stabilisation powers provided in the Banking Act 2009 would be used, rather than one of the modified insolvency procedures. If the bank's only critical economic functions were the provision of current accounts, the BoE would propose to transfer all deposits from retail customers and small and medium-sized enterprises to a third party purchaser or bridge bank. For these institutions, therefore, the MREL would be equal to the minimum capital requirement (to account for loss absorption) plus a percentage of the existing minimum capital requirements corresponding to the percentage of the balance sheet to be transferred (to account for recapitalisation needs).

For such institutions, the BoE will generally not require MREL to be subordinated to senior operating liabilities (such as uninsured corporate deposits and derivatives liabilities).

Where an institution has reached a certain size and/or complexity, the bail-in tool is likely to be used. The BoE has indicated that it would generally expect a bail-in strategy to be appropriate for a firm with a balance sheet that exceeded a figure of between £15-25 billion. For these banks, the BoE intends to set MREL at a level equivalent to twice the bank's current minimum capital requirements – once for the loss absorption portion, and once for the recapitalisation portion. For such banks, the BoE also proposes that MREL liabilities should be subordinated to senior operating liabilities. Such subordination is not strictly required under the terms of BRRD, although it is consistent with the FSB's TLAC Principles.

The BoE is also responsible for setting MREL for UK subsidiaries of foreign banking groups that are within the scope of BRRD. In a case where the foreign banking group's resolution authority will pursue a single point of entry resolution strategy, the subsidiary would not become subject to the BoE's stabilisation powers, though the BoE would prescribe MREL of a level necessary to support the overall agreed resolution strategy. MREL in such a case would be expected to consist of capital or subordinated liabilities issued to the foreign parent. However, in a case where the foreign banking group's resolution authority will pursue a multiple point of entry strategy, the BoE would apply its resolution tools and powers in the same way as for domestic banking groups.


Where subordination to senior operating liabilities is required, the BoE has indicated that it expects such a subordination to be achieved by way of structural subordination. In practice, this means that the BoE expects that the relevant bank will raise MREL funds at the holding company level and downstream those funds in the form of capital or another form of subordinated claim to material operating subsidiaries, so that the MREL liabilities will be structurally subordinated to the senior liabilities of the operating subsidiaries.


The BoE, as is the case with all European national resolution authorities, was required to set MREL for all of its banks as from 1 January 2016. However, the regulatory technical standards published by the EBA allow for a transitional period in which lower MRELs can be set for institutions for a period of up to 48 months, i.e. until 31 December 2019. The BoE states that it does not expect to set MRELs at a level any higher than the minimum capital requirements during such period or, in respect of G-SIBs, until 31 December 2018 (to conform to the FSB's TLAC Principles). However, during such period, the BoE expects UK institutions to produce plans as to how they intend to meet their "usual" MREL levels, and to discuss the plans with the BoE.

MREL criteria

Pursuant to the BRRD, MREL can consist of own funds and eligible liabilities. Own funds means capital instruments that qualify as Tier 1 or Tier 2 capital for the purposes of a bank's capital requirements pursuant to the CRR. Eligible liabilities in this context means all liabilities and capital instruments that do not count as Tier 1 or Tier 2 capital and are not excluded from the scope of bail-in according to the prescribed list specified by Article 44(2) of the BRRD.

The prescribed list of excluded liabilities includes:

  • deposits (to the extent that they are covered by a deposit guarantee scheme);
  • secured liabilities;
  • liabilities in respect of client assets or client money;
  • liabilities arising by virtue of a fiduciary relationship;
  • liabilities to institutions with an original maturity of less than seven days;
  • liabilities with a remaining maturity of less than seven days owed to payment and settlement systems; and
  • various liabilities owed to employees, commercial or trade creditors, tax and Social Security authorities and deposit guarantee schemes.

In addition to the MREL criteria specified by the BRRD, secondary legislation passed pursuant to the Banking Act 2009 sets out a number of requirements that liabilities must meet in order to qualify as MREL. A number of these specifications have been adopted in order to be consistent with the FSB's final TLAC Principles. One such requirement is that the liability must have an effective remaining maturity of greater than one year, taking into account any rights of early repayment available to the investor. In addition, the BoE states that it expects UK institutions to consider the overall maturity profile of their external MREL resources, to ensure that temporary lack of access to debt issuance markets would not be likely to cause a significant breach of their MREL requirements.

The BoE also states that it expects UK institutions not to structure their MREL instruments in such a way as to create incentives for the issuer to redeem the instruments ahead of their contractual maturity date.

Consistent with the FSB's final TLAC Principles, the BoE does not consider it appropriate to count, as MREL resources, those liabilities whose values significantly depend on derivatives, such as over-the-counter or exchange-traded derivatives, and structured securities. It also states that liabilities which are subject to contractual set-off or netting arrangements are not appropriate to be counted towards MREL.

In addition, where a liability is governed by the law of a non-EEA jurisdiction, the BoE will need to be satisfied that the liability can absorb losses in resolution, as required by the BRRD.

Relationship between MREL and other capital requirements and buffers

Simultaneously with the Consultation, the PRA issued its own consultation paper entitled "The Minimum Requirement for Own Funds and Eligible Liabilities (MREL) – Buffers and Threshold Conditions". In its consultation, the PRA points out that by 1 January 2020, the capital requirements of UK firms will be influenced by 3 elements: the CRR as implemented in the UK; the leverage ratio framework; and MREL. It regards MREL as complementary to the capital and leverage regimes, particularly because both the capital and leverage ratio regimes are satisfied only by regulatory capital, whereas firms will be able to meet their MREL requirements by counting eligible liabilities that are not regulatory capital.

The PRA has stated that it expects UK firms not to double-count Core Equity Tier 1 capital towards, on the one hand, MREL and, on the other hand, the capital buffers that it must maintain pursuant to the CRR. This will mean that UK firms that count their CET1 capital towards MREL will also need to maintain sufficient CET1 capital to meet their capital buffers. The PRA has also stated that it proposes to adopt a policy to prevent the double counting of CET1 capital between MREL and any applicable leverage ratio buffers.

MREL in the context of banking groups

In addition to setting an external MREL at the group consolidated level, the BoE will also set individual MREL for all in-scope entities within the group. The BoE is also allowed to set individual MREL for entities such as holding companies that are important from a resolution perspective. In terms of setting MREL within groups, the BoE will require that internal MREL resources:

  • must be subordinated to the operating liabilities of the group entities issuing them;
  • must be capable of being written down or converted to equity without the use of stabilisation powers in relation to the operating entity that issues those liabilities; and
  • must be appropriately distributed within the group.

The resolution entities will be required to issue external MREL resources that are at least equal to all of the internal MREL resources to be issued by their subsidiaries. The BoE also requires that the distribution of internal MREL resources within the group must ensure that there is sufficient loss-absorbing capacity prepositioned at the individual entities that are within the scope of MREL, and that the distribution within the group ensures that losses can be absorbed and passed up to the resolution entity.


1  "The Bank of England's approach to setting a minimum requirement for own funds and eligible liabilities (MREL)" – December 2015,

2  "Principles on Loss-absorbing and Recapitalisation Capacity of G-SIBs in Resolution" and "Total Loss-absorbing Capacity (TLAC) Term Sheet" – 9 November 2015, See also the MoFo publication "Resolution of G-SIBs – FSB Final TLAC Principles",

3  Regulation EU No. 575/2013, which, inter alia, implemented the Basel III capital requirements in the EU.

4  The relevant UK competent authority will be either the PRA or the FCA, depending on the entity in question.

5  This will be the higher of the risk-based minimum requirement under the Capital Requirements Regulation (as implemented in the UK), the minimum leverage ratio requirement in the UK and the Basel I floor.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Jeremy C. Jennings-Mares
Peter Green
Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions