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Home > Financial Stability > Key features of the resolution regime
 

Key features of the resolution regime

Aims and objectives  |  Key features of the resolution regime  |  Tools available within the resolution regime  |  Legislative framework for the UK resolution regime

​The key features of the UK resolution regime are set out below, including its scope, the roles of the authorities, the arrangements for triggering the regime and safeguards for creditors.

Scope of the resolution regime

The regime covers UK-incorporated banks and building societies, investment firms and central counterparties and their group companies. It covers UK subsidiaries of foreign firms, in the same way that these are covered by UK prudential regulation. Branches of foreign firms operating in the UK may be resolved using the UK regime under certain circumstances.

Roles of the authorities

The Banking Act provides a clear framework for use of the resolution regime, with defined roles for each authority.

  • The Bank of England is the designated resolution authority for the United Kingdom.
  • The Bank and the relevant prudential supervisor will make the decision to put a firm into the resolution regime, having consulted HM Treasury. The Prudential Regulation Authority (PRA) is the supervisor for banks, building societies and the larger, more complex investment firms; the Financial Conduct Authority (FCA) is the supervisor for the majority of investment firms.
  • The Bank, in consultation with the other authorities, decides which of the tools to use and conducts the resolution, in all cases except temporary public ownership.
  • HM Treasury decides whether to put a firm into temporary public ownership or make a public equity injection, and conducts the resolution in this case, together with the Bank. (This is a last resort.)
  • The Financial Services Compensation Scheme (FSCS) pays out or funds the transfer of deposits protected by the deposit guarantee scheme, up to a limit of £85,000 per person per authorised firm (or more in the case of certain deposits classes as temporary high balances).  The FSCS may also protect investors for losses up to £50,000.

Triggering resolution

There are two key conditions that must be met before a firm can be put into resolution.  The first condition is that the firm must be failing, or likely to fail. This assessment is made by the prudential supervisor (the PRA or the FCA for those firms regulated solely by the FCA), having consulted the Bank as resolution authority. The second condition is that it must not be reasonably likely that action will be taken – outside resolution – that will result in the firm no longer failing or likely to fail. This assessment is made by the Bank as resolution authority, having consulted the PRA or FCA, and HM Treasury.

Safeguards for creditors

The resolution regime provides a number of built-in safeguards for creditors that are designed to provide certainty about how they would be treated in a resolution. There are protections for financial arrangements where the use of stabilisation tools may otherwise undermine their original purpose. The regime also requires that no creditor will be left worse off after the use of the resolution powers than they would have been had the whole firm been placed into a normal insolvency proceeding.

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