These announcements are being made in conjunction with the publication of ‘The Bank of England’s review of its approach to setting a minimum requirement for own funds and eligible liabilities (MREL) - Discussion paper on a review of the Statement of Policy’.
The extension of MREL and RAF deadlines set out below will enable the Bank to engage with interested parties on the issues set out in the Discussion Paper published today and to complete its review of the MREL framework in 2021 in light of that engagement. The Bank’s MREL Review will consider the resolution strategy thresholds, the calibration of MREL, instrument eligibility, and the application of MRELs within banking groups. In completing its MREL Review in 2021, the Bank will take into consideration the Financial Policy Committee (FPC) and Prudential Regulation Committee (PRC)’s review of the UK leverage ratio framework. The Bank invites feedback on the Discussion Paper to inform its work next year.
End-state MREL deadlines have been extended for ‘mid-tier banks’
The Bank has extended the deadline for ‘mid-tier banks’ to comply with their end-state MRELs to 1 January 2023, unless they are already subject to a later deadline. This replaces indicative end-state MREL compliance dates falling before that date that the Bank had previously communicated.
‘Mid-tier banks’ in scope of this announcement include:
- UK resolution entities that are not G-SIBs or D-SIBs (or their subsidiaries) for which the Bank has set (or has indicated it will set) an MREL in excess of minimum capital requirements;
- UK material subsidiaries of such institutions;
- Certain UK subsidiaries of overseas groups for which the Bank has set internal MREL in excess of minimum capital requirements.
Before 1 January 2023, mid-tier banks are expected to continue to comply with their interim external and internal MRELs, as set in accordance with point b. of para. 9.4(b) of the Statement of Policy on ‘The Bank of England’s approach to setting a minimum requirement for own funds and eligible liabilities (MREL)’ (the MREL SoP), or as otherwise communicated to them by the Bank.
The MREL SoP should be read as amended accordingly.
All other MREL deadlines remain unchanged
MRELs applicable to all other institutions are unaffected by this announcement:
- UK G-SIBs and D-SIBs will continue to be required to meet end-state MRELs from 1 January 2022.
- UK G-SIBs and UK material subsidiaries of non-UK G-SIBs will remain subject to requirements in relation to ‘own funds and eligible liabilities’ set by Regulation EU/2019/876 (CRR II) and The Capital Requirements (Amendment) (EU Exit) Regulations 2019.
As communicated on 7 May 2020, the Bank intends to exercise its discretion with respect to the transition time firms are given to meet higher MRELs. Firms not currently subject to a leverage-based capital requirement, but which subsequently become subject to one, will be given at least 36 months after that requirement takes effect to meet any higher MREL resulting from it.
Resolvability deadlines under the Resolvability Assessment Framework (RAF)
The deadline for mid-tier banks to implement the Statement of Policy ‘The Bank of England’s Approach to Assessing Resolvability’ and to achieve the three resolvability outcomes has been extended from 1 January 2022 to 1 January 2023.
It remains important for boards and senior management of mid-tier banks to take responsibility for their firm’s resolvability and to continue to take steps to assure themselves that they have the necessary arrangements in place to achieve, and continue to achieve, the three resolvability outcomes by 1 January 2023. The Bank intends to continue to engage with those firms on the implementation of the RAF ahead of the revised deadline.
RAF deadlines for major UK banks and building societies are unchanged by this announcement.
Notes for editors
- The Bank is required to set MREL for all institutions, i.e. UK-incorporated banks, UK-incorporated building societies and those UK-incorporated investment firms that are required to hold initial capital of €730,000 or more. The Bank may also set MREL for certain types of other relevant persons in an institution’s group, as set out in para. 1.3 of the MREL SoP.
- MREL is set to ensure that institutions can be resolved in line with the resolution objectives in section 4 of the Banking Act 2009. In particular MREL is set to enable the preferred resolution strategy for an institution to be effected. Where an institution can enter a modified insolvency regime at the point of failure, without adversely affecting the achievement of the resolution objectives, the Bank will set its external MREL at a level equal to its capital requirements, excluding buffers.
- G-SIBs (global systemically important banks) are identified by the Financial Stability Board in consultation with the Basel Committee on Banking Supervision and national authorities.
- D-SIB (domestic systemically important banks) are those institutions that are subject to the PRA leverage ratio requirement (i.e. with retail deposits over £50 billion) and/or any institutions that are designated as an O-SII (other systemically important institution) by the PRA pursuant to the Capital Requirements (Capital Buffers and Macro-prudential Measures) Regulations 2014, and which have a resolution entity in the United Kingdom.
- UK-headquartered firms affected by this announcement are: Coventry Building Society, Leeds Building Society, Metro Bank, Monzo Bank, OSB Group, Skipton Building Society, Starling Bank, Tesco Personal Finance, The Cooperative Bank and Yorkshire Building Society.
- Subsidiaries of overseas groups affected by this announcement are: Bank of Ireland (UK) Plc, AIB Group (UK) Plc, Handelsbanken PLC, Northern Bank Limited and TSB Bank plc.
- The RAF is designed to make resolution more transparent, better understood, and more successful. It builds on the work done since the financial crisis, ensuring that firms are, and are able to demonstrate that they are, resolvable. It sets out how the Bank, as resolution authority, will assess resolvability, building on work that both firms and the Bank have already done. The Bank’s Statement of Policy ‘The Bank of England’s Approach to Assessing Resolvability’ outlines the outcomes it considers necessary to support resolution. These outcomes are supported by existing policies as well as new statements of policy that set out the objectives and principles that firms should meet in order to avoid a determination that they have insufficient capabilities and arrangements to remove identified barriers to resolvability.
- In line with the extension to resolvability deadlines under the RAF for mid-tier banks, the deadlines for the same firms to implement the Bank of England’s Statements of Policy on Continuity of Access to Financial Market Infrastructure, Funding in Resolution, Restructuring Planning, and Management, Governance and Communication have also been extended from 1 January 2022 to 1 January 2023.
- For the avoidance of doubt, deadlines for firms to implement ‘The Bank of England’s policy on valuation capabilities to support resolvability’ remain unchanged.
- The major UK banks and building societies for the purposes of the Resolution Assessment Part of the PRA Rulebook are Barclays, HSBC, Lloyds Banking Group, Nationwide, NatWest Group, Santander UK, Standard Chartered and Virgin Money UK.