International co-ordination

The Financial Stability Board’s Key Attributes of Effective Resolution Regimes for Financial Institutions (Key Attributes) promote cross-border cooperation between authorities, including recommending that countries provide transparent and expedited processes to give effect to foreign resolution actions. 

The international nature of banking means cross-border cooperation is required to achieve legal certainty and equivalent protections for resolution measures that have effects in multiple jurisdictions. Achieving legal certainty and improving cooperation decreases the likelihood of disorderly outcomes and supports continuity in cross-border financial services.

Key Attribute 7 promotes the provision of recognition processes for a foreign resolution action. In line with this, section 89H of the Banking Act 2009 requires the Bank, once notified of a third-country resolution action related to a third-country institution or third-country parent undertaking, to make an instrument that recognises the action, refuses to recognise the action, or recognises part of the action and refuses to recognise the remainder.  

Recognition by the Bank, acting as the UK’s resolution authority, provides certainty as to whether such a third-country resolution action has effect under UK law. It also can provide comparable safeguards for the institution under resolution as provided under UK law.

The Bank might have to make a recognition decision in relation to the single point of entry resolution, by bail-in of a bank with a hosted subsidiary or branch in the UK. 

Alternatively, a third-country resolution authority might write down liabilities governed by UK law. The Bank may be asked to make a recognition decision in this situation. 

The Bank may also have to recognise the transfer of property located in the UK. 

In addition to recognition, the Bank also has the ability to support a resolution carried out by a third-country resolution authority (for example, by ordering a transfer of property in the UK to a bridge institution established by the third-country resolution authority). 

This is not an exhaustive list of all possible circumstances when the Bank might have to make a recognition decision. 

A recognition decision must be made where the Bank is notified of a third-country resolution action, related to a third-country institution or third-country parent undertaking. Broadly, this is an action to manage failure or likely failure of such institutions under the law of another country or territory outside the UK, which is broadly comparable in terms of objectives and anticipated results to a resolution carried out under the UK resolution regime. 

A “third-country institution” is an institution established in a country or territory other than the UK that would, if it were established within the UK, be regarded as a bank, building society, credit union or investment firm. 

A “third-country parent undertaking” is a parent undertaking, parent financial holding company or a parent mixed financial holding company established in a country or territory outside the UK. 

In order to make a recognition decision, the Bank must decide whether the third-country resolution action is broadly comparable in terms of objectives and anticipated results to a resolution carried out under the UK resolution regime (meaning the exercise of a stabilisation option in relation to a corresponding entity in the UK).  Where the third-country action is not of this nature, other options for cross-border assistance may be available through the UK courts. 

The Bank may only make a recognition decision with the approval of HM Treasury.

If the resolution action meets these tests, recognition of the action (or part of it) may be refused only if the Bank and HM Treasury are satisfied that one or more of the following five conditions are satisfied:

1. Recognition would have an adverse effect on financial stability in the UK.
2. The taking of action in relation to a UK branch of a third-country institution is necessary to achieve one or more of the special resolution objectives.
3. Under the third-country resolution action, UK creditors (particularly depositors) would not receive the same treatment as third-country creditors with similar legal rights, by reason of being located or payable in the UK.
4. Recognition of the third-country resolution action would have material fiscal implications for the UK.
5. Recognition would be unlawful under section 6 of the Human Rights Act 1998 (public authority not to act contrary to Human Rights Convention).

Effective prior engagement between the third-country resolution authority and the Bank will help support the transparent and expedited process envisaged in the Key Attributes. Therefore, the Bank encourages third-country resolution authorities to engage the Bank ahead of taking any resolution action that may require action from the Bank, including recognition. This gives the Bank time and flexibility to work with the third-country resolution authority when assessing the recognition request and supporting materials, and aids swift decision-making. 

Third-country resolution authorities could also consider recognition as part of business-as-usual resolution planning and engagement. This would allow third-country resolution authorities, host and any other relevant authorities to consider the information and decision making that may be required in advance. In the event that the third-country resolution authority is unable to engage ahead of taking a resolution action, the Bank encourages the home authority to engage as soon as possible after taking the measures. 

The information provided to the Bank may be shared with HM Treasury given their role in deciding whether to approve the Bank’s recognition decision.

Interested authorities are encouraged to contact the Bank using the email address below before submitting any notification of third-country resolution action. The Bank will then provide guidance on the necessary information that should be included in the request. In any case, the Bank reserves the right to ask for additional information or make further enquiries should we consider it necessary to inform a recognition decision.

Further information or enquiries should be directed to RD-Recognition@bankofengland.co.uk.