Shearman & Sterling LLP | FinReg | Bank of England Extends MREL and Resolvability Deadlines for Mid-Tier Banks
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  • Bank of England Extends MREL and Resolvability Deadlines for Mid-Tier Banks

    The Bank of England has extended until January 1, 2023 the deadlines for “mid-tier” banks to comply with: (i) end-state minimum requirements for own funds and eligible liabilities; and (ii) resolvability assessment framework requirements. “Mid-tier” banks are those that do not qualify as global systemically important banks (as identified by the Financial Stability Board) or domestic systemically important banks (i.e. those that are subject to the U.K. Prudential Regulation Authority’s leverage ratio requirement or are designated as other systemically important institutions by the PRA and have a resolution entity in the U.K.). The term also includes U.K. material subsidiaries of such firms and certain U.K. subsidiaries of overseas groups for which the BoE has set internal MREL in excess of minimum capital requirements.

    MREL is a minimum requirement for firms to maintain equity and eligible debt liabilities that can bear losses before and in resolution. The requirement applies to all U.K. banks, building societies and certain investment firms supervised by the U.K. Prudential Regulation Authority or Financial Conduct Authority, to financial or mixed financial holding parent companies of those firms, and to PRA or FCA-authorized financial institutions that are subsidiaries of those firms or parent companies. The U.K. first implemented interim MREL requirements (which were lower than the full, “end-state” MREL requirements) in 2016 in line with the EU’s Bank Recovery and Resolution Directive. End-state MREL requirements were due to be implemented by January 1, 2022. However, the BoE has extended the deadline for compliance with end-state requirements for mid-tier banks to January 1, 2023 to enable it to complete its scheduled review of MREL, which was launched with a Discussion Paper published today. The BoE plans to publish a consultation paper on proposed changes to the MREL framework in summer 2021 and will implement any changes by the end of 2021.

    The BoE’s resolvability assessment framework: (i) sets out the BoE’s approach to assessing whether in-scope firms are resolvable; (ii) establishes the PRA’s rules requiring firms to assess and report on their resolvability; and (iii) establishes the BoE’s intention to make a public statement concerning the resolvability of each of the major U.K. firms. The BoE’s approach to assessing whether firms are resolvable includes three resolvability outcomes which banks must, as a minimum, be able to achieve in order to be considered resolvable. The BoE has extended to January 1, 2023 the deadline by which mid-tier banks must implement requirements under the BoE’s statement of policy on its approach to assessing resolvability and achieve the three resolvability outcomes.

    U.K. headquartered banks affected by these changes 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. The Bank of Ireland (UK) Plc, AIB Group (UK) Plc, Handelsbanken PLC, Northern Bank Limited and TSB Bank plc are also affected as subsidiaries of overseas groups. U.K. global systemically important banks and domestic systemically important banks must still meet their existing end-state MRELs and RAF deadlines as of January 1, 2022.

    View the Bank of England's statement on MREL and resolvability deadlines.

    View details of the BoE’s Discussion Paper on its approach to setting MREL.

    View details of the UK Resolvability Assessment Framework for Banks.

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