Bank of England Publishes Discussion Paper on its Approach to Setting MREL12/18/2020The Bank of England has published a Discussion Paper on its approach to setting the minimum requirement for own funds and eligible liabilities for relevant U.K. financial institutions. 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. The U.K.’s MREL policy was updated in 2018 and in June 2018 the BoE announced that it would review MREL calibration before final “end-state” MRELs were set. The Discussion Paper forms the first part of the BoE’s review.
The Discussion Paper: (i) describes the purpose of MREL; (ii) provides an analysis of the potential impact of a “mid-tier” (i.e. not global or domestic systemically important) bank failure in the event of insufficient MREL resources; (iii) summarizes banks’ experiences of issuing MREL instruments; and (iv) contemplates MREL in the context of other regulatory and market developments, such as the growth of fintech and challenger banks. The Discussion Paper particularly focuses on the impact of MREL requirements for mid-tier banks. It seeks feedback on market participants’ experiences and asks whether there are additional issues that would inform the BoE’s review of the MREL framework. The BoE also intends to consult on a more graduated approach to the application of higher MRELs, with a transition period of longer than the existing three years that banks have to adapt to material changes in their MREL requirements. Responses to the Discussion Paper should be submitted by March 18, 2021. 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 has also today extended the MREL end-state deadlines and resolvability assessment framework deadlines for mid-tier banks from January 1, 2022 to January 1, 2023, unless (in the case of MREL end-state deadlines) banks are already subject to a later deadline. U.K. global systemically important banks and domestic systemically important banks must still meet their existing end-state MRELs and resolvability assessment framework deadlines as of January 1, 2022.
View the BoE's Discussion Paper on its approach to setting MREL.
View details of the BoE's 2018 MREL Policy Statement.
View details of the BoE’s extension to MREL and RAF deadlines.
.TOPIC: Recovery & Resolution
Financial Regulatory Developments Focus