Shearman & Sterling LLP | FinReg | Bank of England Launches Consultation on Setting Internal MREL in Groups
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  • Bank of England Launches Consultation on Setting Internal MREL in Groups

    10/02/2017
    The Bank of England has published a consultation paper setting out proposed changes to the Statement of Policy it issued in November 2016 on its approach to setting a minimum requirement for own funds and eligible liabilities (MREL). MREL is the requirement for firms to maintain a minimum amount of loss-absorbing resources to ensure that, should the firm fail, the resolution authority can use the firm's own financial resources to absorb losses and recapitalize the business so it can continue to provide critical functions without the need to rely upon public funds. The MREL requirement is the EU implementation, in the Bank Recovery and Resolution Directive, of the standard for total loss-absorbing capacity (TLAC) set by the Financial Stability Board.

    The BoE's 2016 Statement of Policy focused on "external" MREL, i.e. the calibration of the MREL of UK resolution entities. This consultation sets out the BoE's proposals on "internal" MREL, i.e. instruments that are issued to the resolution entity from other legal entities in a group. The consultation paper sets out the scope of internal MREL, how it should be calibrated, which instruments are eligible and the proposed transitional period for the application of the requirements. Internal MREL is intended to cover UK-headquartered banking groups as well as UK subsidiaries of overseas banking groups.

    Additionally, the consultation paper sets out proposed changes to the 2016 Statement of Policy to address operational continuity requirements and the setting of external MREL for multiple point of entry (MPE) groups. The BoE also provides an update in the consultation on how it intends to develop its policy on requiring firms to disclose and report their MREL resources, and on restrictions on firms investing in each other’s loss-absorbing resources.

    Feedback on the proposals is invited by January 2, 2018.

    View the consultation paper.

    View the BoE 2016 Statement of Policy.