UK RRD: Handbook rules

The Bank Recovery and Resolution Directive (RRD) was implemented in the UK through several statutory instruments that amended UK legislation, the Prudential Regulation Authority’s (PRA) rules, and our rules.

Our rules can be found in Chapter 11 'Recovery and resolution' of the Prudential sourcebook for Investment Firms[1] (IFPRU). 

There are also rules regarding the submission of recovery plans and information for resolution plans, which can be found in the Supervision manual (SUP)[2]. 

Our rules have been updated following the UK’s withdrawal from the EU, to make sure they continue to operate effectively and reflect the amendments set out in the UK RRD[3].

The rules made to implement the UK RRD address 6 key topics.

Application of our rules

Our rules on recovery and resolution affect:

• investment firms that we regulate prudentially and that meet the definition in our Handbook of an IFPRU 730k firm[4]
• entities in a group that contains an IFPRU 730k investment firm or credit institution; this includes qualified parent undertakings (QPUs) and mixed activity holding companies

IFPRU 11[5] does not apply to:

• PRA authorised persons
• QPUs that are within the scope of the PRA’s rules on recovery and resolution
• firms from third countries

We have included in IFPRU 11.1.6G guidance on the application of the provisions and the definitions contained therein. A table in IFPRU 11.1.7G summarises which sections of IFPRU 11 apply to which types of firms and QPUs.

Recovery plans

Each IFPRU 730k firm that is not subject to supervision on a consolidated basis must draw up a recovery plan and submit this plan to us. Our rules on the content of recovery plans can be found in IFPRU 11.2[6]. Certain other group entities, including qualified parent undertakings (QPUs), must draw up a group recovery plan and submit it to us. IFPRU 11.3[7] contains our rules on group recovery plans.

Resolution plans

While it is the firms and group entities themselves that draw up recovery plans, resolution plans are drafted by the Bank of England[9] (the Bank) in its capacity as the resolution authority.

IFPRU 730k firms that are not subject to supervision on a consolidated basis and certain group entities that are within the scope of IFPRU 11[10] must provide certain information to the Bank so it can draw up a resolution plan.

We have agreed to collect baseline information from firms on behalf of the Bank, and this is reflected in the rules.

Intra-group financial support

The UK RRD states that group entities must be permitted to enter into financial support agreements with other entities in the group. This allows them to provide financial support to any other party to the agreement, should the need arise.

IFPRU 11.5[6] contains the requirements, conditions and procedures to be followed. In line with the RRD, our rules and guidance cover:

• the application to and approval by the consolidating supervisor of intra-group financial support (IGFS) agreements
• the elements that IGFS agreements must contain and the principles with which they must comply
• the conditions which must be met before IGFS can be given
• the decisions of the management bodies of the relevant entities to give and receive IGFS
• the obligation to notify the relevant authorities of the intention to give IGFS

IFPRU 11.5.22R sets out the requirement on all relevant group entities to make public whether or not they have entered into an IGFS agreement. Where such an agreement is in place, the terms of and parties to the agreement must be publicly disclosed.

Contractual recognition of bail-in

In line with the UK RRD, IFPRU 11.6[12] requires IFPRU 730k firms and some group entities that have relevant liabilities governed by the law of a third country, to include a clause in their contracts to the effect that such liabilities may be bound by the actions of the resolution authority (the Bank of England). 

Following the UK’s withdrawal from the EU, all contracts for relevant liabilities governed by the law of an EEA member state have become subject to the provisions on third country contractual recognition of bail-in. 

This means that firms will need to include a new term in the relevant contracts for liabilities such that the creditor agrees the liability may be written down or converted by the Bank. 

This would apply to any new contracts and to any existing contracts that have been materially amended after Brexit. We have amended IFPRU 11.6.3R accordingly.

Application of the Temporary Transitional Power (TTP)

We applied our transitional powers to make sure that firms and other regulated entities could generally continue to comply with their obligations from 31 December 2020 to 31 March 2022.

Our use of the TTP has ended and firms must fully comply with UK onshored regulatory obligations. The TTP as laid out in Treasury legislation expires on 31 December 2022. However, in line with agreed timescales we stopped using the power on 31 March 2022.

Following Treasury legislation[13], the period during which the STO and DTO TTP Directions may continue to apply has been extended to 31 December 2024.

With respect to the changes to IFPRU 11.6, we granted transitional relief only in relation to unsecured liabilities that are not debt instruments. Transitional relief did not cover any liabilities that were intended to count towards a firm’s minimum requirement for own funds and eligible liabilities (MREL), as we consider this would undermine resolvability of a firm. This relief has now ended.

This aligned with the PRA’s approach with respect to the TTP.

Find out more about how we are using the power[14] and the areas to which transitional relief is not applicable.

Notification of failure or likely to fail

The UK RRD requires IFPRU 730k firms and entities in a group containing a 730k firm or credit institution to notify its competent authority where its management body considers that the firm or group entity is failing or likely to fail. 

For the firms that are regulated prudentially by us, this notification must be made to us

In IFPRU 11.7[15], we have listed the circumstances in which the management body should consider that the firm or group entity is failing or likely to fail. These are summarised below:

• the assets of the firm or group entity are less than its liabilities
• there are objective reasons to believe that the assets of the firm or group entity will become less than its liabilities in the near future
• the firm or group entity is unable to pay its debts or other liabilities as they fall due
• there are objective reasons to believe that the firm or group entity will become unable to pay its debts or other liabilities in the near future
• the firm or group entity needs extraordinary public financial support
• the firm is failing to satisfy any of the threshold conditions
• there are objective reasons to believe that the firm will fail to satisfy any of the threshold conditions in the near future

If the management body considers that one or more of these circumstances have occurred, the firm or group entity must notify us immediately. 

The firm or group in question should email the notification to:

• [email protected], copying in both [email protected] and the firm or group’s main supervisory contact

Firms and group entities should also consider the EBA Guidelines[16] on the interpretation of the circumstances in which an institution shall be considered as failing or likely to fail.