Office of Public Sector Information
29.This section requires the Treasury to issue a code of practice about the use of the stabilisation powers, the bank insolvency procedure and the bank administration procedure. It notes the areas that the code may provide guidance on and requires that the FSA, Bank of England and HM Treasury must have regard to the code.
30.This section requires the Treasury to consult with the FSA, the Bank of England and the FSCS before issuing the code and to lay it before Parliament as soon as possible following issue. It also gives Treasury the power to revise the code as appropriate.
31.This section provides that stabilisation powers can be exercised only in respect of a bank if the conditions set out in the section are met. Those conditions essentially demarcate the boundary that must be crossed before the stabilisation powers, the bank administration procedure and (normally) the bank insolvency procedure may be applied to a bank.
32.The first condition, set out in subsection (2), is that, in the opinion of the FSA, the bank is failing, or is likely to fail, to satisfy its regulatory threshold conditions (as provided in the Financial Services and Markets Act 2000).
33.The second condition, set out in subsection (3), is that, in the opinion of the FSA, it is not reasonably likely that action will be taken by or in respect of the bank that will enable the bank to satisfy the threshold conditions, having regard to timing and other relevant circumstances.
34.Subsection (4) provides that, in making this judgement, the FSA are required to discount any financial assistance provided by the Treasury or Bank of England (disregarding ordinary market assistance offered by the Bank on its usual terms). Before confirming that the second condition is met the FSA must consult the Bank of England and the Treasury. Subsection (6) provides that the special resolution regime objectives are not applicable to the FSA’s decisions on whether a bank meets either of these conditions.
35.This section sets out alternative conditions one of which must be satisfied before the Bank of England can exercise stabilisation powers so as to effect a transfer of a bank or banking business to a private sector purchaser or to a bridge bank. It provides that the Bank of England can exercise a stabilisation power only if it is satisfied that the exercise of the power is necessary having regard to certain public interest conditions, set out in subsection (2), namely the stability of the UK’s financial systems, the maintenance of public confidence in the stability of the UK’s banking systems and the protection of depositors. Subsection (3) states that before exercising such powers the Bank must consult both the Treasury and the FSA.
36.Subsection (4) provides for the position where the Treasury has provided financial assistance to a bank in order to resolve or reduce a serious threat to the stability of the UK’s financial systems. In this situation, as set out in subsection (5), the Bank of England may only exercise a stabilisation power following a recommendation from the Treasury on the basis of it being necessary to protect the public interest. The Bank then retains the discretion to consider whether the exercise of such a power is an appropriate way to provide that protection. Subsection (6) provides that these conditions are in addition to the conditions in section 7.
37.This section provides for alternative conditions one of which must be satisfied for the Treasury to exercise stabilisation powers to take a bank into temporary public ownership.
38.Subsection (2) provides that the first condition is that the exercise of the power is necessary to resolve or reduce a serious threat to the stability of the financial systems of the UK.
39.Subsection (3) sets the second, alternative, condition as follows: if the exercise of the power is necessary to protect the public interest, where the Treasury has provided financial assistance in respect of the bank for the purposes of resolving or reducing a serious threat to the stability of the UK’s financial systems. Subsection (4) provides that the Treasury must consult the FSA and the Bank of England before determining whether this condition is met. Subsection (5) provides that these conditions are in addition to the conditions in section 7.
40.This section provides for a new Banking Liaison Panel to advise the Treasury on:
the effect of the special resolution regime on banks, their counterparties and the financial markets
the exercise of the powers to make statutory instruments of Parts 1, 2 or 3 (excluding certain regulations and orders).
the making of the section 5 code of practice
any matter referred to them by the Treasury
41.The members of the Panel will include representatives of the Authorities, FSCS and from the banking, legal and insolvency sectors.
42.Where both the general conditions of section 7 and the specific conditions for the private sector purchaser stabilisation option of section 8 are met, subsection (1) allows the Bank of England to sell all or part of the business of a bank to a commercial purchaser.
43.Subsection (2) provides that this transfer may be effected through either a transfer of the bank’s shares and other securities, or some or all of its property, rights and liabilities. Both types of transfer are executed by instruments made by the Bank (a share transfer instrument (see section 15) or a property transfer instrument (see section 33)).
44.Subsection (1) provides that, where the general conditions (section 7) and the specific conditions (section 8) for the bridge bank stabilisation option are met, the Bank of England may transfer all or part of the business of a bank to a bridge bank. Subsection (2) provides that a transfer to a bridge bank may be effected only through a transfer of the some or all of the bank’s property, rights and liabilities and is executed by one or more instrument(s) made by the Bank. As defined in subsection (1), a bridge bank is a company wholly owned by the Bank of England.
45.The code of practice to be made under section 5(1) must address matters relating to the management and control of bridge banks, which must address certain matters specified in subsection (3).
46.Under subsection (4), where a property transfer is made from a bridge bank (whether or not through means of a property transfer instrument) to a company wholly owned by the Bank of England, that company shall be treated as an ‘onward bridge bank’. Subsection (5) provides for the nature of an onward bridge bank (by setting out the provisions of Part 1 which do and do not apply to onward bridge banks).
47.Where the general conditions (section 7) are satisfied and the Treasury is satisfied that the specific conditions for the temporary public ownership stabilisation option are met as provided in section 9, the Treasury may take a bank into temporary public ownership.
48.Subsection (2) provides that the transferee may either be a nominee of the Treasury (such as the Treasury Solicitor) or a company wholly owned by the Treasury. A transfer to temporary public ownership may only be effected through a transfer of securities, and is made by a share transfer order made by statutory instrument subject to the negative procedure (see sections 16 and 25).
49.Subsection (3) provides that the code of practice must include provision about the management of a bank in temporary public ownership.
50.Share transfer powers may be used to effect the transfer of securities. This section defines securities widely. The definition includes shares and stock; debentures; warrants or other instruments that entitle the holder to acquire such securities; and other rights granted by a deposit-taker which form part of its own funds for the purposes of Section 1 of Chapter 2 of Title V of the Banking Consolidation Directive (2006/48/EC). The definition in this section ensures that share transfer powers can be exercised to transfer complete control of a bank.
51.Share transfer instruments are made by the Bank of England to effect the transfer of a bank to a private sector purchaser (the stabilisation option as described in section 11). This section describes provision that a share transfer instrument may make. The instrument may relate to either specified securities or securities with a specified description.
52.Share transfer orders are made by the Treasury to effect the transfer of a bank to temporary public ownership. This section describes the provision that a share transfer order may make. The order may relate to either specified securities or securities of a specified description.
53.This section makes further provision about the effects of a share transfer instrument or order. Subsection (2) makes clear that the transfer of securities takes place by operation of law. Subsection (3) makes provision for the transfer to take effect regardless of any restriction (including any requirement for consent and restrictions arising by contract—such as a non-assignment clause—or legislation). Provision is also made for the share transfer instrument or order to be carried out free from any encumbrances (such as a trust), which may be extinguished under the order (subsection (5)). Subsection (6) allows for the extinguishment of rights to acquire securities (for example, such as share options).
54.This section states that when a share transfer instrument or order is made, provision can be made to ensure the continuity of arrangements operating in respect of a bank.
55.Subsection (1) enables the share transfer instrument or order to include provision that the transferee can be treated as the same person as the transferor for any purpose connected with the transfer.
56.Subsection (2) enables the share transfer instrument or order to include provision that agreements made or other things done by or in relation to a transferor are treated as made or done by or in relation to the transferee. This provision would enable for example, the transferred deposit taker to continue to benefit from arrangements entered into by the transferors, notwithstanding any rights triggered on the transfer.
57.Subsection (3) allows for transitional provision about things transferred to be continued. This can include continuation of legal proceedings by or in relation to the transferee. Subsection (4) allows for the modification of references to the transferor in instruments or documents. Subsection (5) allows for provision of information to be required or permitted between the transferor and the transferee of a share transfer instrument or order.
58.This section allows for the conversion and delisting of securities (the power applies to all of a specified bank’s securities, whether transferred or not).
59.A share transfer instrument or order may make provision, for example, for the conversion of securities from one form to another (to deal, for example, with the conversion of uncertificated or bearer securities into certificated securities or the conversion of a special class of shares into ordinary shares).
60.Subsection (2) provides that a share transfer instrument or order may make provision for discontinuing the listing of securities issued by the specified bank on a UK regulated market.
61.Subsections (1) and (2) allow for the Bank of England, in relation to a share transfer instrument, and the Treasury, in relation to a share transfer order, to take various actions with regard to directors including appointment and removal, termination and variation of service contracts.
62.Appointments made by the Treasury and Bank of England are made on terms and conditions agreed by the institution making the appointment. Provision is also made for the Bank of England and Treasury to vary or terminate service contracts of directors.
63.This section makes various provisions for share transfer instruments and orders concerning instruments and registration. It provides that the transfer has effect irrespective of production, delivery, transfer or other dealing with an instrument and irrespective of registration.
64.Subsection (1) allows for an instrument or order to make provision in relation to an instrument: a share transfer instrument or order may permit or require the execution, issue or delivery of an instrument. Subsection (4) allows for an instrument to be modified or annulled by a share transfer instrument or order.
65.Subsection (2) specifies that a share transfer instrument or order may have immediate effect, regardless of registration (of the share transfer instrument or order) or the status of an instrument. Subsection (3) provides that a share transfer instrument or order may make provision for the effect of an instrument executed or issued in accordance with the provision of the share transfer instrument or order.
66.Subsection (5) provides for how a share transfer instrument or order may entitle a transferee to be registered or require a person to effect registration in respect of the transferred securities of the specified bank.
67.This section sets out certain provisions in relation to default event provisions of the two types set out in the section (dealing variously with termination rights, conditions precedent to performance, &c.) Subsection (6) allows for default event provisions not to be triggered in relation to a share transfer order or instrument. Subsection (7) provides default event provisions can be disapplied but with exceptions.
68.Subsection (8) means that default event provisions will be disapplied when they relate to the making of an order or instrument, anything that is to be done or may be done under or by virtue of the instrument or order and any action or decision taken or made under the Banking Act or another enactment which resulted in or was connected to the making of the order or instrument.
69.This section provides for a share transfer instrument or order to include incidental, consequential or transitional provision. Such provision may be made generally or for a specified purpose or purposes.
70.This section provides the procedure for making a share transfer instrument. The Bank of England must send a copy of a share transfer instrument, as soon as reasonably practicable, to the specified bank, the Treasury, the FSA and any other persons specified in the code of practice. The Bank of England should also publish the share transfer instrument. The Treasury is also required to lay a copy of the transfer instrument before Parliament.
71.This section provides the procedure for making a share transfer order. Share transfer orders are made by statutory instrument by the Treasury subject to the negative procedure. The Treasury should send a copy of a share transfer order, as soon as reasonably practicable, to the specified bank, the Bank of England, the FSA and any other persons specified in the code of practice. The Treasury should also publish the share transfer order in line with the provisions of subsection (3).
72.Where the Bank of England has made a share transfer instrument to a private sector purchaser, it may make additional supplemental share transfer instruments. These may provide for anything that a share transfer instrument may generally provide for, including a further transfer of securities meeting the description specified in subsection (3)(a).
73.The general and specific conditions (sections 7 and 8 respectively) do not apply to supplemental transfers. The Bank must consult the FSA and the Treasury before making the instrument.
74.Where the Treasury has made a share transfer order to take a bank into temporary public ownership, it may make additional supplemental share transfer orders. These may provide for anything that a share transfer order may generally provide for, including a further transfer of securities meeting the description specified in subsection (3)(a).
75.The general and specific conditions (sections 7 and 9, respectively) do not apply to supplemental transfers. The Treasury must consult the Bank of England and the FSA before making the order.
76.Where the Treasury has made a share transfer order to bring a bank into temporary public ownership in accordance with section 13, it may make onward share transfer orders. These may provide for two things: first, for the transfer of securities meeting the description specified in subsection (3)(a); and, second, for any provision in relation to the relevant securities. Subsection (4) stipulates that the transferee may not be the transferor under the original order.
77.The general and specific conditions (sections 7 and 9, respectively) do not apply to onward transfers. Subsection (6) provides that the Treasury must consult the Bank of England and the FSA before making the order.
78.Subsection (7) provides that the Treasury may make a supplemental share transfer order (as described in section 27) following the making of an onward share transfer order.
79.Where the Treasury has made a share transfer order to bring a bank into temporary public ownership in accordance with section 13, it may make reverse share transfer orders.
80.A reverse share transfer order may transfer securities in temporary public ownership back to the original transferors (i.e. the holders of the shares and other securities before the bank was taken into temporary public ownership). Alternatively, where there has been an onward transfer to a particular type of onward transferee, the order may transfer securities back from that onward transferee into temporary public ownership. The reverse share transfer powers could only be used in the case of an onward transfer, however, where the onward transferee was a company wholly owned by the Bank of England, a company wholly owned by the Treasury or a nominee of the Treasury. This limitation is to prevent the reverse share transfer powers from being exercisable in relation to an onward transfer to a private sector party who wished to acquire the bank from temporary public ownership.
81.The general and specific conditions (sections 7 and 9, respectively) do not apply to reverse transfers. Subsection (6) provides that the Treasury must consult the Bank of England and the FSA before making the order.
82.Subsection (7) provides that the Treasury may make a supplemental share transfer order (as described in section 27) following the making of a reverse share transfer order.
83.Where the Bank of England has made a property transfer instrument to effect the bridge bank stabilisation option, it may make bridge bank share transfer instruments. These may provide for two things: first, for securities issued by the bridge bank to be transferred; and, second, for other provision in relation to the securities of the bridge bank. Thus the Bank of England may transfer the securities of a bridge bank.
84.The general and specific conditions (sections 7 and 8, respectively) do not apply and subsection (5) provides that the Bank of England must consult the Treasury and the FSA before making the instrument.
85.Subsection (6) provides that the Bank of England may make a supplemental share transfer instrument (as described in section 26) following the making of a bridge bank share transfer instrument.
86.Where the Bank of England has made a bridge bank share transfer instrument to a company wholly owned by the Bank of England or the Treasury, or a nominee of the Treasury, the Bank of England may make bridge bank reverse share transfer instruments. A bridge bank reverse share transfer instrument provides for the transfer of securities of a bridge bank to be transferred back from such an onward transferee.
87.The general and specific conditions (sections 7 and 8, respectively) do not apply to reverse transfers and subsection (5) provides that the Bank of England must consult the Treasury and the FSA before making the instrument.
88.This section defines references to “service contract” and “transfer date”.
89.Property transfer instruments may be made by the Bank of England to effect a transfer to a private sector purchaser or to a bridge bank (sections 11 and 12). This section describes the provision that a property transfer instrument may make. The instrument may transfer some or all of the property, rights or liabilities of a specified bank. The instrument may relate to specified combinations of the specified bank’s property, rights or liabilities, although this is subject to restrictions which may be imposed by the exercise of order making powers under section 47.
90.A transfer of property, rights or liabilities is effected through a property transfer instrument (section 33). Subsections (3) and (4) make provision for the transfer to take effect regardless of any legislative or contractual restriction, including requirements for consent (or any other restrictions which might render property not transferable).
91.Subsections (5) and (6) provide that a transfer may be made conditional on events occurring or not occurring, and may provide for the consequences should such a condition be breached. Subsection (7) makes provision about trusts.
92.This section makes provision for a property transfer instrument to transfer any property, rights or liabilities. Such property, rights and liabilities are expressed to include those acquired or arising between the making of the instrument and the transfer date, and any rights and liabilities arising on or after the transfer date in respect of matters occurring before that date. Paragraphs (c) and (d) of subsection (1) provide that foreign property may be transferred. Paragraph (e) provides that rights and liabilities under enactments may be the subject of a transfer.
93.This section states that, when a property transfer instrument is made, provision can be made to ensure the continuity of arrangements operating in respect of a bank.
94.Subsection (1) enables the property transfer instrument to include provision that the transferee can be treated as the same person as the transferor for any purpose connected with the transfer and for the transfer to be treated as a succession.
95.Subsection (2) enables the property transfer instrument to include provision that agreements made or other things done by or in relation to a transferor are treated as made or done by or in relation to the transferee. This provision would enable, for example, the transferred deposit taker to continue to benefit from arrangements entered into by the transferor, notwithstanding any rights triggered on the transfer.
96.Subsection (3) allows for transitional provision about things relating to things transferred to be continued. This can include continuation of legal proceedings by or in relation to the transferee.
97.Subsection (4) allows for provision to be included in a property transfer instrument about continuity of employment.
98.Subsection (5) allows for the modification of references to the transferor in instruments or documents.
99.Subsection (6) provides that in so far as rights and liabilities in respect of anything transferred are enforceable after a transfer date, a property transfer instrument can apportion them as between the transferor and the transferee.
100.Subsection (7) provides that the transferor and the transferee may, by agreement, modify a provision of the instrument. However such a modification must achieve a result that could have been achieved by the instrument, and may not transfer (or arrange the transfer of) property rights or liabilities.
101.Subsection (8) allows for provision of information and assistance to be required or permitted between the transferor and the transferee under a property transfer instrument.
102.This section makes provision in relation to licences.
103.Subsection (1) provides that a licence in respect of property transferred by property instrument shall continue to have effect notwithstanding the transfer. Subsection (2) provides that the Bank of England may disapply subsection (1), so that a licence may be discontinued. Subsection (3) specifies that where a licence imposed rights or obligations, a property transfer instrument may apportion responsibility for exercise or compliances between the transferor and transferee.
104.This section makes similar provision in relation to default event provisions for property transfers as that made for share transfers by section 22.
105.This section describes how a property transfer instrument may make provision for the transfer of property situated outside the United Kingdom and rights and liabilities governed by foreign law.
106.Subsection (3) states that both the transferor and the transferee must take any necessary steps to ensure that the transfer is effective as a matter of foreign law.
107.Subsection (4) makes provision for the period before a transfer may be fully effective as a matter of foreign law. For this period, the transferor must act on behalf of the transferee by holding any property or right for its benefit and discharging any liability on its behalf. Expenses incurred by the transferor in relation to these acts must be met by the transferee.
108.Subsections (6) and (7) relate to obligations imposed by the operation of this section. Such obligations are enforceable as contracts and the Bank of England may give directions in relation to those obligations, with which the transferor must comply.
109.This section provides for a property transfer instrument to include incidental, consequential or transitional provision. Such provision may be made generally or for a specified purpose or purposes.
110.This section requires the Bank of England to send a copy of a property transfer instrument, as soon as reasonably practicable, to the specified bank, the Treasury, the FSA and any other persons specified in the code of practice. The Bank of England must also publish the property transfer instrument in line with the provisions of subsection (2). The Treasury is also required to lay a copy of the transfer instrument before Parliament.
111.Where the Bank of England has made a property transfer instrument it may make additional supplemental property transfer instruments. These may provide for two things: first, for property, rights and liabilities to be transferred from the original transferor; and, second, for anything that a property transfer instrument may otherwise provide for.
112.Subsection (4) provides that the general and specific conditions (sections 7 and 8, respectively) do not apply to supplemental transfers.
113.Subsection (5) provides that the Bank of England must consult the FSA and the Treasury before making the instrument.
114.Where the Bank of England has made a property transfer instrument to effect the bridge bank stabilisation option, it may make onward property transfer instruments. These may provide for two things: first, for the property, rights or liabilities of the bridge bank to be transferred; and, second, for anything that a property transfer instrument may otherwise provide for. Subsection (5) provides that the Bank of England may not transfer property, rights or liabilities to the transferor under the original instrument.
115.Under subsection (6), the general and specific conditions (sections 7 and 8) do not apply to onward transfers. Subsection (7) requires the Bank of England to consult the Treasury and the FSA before making the instrument.
116.Subsection (8) states that the Bank may make a supplemental property transfer instrument (as provided for in section 42) following the making of an onward property transfer instrument.
117.Where the Bank of England has made a property transfer instrument to effect the bridge bank stabilisation option, it may make reverse property transfer instruments.
118.A reverse property transfer instrument may transfer property, rights or liabilities of a bridge bank back to the original transferor (i.e. the failing bank). Alternatively, where there has been an onward transfer to a particular type of onward transferee, the instrument may transfer property back from that onward transferee to the bridge bank. The reverse property transfer powers could only be used in this case, however, where the onward transferee was a company wholly owned by the Bank of England, a company wholly owned by the Treasury or a nominee of the Treasury. This limitation is to prevent the reverse property transfer powers from being exercisable following an onward transfer to a private sector party who wished to acquire the business of a bridge bank.
119.The general and specific conditions (sections 7 and 8, respectively) do not apply to reverse transfers. Subsection (6) provides that the Bank of England must consult the Treasury and the FSA before making the instrument.
120.Subsection (7) states that the Bank of England may make a supplemental property transfer instrument (as described in section 42) following the making of a reverse property transfer instrument.
121.Where the Treasury have made a share transfer order to bring a bank into temporary public ownership, it may make property transfer orders. These may provide for two things: first, for the transfer of the property, rights or liabilities of the bank in temporary public ownership; and, second, for anything that a property transfer instrument may otherwise provide for. Subsection (4) provides that the general and specific conditions (sections 7, 8 and 9) do not apply to property transfers from temporary public ownership. The Treasury must consult the Bank of England and the FSA before making the order.
122.Subsection (6) provides that a property transfer order should be treated, in procedural terms, as a share transfer order (see section 16). In all other respects, however, it should be treated as a property transfer instrument (see section 33).
123.Subsection (8) states that the Treasury may make a supplemental property transfer order (as described in section 42) following the making of temporary public ownership property transfer order.
124.Where the Treasury have made a property transfer to a company wholly owned by the Bank of England or the Treasury, or a nominee of the Treasury, the Treasury may make reverse property transfer orders.
125.A reverse property transfer order provides for the transfer of property back from such an onward transferee.
126.The general and specific conditions (sections 7, 8 and 9, respectively) do not apply to onward transfers and subsection (7) provides that the Treasury must consult the Bank of England and the FSA before making the order.
127.This power enables restrictions to be placed on the making of partial transfers through the property transfer powers. A partial transfer is the transfer of some, but not all, of a bank’s property, rights or liabilities (as defined in subsection (1)).
128.Subsection (2) provides that Treasury may, by order, impose restrictions on partial transfers in the ways which are set out in subsection (2), as supplemented by subsections (3) and (4). This enables restrictions to be imposed by reference to the nature of the property, rights and liabilities which may or may not form part of the transfer. It also permits conditions to be imposed before a partial transfer can be undertaken, and can require partial transfers to include particular provisions.
129.The power is exercisable by the Treasury making an order by statutory instrument subject to the affirmative procedure (subsection (5)), or in the first instance the 28 day procedure, as provided by section 259.
130.This power enables certain private law rights to be protected when the property transfer powers are exercised to effect a partial transfer. A partial transfer is the transfer of some, but not all, of a bank’s property, rights or liabilities (as defined in subsection (1) of Section 47).
131.Subsection (1) broadly defines the certain interests (“protected interests”) for which the power may provide protection. This provision reflects the extremely broad range of relevant interests which exist in this field. The interests which the exercise of the power is intended to cover may include, for example, security interests and set-off and netting arrangements.
132.Under the power, such interests may be protected in the ways set out in subsection (2), as supplemented by subsection (3).
133.The power is exercisable by the Treasury making an order by statutory instrument subject to the affirmative procedure (subsection (6)), or in the first instance the 28 day procedure, as provided by section 259.
134.This section describes three types of orders which may be made for the purposes of providing compensation in consequence of the exercise of the stabilisation powers.
135.Subsection (2) describes a compensation scheme order. It may establish a scheme simply for paying compensation to transferors, or it may establish a scheme for determining whether transferors should be paid compensation. The identity of the transferor or transferors depends on the stabilisation power exercised. In the case of share transfer powers, the transferors will be the holders of the securities which were transferred under the order. In the case of property transfer powers, the transferor will be the bank from whom property, rights or liabilities were transferred.
136.Subsection (3) describes the resolution fund order, which establishes a scheme under which the transferors may become entitled to the proceeds of resolution of a bridge bank or of a bank in temporary public sector ownership.
Banking Act 2009