On October 8, 2018, HM Treasury published draft Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 to onshore the EU Bank Recovery and Resolution Directive in preparation for the U.K.'s exit from the EU. An explanatory guide to the draft Regulations has also been published. The draft Regulations will make changes to the existing U.K. legislation which transposed the BRRD into U.K. law, which is mainly the Banking Act 2009 and the Bank Recovery and Resolution (No 2) Order 2014, and to certain Delegated Regulations adopted by the European Commission under the BRRD. The aim of the draft Regulations is to ensure that the U.K. Special Resolution Regime is "legally and practically workable on a standalone basis" when the U.K. leaves the EU.

The main function of the draft Regulations will be to bring EEA resolutions within the U.K.'s framework for recognition of third-country resolutions. The Banking Act 2009 provides the conditions that must be met for the BoE to refuse to recognize a third-country's resolution action. Those conditions will be amended such that references to the EEA are replaced with reference to the U.K. For example, the BoE will need to take into account whether the third-country's resolution action will affect the financial stability of the U.K. only and will no longer need to consider the effect on the financial stability of an EEA state. A transitional provision will cater for a situation where an EEA-led resolution is taking place at the time of Brexit by disapplying the third-country recognition framework in this situation. This transitional provision will apply where action is taken under an EEA state law (other than the U.K.) to apply a resolution tool, exercise a resolution power or enforce crisis management procedures, as provided for by BRRD. Other than in this situation, any EU27 resolution proceedings would only be recognized or supported in the U.K. under the existing provisions for third-country recognition and not as an automatic matter.

The draft Regulations also add a provision to the Bank Recovery and Resolution (No 2) Order 2014 on contractual recognition of bail-in. The U.K. has implemented the BRRD contractual recognition requirement through rules made by the PRA and the FCA. HM Treasury is proposing to give the BoE powers to make technical standards on requirements for contractual recognition of bail-in, which would include provisions on the liabilities to be excluded from the requirements and the content of the contractual term. The BoE, PRA and the FCA are expected to consult on changes to their rules affected by the draft Regulations before the end of the year, which will hopefully provide further details on when the contractual recognition of bail in will be required for contracts governed by laws other than U.K. law and whether any transitional period will be put in place. Without more, non-U.K. law governed contracts will in principle be required to include bail-in clauses recognizing U.K. bail-in and stay clauses recognizing U.K. stays, when such contracts create liabilities of in-scope U.K. firms that are party to such contracts.

HM Treasury intends to lay the draft Regulations before Parliament in the autumn, after which the Special Resolution Regime Code of Practice will be updated to further clarify the changes made by the draft Regulations to the U.K.'s SRR. The U.K. regulators will consult in due course on any changes that need to be made to their rules to remedy any deficiencies in the EU technical standards that will be retained in U.K. law.

The draft Regulations and the explanatory information are available at: https://www.gov.uk/government/publications/draft-bank-recovery-and-resolution-and-miscellaneous-provisions-amendment-eu-exit-regulations-2018?utm_source=674c54eb-4c1d-4cb9-9d06-556adb0e3539&utm_medium=email&utm_campaign=govuk-notifications&utm_content=immediate.