STSM041520 - Exemptions and reliefs: exemptions: Financial institutions in resolution - supplemental, reverse and onward transfers

When a failed institution is placed in resolution, the special resolution regime in the Banking Act 2009 (‘the Act’) provides for various stabilisation options to be used and exercised to restore liquidity to a failed institution to allow it to continue its business operations.

The options allow for a mandatory reduction instrument, resolution instrument, share transfer instrument/order, or property transfer instrument to be executed to effect the transfer of shares and other securities, or land, away from the failing institution either to a temporary holding bank appointed by the Bank of England (BoE) or to a private sector purchaser.

Supplemental Instruments

While the execution of such an instrument will outline the terms of the resolution and may also be regarded as the effective instrument of transfer, one or more supplemental resolution instruments or share transfer instruments/orders, or property transfer instruments may be required to be executed in order to effect the transfer.

Onward transfer instrument

Similarly, a separate onward transfer resolution instrument will be required allowing for the property (i.e. shares and/or land), held by a bridge bank, temporary public ownership or asset management vehicle, to be transferred to a private sector purchaser or, following exercise of a bail-in resolution option, from a temporary holding depositary bank to a former creditor of the failed institution, or to a private sector purchaser.

Reverse transfer instrument

Alternatively, a reverse transfer instrument may occasionally be required during the period of resolution, which enables property (i.e. securities and/or land) to be moved back from a temporary public ownership, bridge bank, asset management vehicle or private sector purchaser to the previous owner subject to certain restrictions.

For instance, during a revaluation of the failed institution (following exercise of a bail-in resolution power), it may be found that more shares than required were included in the original transfer of securities to the temporary holding depositary bank. As these shares are not required to be included in the resolution process they can therefore be returned to the original owner.

STSM041510 gives information on the types of stabilisation options.