Internal MREL: The Bank of England Finalizes Its Approach

On June 13, 2018 the Bank of England (BoE) published a policy statement and a statement of policy (the Statement) on setting minimum requirements for own funds and eligible liabilities (MREL), which updates its draft policy document published in October 2017.

It includes the BoE’s final guidance on the approach it will take to setting MREL issued by non-resolution entities within a banking group (Internal MREL). The Statement also implements the Financial Stability Board’s (FSB) total loss-absorbing capacity (TLAC) standard.

The Statement does not have the force of rules but sets out the BoE’s expectations regarding Internal MREL. It provides that Internal MREL requirements will be applicable to UK resolution entities that are globally systemically important banks (G-SIBs) and to UK material subsidiaries of non-UK G-SIBs from January 1, 2019. It includes a number of clarifications to the draft policy document relating, in particular, to Internal MREL instrument eligibility conditions and, more broadly, whether structures proposed by in-scope institutions are compatible with its policy objectives. These may cause firms to revisit their approach to implementing the requirements.

The BoE also makes reference to EU proposals amending the Bank Recovery and Resolution Directive (BRRD2) and the Capital Requirements Regulation (CRR2). Once implemented, these proposals will introduce Internal MREL requirements for EU institutions and may require changes to the Statement in due course.

Read the full Alert Memo here.