Bank Recovery and Resolution Bill 2020

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Closes 13 Dec 2019

Introduction

In the wake of the Global Financial Crisis (‘GFC’), on an international level a great deal of work has been undertaken to address the issue of banks being ‘too big to fail’ – i.e. to ensure that the cost burden of any future bank failure is for the account of its shareholders and creditors, and not for the taxpayers, who ultimately ‘bailed-out’ troubled banks during the GFC. One reason for the ‘bail-out’ approach which had been widely adopted by national governments at that time, was the lack of suitable alternatives to a conventional corporate liquidation of a troubled bank, which if allowed to happen would have had unacceptable consequences for the financial stability of the national and indeed global economy.

Governments and standard-setting agencies have since been at the forefront of policy and legislative updates in many jurisdictions, with the intention of making banks more resilient (and thus reducing the likelihood of failure) and providing a set of tools which can be used by appropriate authorities in the event that a bank is still considered as ‘failing or likely to fail’ (‘FLTF’), to minimise the impact of failure. The process under which the authorities might act in such a circumstance is generally referred to as Resolution.

The draft BRR Bill is closely modelled on the Financial Stability Board's ('FSB’) Key Attributes and upon related legislation which has been enacted in the United Kingdom, Europe and Jersey. An important consideration in developing the Bill was to aim for as large a degree of consistency as possible for those banks with operations spanning the Crown Dependencies. Although the Bill is a complex piece of legislation, fundamentally all of its main provisions have already been adopted by other leading financial centres such as those just referenced. There are no key proposals within the draft Bill which could be considered unique to the Isle of Man in terms of the intended approach to bank resolution.

During the process of developing the Bill, dialogue has taken place with representatives of the Isle of Man Bankers’ Association, the Isle of Man Law Society, the Isle of Man Society of Chartered Accountants and other stakeholders. The input received to date has been factored into the Bill which is now being consulted upon.

The Bill is laid out in Parts. The overall purpose of each Part is summarised in the sections that follow. Throughout the summary, some explanatory information has been included to provide further context to the provisions contained within various Parts of the Bill.