Draft Bank (Recovery and Resolution) (Jersey) Law 201-: Consultation Paper.

STATES OF JERSEY

DRAFT BANK (RECOVERY AND RESOLUTION) (JERSEY) LAW 201-: CONSULTATION PAPER

Presented to the States on 22nd March 2016 by the Chief Minister

STATES GREFFE

2016  R.26

Chief Minister's Department

Consultation Paper

Draft Bank (Recovery and Resolution) (Jersey) Law 201-  17th March 2016 SUMMARY

Jersey is developing a new bank resolution regime (Jersey Resolution Regime) in line with developments internationally. The aims are to ensure the continuity of critical banking functions, to avoid adverse effects on financial stability, to protect public funds by minimising reliance on extraordinary public financial support to failing banks, and to protect covered depositors' and clients' assets.

The international standards state that in order to avoid moral hazard, any failing bank should be able to exit the market, irrespective of its size and interconnectedness, without causing systemic disruption. A failing bank could in principle be liquidated under normal  insolvency  proceedings  in  Jersey.  However,  liquidation  under  normal insolvency proceedings may jeopardise financial stability, interrupt the provision of critical functions, and affect the protection of depositors. In such a case, it is likely that there would be a public interest in stabilising the bank rather than resorting to normal insolvency proceedings.

The Draft Bank (Recovery and Resolution) (Jersey) Law 201- (Draft Law) closely follows the European Union's Bank Recovery and Resolution Directive 2014/59/EU (BRRD) and the transposition in the Banking Act 2009 into the law of England and Wales  (Banking  Act) for  the  sake  of  consistency  and  to adhere  to  international standards.

The aim of this consultation is to invite comments on the proposed Draft Law before it is submitted to the States of Jersey for debate. _____________________________________________________________________

Supporting document attached:

Draft Bank (Recovery and Resolution) (Jersey) Law 201- _____________________________________________________________________

How we will use your information

The information you provide will be processed for the purpose of consultation. The Department of the Chief Minister will use your information in accordance with the Data Protection (Jersey) Law 2005 and the Freedom of Information (Jersey) Law 2011. Please note that we may quote or publish responses to this consultation, but we will not publish the names and addresses of individuals. If you do not want any of your response to be published, you should clearly mark it as confidential. Confidential responses will be included in any summary of statistical information received and views expressed.

Outline of consultation

During the height of the financial crisis of 2008–2009, a number of credit institutions and investment firms in difficulty were either saved by sovereign governments, or entered  bankruptcy  causing  or  contributing  to  widespread  financial  contagion.  A number of aspects of the responses of public authorities were considered unsatisfactory, for example –

1. There was no clear paradigm within which governments or public authorities decided whether to bail out a bank or whether to allow it to fail.
2. The short-term cost to the public purse has been high.
3. The rescue of a failed bank on the basis that it is "too big to fail" creates moral hazard; market participants should not be incentivised to take untenable risks with the knowledge that the price of failure will be government bail-out.
4. The  financial  crisis  demonstrated  that  inadequacies  in  general  corporate insolvency procedures which are not bespoke to bank insolvency are magnified by the differences between the approaches taken in different jurisdictions.

It therefore became apparent to policy-makers that there was a lack of adequate tools available to deal effectively with failed or failing banks. It was concluded that powers were  needed, in  particular,  to prevent  insolvency  or,  when  insolvency  occurs,  to minimise negative repercussions by preserving the critical economic and systemically important functions of the bank concerned. Such tools would also need to ensure that shareholders bear losses first, and that creditors bear losses after shareholders, provided that there are safeguards in place which normally protect creditors with compensation payable where they endure greater losses that would have incurred under normal insolvency proceedings, as set out below.

Consequently, the G20 formed the Financial Stability Board which went on to formulate and  publish  its  Key  Attributes  for  Effective  Resolution  Regimes  for  Financial Institutions  (Key  Attributes).  Within  this  framework,  many  jurisdictions  have implemented resolution regimes which provide tools for addressing banks in financial difficulty within the jurisdiction. Of particular note to Jersey is the BRRD, and the implementation of the UK's Special Resolution Regime primarily through the bringing into force of the Banking Act, as subsequently amended under the law of England and Wales, and as supplemented by various policy statements and codes of practice.

The implementation of the Key Attributes will be assessed in due course as part of any Financial Stability assessment carried out by the International Monetary Fund into financial stability.

Jersey, as well as the other Crown Dependencies (Guernsey and Isle of Man) (together referred to as the CDs) will need to demonstrate their adequacy as leading international offshore banking centres by aligning their bank resolution framework with international development, while tailoring such to the requirements of the market in Jersey. As the banks that may need resolving are mainly UK or European banks, the focus has been to give a particular emphasis on the EU provisions set out in BRRD, and participating in the international harmonisation of approaches to dealing with failing banks.

The Draft Law has been drafted with the aim of ensuring that Jersey is sufficiently well- equipped to be able to –

1. assist a foreign jurisdiction in respect of a resolution action being taken on a bank conducting business in Jersey through a branch or subsidiary; and
2. deal with a scenario in which a bank in Jersey were to fail, and standalone powers were needed to resolve the local business (either as a result of the home jurisdiction taking action which does not satisfactorily deal with the local business, or because Jersey is the home jurisdiction of the bank in difficulty).

In practical terms, the aim of the Jersey Resolution Regime is to be fit to enable the recognition of actions taken by overseas resolution authorities in respect of branches in Jersey,  or Jersey's  Resolution  Authority  taking  action  concurrently  with overseas resolution authorities to assist a group resolution in respect of a subsidiary incorporated in Jersey. There may also be cross-border issues in respect of the UK and/or other CDs where there is a bank incorporated in one island with branches in the other islands.

As part of the research and drafting process of the Draft Law, it has been concluded that current Jersey insolvency law is limited in the manner in which it provides for the recovery or resolution of insolvent banks, particularly where such banks involve a global or group nexus and the extent to which it maps out a modern mechanism for winding-up a Jersey bank. Therefore, a bespoke bank winding-up procedure (the Bank Winding-up Procedure) has also been drafted as part of the Jersey Resolution Regime and is incorporated within the Draft Law.

The aim of this Draft Law is to provide a new set of tools and powers relevant to particular circumstances. There is no current equivalent law in Jersey or in the other CDs. Therefore, the new Jersey Resolution Regime will not affect existing law and practice; instead it is intended to add clarity to what would happen were a bank to fail or be likely to fail in the jurisdiction.

Respondents are invited to comment generally on the Draft Law as well as answer specific questions that are raised.

Ways to respond to this Consultation Paper:

Write to:  James Mews

Director, Finance Industry Development, Financial Services Unit Chief Minister's Department

7th Floor, Cyril Le Marquand House

The Parade

St. Helier

Jersey

JE4 8UL

Telephone:  +44 (0) 1534 440413

E-mail  j.mews@gov.je

Responses from the finance industry may be sent to Jersey Finance at the address below:

Write to:  William Byrne

Head of Technical, Jersey Finance Limited

4th Floor, Sir Walter Raleigh House

48–50 Esplanade

St. Helier

Jersey

JE2 3QB

Telephone:  +44 (0) 1534 836021

E-mail  William.byrne@jerseyfinance.je

Responses sent to Jersey Finance will be shared with Government unless the respondent indicates that they wish to remain anonymous. Please indicate clearly on your response if this is the case.

This Consultation Paper has been sent to the Public Consultation Register. Feedback on this consultation

We value your feedback on how well we consult or seek evidence. If you have any comments on the process of this consultation (as opposed to the issues raised), please contact Communications.Unit@gov.je.

Consultation on the Draft Law

Introduction

1. The Assistant Chief Minister invites responses on the text of the Draft Law concerning creating a resolution regime. The provisions commented on in this paper are those which it is considered may be of particular note or of concern to the finance industry in Jersey, or where the approach taken  by Jersey significantly differs from that taken under BRRD or the Banking Act.

Article 3 – Application

2. This Article has been drafted widely in order that the Draft Law applies to a person who is registered to carry out deposit-taking business in or from within Jersey under the Banking Business (Jersey) Law 1991 (Banking Law), which includes subsidiaries and branches of banks, registered to carry out deposit- taking  business  in  Jersey.  Article 3(1)(b)  extends  the  scope  to  a  holding company or a subsidiary of a bank that is registered to carry out deposit-taking business in or from within Jersey. Article 3(1)(c) extends the scope to a branch or subsidiary of a foreign bank where the foreign bank carries out deposit-taking business in or from within Jersey. This means that the Jersey Resolution Authority could, in theory, seek to resolve a branch or subsidiary of a foreign bank outside of Jersey (albeit the jurisdiction in which that branch or subsidiary of the foreign bank was located would need to recognise the action taken by the Jersey Resolution Authority).
3. It was considered preferable to include broad provisions to cover the event that the jurisdiction in which such an entity was located did not have a resolution regime, and that jurisdiction would recognise a resolution action taken under the Jersey Resolution Regime in order to achieve the orderly resolution of entities in its jurisdiction. For example, a resolution action involving entities located in the other CDs might benefit from the Jersey Resolution Authority having the capability under Jersey law to extend its actions to those entities, if the recognition of such actions can be achieved in those other CDs, prior to the other CDs bringing in a resolution law.
4. Further, whilst it is considered unlikely that the Jersey Resolution Authority would ever seek to resolve a branch or subsidiary of a foreign bank itself, it was considered important to ensure that Jersey retained its independence from the home jurisdiction of a bank. For example, where a bank was incorporated in the UK and had a branch in Jersey, the most likely approach to be taken would be for Jersey to support and recognise the resolution action taken by the UK. However, if it was considered that by doing so it would have an adverse effect on the financial stability of Jersey, the Jersey Resolution Authority could, in theory, seek to resolve the branch itself.
5. It was also considered important that the Jersey Resolution Authority had a broad range of powers available in order that it could take actions to assist a foreign resolution action as deemed necessary (for example, by transferring assets located in Jersey to the foreign equivalent of a bridge bank or ensuring that liabilities governed by Jersey law can be written down in a bail-in).

6. Article 96 of the BRRD requires that where an EEA resolution authority has refused to recognise third country resolution proceedings or where the third country resolution authority has not commenced resolution proceedings which affect the branch, and action is in the public interest, the EEA resolution authority  has  the  powers  necessary  to  act  in  relation  to  the  branch, independently of the third country resolution authority. Therefore, Jersey has taken the same approach as that set out in the BRRD.
7. The view of the Government is that cases where independent action is needed will be highly exceptional. We understand from the Bank of England that there is significant work underway at an international level, to ensure that resolution authorities co-operate in the case of cross-border banks. This includes drawing up  and  agreeing  ex ante resolution  plans  which  set  out  the  roles  and responsibilities of each resolution authority.
8. Powers to act independently in relation to the Jersey branch of a foreign bank would therefore be used in such exceptional circumstances as back-stop' powers to be used in the event that co-operation proved ineffective, and where action was required to protect the public interest of Jersey.
9. This  is  consistent  with  the  Key  Attributes,  which  recognise  the  need  for resolution  authorities  to  have,  as  a  fall-back  option,  the  ability  to  take independent action with respect to local operations of foreign banks in certain circumstances.
10. However, it has been suggested by a member of the steering group that a simpler solution would be for the powers of the Jersey Resolution Authority to resolve a Jersey branch of a foreign bank to be switched off' in contrast to the position taken overseas. This would mean that the Jersey Resolution Authority would always have to seek to recognise a foreign resolution action. The rationale for such an approach is that it is highly unlikely that Jersey would seek to take resolution action on its own in respect of a branch of a foreign bank.
11. Alternatively, if it is considered that the Jersey Resolution Authority should retain broader powers and have the ability to resolve a Jersey branch of a foreign bank, there are a number of practical implications of resolving a branch of a foreign branch which would need to be considered at greater length.
12. The UK is currently in consultation to include powers to resolve a branch. It is likely that Jersey would seek to mirror the UK's approach as far as possible. The details of the proposals being consulted upon in the UK are set out below for information purposes, and to demonstrate the approach that it is currently envisaged that Jersey would most likely seek to follow.
13. The UK Government is proposing to make the following stabilisation powers available to the Bank of England, when acting independently to resolve a UK branch of a third country institution –

1. powers to transfer some or all of the assets, rights and liabilities (the business of the branch) to a private sector purchaser, to a bridge bank or to an asset management vehicle; and

2. the power to bail-in liabilities in connection with the transfer to the private-sector purchaser, the bridge bank, or the asset management vehicle.

14. It is considered that transferring the business of the branch could be achieved without the support of the third country authority. Following the transfer to a private sector purchaser, a bridge bank or an asset management vehicle, bail-in could be used to recapitalise that entity as necessary.
15. The UK Government would not be proposing to introduce standalone bail-in powers. Bailing in the liabilities of the branch itself would unlikely be an effective stabilisation tool, given that the branch would have no legal identity of its own. On that basis, the relevant provisions of the Banking Act would be disapplied where the Bank of England was acting independently to resolve a third country branch.
16. Similarly, the UK government would not be proposing to introduce powers to put branches into temporary public ownership. Temporary public ownership is a resolution tool intended as a last resort' stabilisation option for use only where there is serious risk to the financial stability of the UK (as is the case for Jersey in respect of the temporary public ownership stabilisation tool). It can only be applied to banks and holding companies, not to other banking group companies. As such, it would not be appropriate to use temporary public ownership powers for the independent resolution of a branch, which has no legal identity of its own. On that basis, the relevant provisions of the Banking Act would also be disapplied in this regard where the Bank of England is acting independently to resolve a third country branch.
17. The  UK Government is not intending to extend  share transfer powers  to independent resolutions of UK branches, as the branch itself is not a separate legal entity.
18. For the Bank of England to have property transfer powers over the business of the branch, it would need to be specified which assets, rights and liabilities fall within such a definition. The UK Government would propose to define the UK branch' as a branch situated in the United Kingdom of a third country institution authorised for the purpose of the Financial Services and Markets Act 2000 by the PRA or FCA.' It would then look to define the business of a UK branch' as any property in the United Kingdom of the relevant third country institution, and any rights and liabilities of the relevant third country institution arising as a result of the operations of a UK branch.
19. The proposed amendments to the Banking Act would provide that the Bank of England may only exercise transfer and bail-in powers over the business of a UK branch where it is necessary to do so having regard to the public interest in advancing the special resolution objectives. This condition would have the practical effect of limiting the scope of the Bank of England's powers to what is proportionate in order to safeguard the UK public interest. As detailed above this approach could be mirrored, either as a matter of practice in the policy development side of implementing a regime, or by amending the Draft Law as far as possible for use in Jersey depending on the views received as a result of this consultation.

20. However, generally speaking, the policy intent is to grant as wide powers as may be necessary for a resolution authority so that the scope of a Draft Law does not need to be changed in the future.

Question 1:

Do you agree with the scope of the Draft Law in respect of resolution under Article 3(1) of the Draft Law? If not, then please state why and what you would prefer?

21. Article 3(2) provides for the scope of the Draft Law in respect of the Bank Winding-up Procedure which is more limited compared to Article 3(1), which applies to recovery and resolution generally. Article 3(2) applies to persons registered to carry out deposit-taking business in or from within Jersey under the Banking Law which includes subsidiaries and branches of foreign banks.
22. The Bank Winding-up Procedure also extends to a company incorporated in Jersey that is a holding company or subsidiary of a person registered to carry out deposit-taking business in or within Jersey under the Banking Law.

Question 2:

Do you agree with the scope of the Draft Law in respect of the Bank Winding-up Procedure under Article 3(2) of the Draft Law?

Part 2 – Jersey Resolution Authority

23. It is a general principle of the Key Attributes, and of BRRD, that in order to ensure the required speed of action, to guarantee independence from economic factors and to avoid conflicts of interest, a public administrative authority should be entrusted with the necessary public administrative powers to perform various functions and tasks under each resolution regime. The Key Attributes state that to act as a resolution authority, the authority must be operationally independent in this role.
24. However, operationally independent does not mean that other members of the financial safety net should not sit on the Board. For example, the IADI Core Principles for Deposit Insurance Systems also adopted by the Financial Stability Board, clearly sets out in Principle 3 that other members of the financial safety net  are  able  to  sit  on  the  Board  with  the  board  remaining  operationally independent, provided that such members do not act as chair or constitute a majority.
25. Article 5(1) of the Draft Law provides for the States to appoint members of the Jersey  Resolution  Authority  from  various  bodies  (including  the  Chief Minister's Department and the Jersey Financial Services Commission) in order to ensure that different views from sectors of Jersey's financial industry can be heard and taken into consideration as part of the resolution process and eventual decision-making in respect of a bank resolution.

26. In the event that the Minister is unable to/does not make an appointment under Article 5(1) of the Draft Law, Article 5(4) allows the Minister to appoint a public officer, public authority or other person to discharge the functions of the Jersey Resolution. For example, the Jersey Financial Services Commission or the Deposit Compensation Scheme Board could be appointed as the Jersey Resolution Authority if necessary.
27. Also, this provision could be used for a pan-national body such as a CD resolution authority to be appointed. While there are many obstacles to creating a body that would govern resolution actions in more than one CD, there would appear to be possibilities for cost savings and also the alignment of a common interest in working with an overseas resolution authority to resolve a globally systemically important institution.

Question 3:

Do you agree with the approach being taken in respect of appointments to a Jersey Resolution Authority?

Question 4:

Do  you  consider  that  there  should  be  a  representative  of  any  other body/group/authority represented on the Jersey Resolution Authority?

Question 5:

Do you think that there should be best endeavours taken to create a Resolution Authority spanning more than one of the CDs?

Funding Resolution – General Approach

28. There are likely to be circumstances in which the effectiveness of the resolution tools would depend on the availability of short-term funding for a bank or bridge  bank,  the  provision  of  guarantees  to  potential  purchasers,  or  the provision of capital to a bridge bank. For this reason, the Key Attributes and BRRD state that financing arrangements should be set up to ensure that funds are available for such purposes without the need for recourse to public funds. As a matter of general principle, the Key Attributes are clear that the finance industry as a whole must, ultimately, finance the stabilisation of the financial system.
29. The Key Attributes stipulate in general terms that jurisdictions should have in place privately-funded deposit insurance or resolution funds, or a funding mechanism with ex-post recovery from the finance industry of the costs of providing temporary financing to facilitate the resolution of a bank. BRRD is more specific, setting out requirements for each European Member State to establish an ex-ante funded resolution fund. BRRD stipulates that resolution funds should have available funds of at least 1% of the amount of covered deposits of all the banks authorised in the jurisdiction.

30. It is also a general principle under the Key Attributes that where temporary funding from a resolution fund is used to accomplish the stabilisation of a bank, such funds should be recovered: (i) from shareholders and unsecured creditors, subject to the principle that no creditor should be worse off in stabilisation than in winding-up; or (ii) if necessary, by way of contributions from the financial system more widely.
31. In preparing the Draft Law, the Government has been cognisant of the need to balance the implementation of a Jersey Resolution Regime which is credible and in line with international standards on the one hand, with minimising the cost of the implementation of such a regime to Jersey's banking industry on the other hand. The general approach taken in respect of the funding of resolution has therefore sought to strike a balance between these considerations.

Article 16 – Annual Administration Levy

32. The approach taken in respect of the Annual Administration Levy payable under the Draft Law is similar to the approach taken in respect of the Jersey Bank Depositor Compensation Scheme (JDCS).
33. Banks in Jersey may be required to pay an Annual Administration Levy, which would be split as necessary in order to fund the Jersey Resolution Authority's expected recurring administrative costs. Whether there is a need for an Annual Administration Levy will be the subject of further consultation in due course.
34. The Jersey Resolution Authority will also have the ability to use the Jersey Bank Resolution Fund to provide or maintain a reserve. This would provide a buffer against initial costs that might be payable in the future as a result of resolution action being taken in respect of a bank in that or any subsequent year, without having to wait for receipt of other funding.
35. The Annual Administration Levy would be used to pay for costs incurred by the Jersey Resolution Authority in respect of preparing for resolution and the standing costs of a Jersey Resolution Authority (for example, the salary of an employee of the Jersey Resolution Authority).

Article 22 – Establishment of Jersey Bank Resolution Fund

36. As detailed above, the Jersey Bank Resolution Fund mirrors the structure of the JDCS and broadly consists of the following elements –

1. the amount that can be paid out from the Jersey Bank Resolution Fund for the costs of resolution has not been capped but is limited to the funds available;
2. the Jersey Bank Resolution Fund has the capacity to borrow from any source, including the Strategic Reserve Fund (as defined in the Public Finances (Jersey) Law 2005) and private sector sources in order to access funds;
3. the Jersey Bank Resolution Fund is able to seek to recover any funds paid out from the bank in resolution;

4. if there is any negative balance left to the Jersey Bank Resolution Fund following recovery of as much as possible from the bank in resolution, the Jersey Bank Resolution Fund is able to recover such balance from other banks, ex-post, on terms which reflect the JDCS.

37. It was considered that the preferable approach for Jersey's banking industry would be for the Jersey Bank Resolution Fund to have access to immediate liquidity funding, by way of a loan from the Government which could later be recouped from the bank in resolution. Whilst there is the possibility for any costs that cannot be recouped from the bank in resolution to be recouped from other banks in the Island, it is unlikely that this would ever be the case when the amounts required for resolution action is compared to the balance sheets of the banks that are subject to resolution.
38. It was not considered appropriate to create a pre-funded Fund as envisaged in BRRD, as this would require the Island's banks to pay a higher levy than they would be required to pay under the Annual Administration Levy alone. In taking this approach, the financial resources in Jersey were considered, as well as the need to keep the cost of implementing the Jersey Resolution Regime proportional and cost-effective. It is considered that the key backstop for the Jersey Bank Resolution Fund is to have access to liquidity from the States in order to act in a timely fashion.
39. The Jersey Bank Resolution Fund would be used to pay costs including the cost of resolution itself (valuations, etc.) and potential claims for compensation.
40. Article 22(8) of the Draft Law provides a cap of £100 million to be contributed to the Jersey Bank Resolution Fund by the banks during any 5-year period (or such other amount or time period as may be prescribed). This cap on the amount to be contributed is aimed at providing Jersey's banking industry with some comfort as to the maximum amount of liability in respect of resolution costs.
41. Whilst the Jersey Bank Resolution Fund can be used to contribute towards compensation payable for a no creditor worse off claim', there is no cap specified in respect of the amount that can be claimed by way of compensation. In other words, if a creditor of a bank in resolution has a compensation claim against a bank in resolution, that creditor can claim the full amount owed and will not be capped at £100 million. However, this begs the question: where will the funds come from for such a claim?
42. The answer is contained in Article 22(9) of the Draft Law, which provides that where a creditor's claim has exhausted the funds in the Jersey Bank Resolution Fund, that creditor will have a direct claim against the bank in resolution, and the claim cannot be made against the Jersey Resolution Authority in respect of the Jersey Bank Resolution Fund. This aims to protect the other banks in Jersey and the Jersey Bank Resolution Fund, while preserving creditors' rights against the party that arguably is responsible for the loss (i.e. the bank in resolution). This moves a creditor's claim away from the Jersey Bank Resolution Fund in the event that the bank in resolution cannot fund the costs of resolution, and the monies contributed by the other banks are insufficient to cover the costs of

resolution. This end result is intended to be that the Fund can continue to operate and provide services to all banks even if a resolution attempt fails.

Question 6:

Do you agree with the approach being taken in respect of the Jersey Bank Resolution Fund? If not, please elaborate on your reasons as to why and how you consider this could be changed?

Question 7:

Do you agree with the approach being taken in respect of creditors' rights and the limitations of liability placed upon the Jersey Bank Resolution Fund? Could the drafting be improved to achieve the aims of transferring liability? If you do not agree with the approach taken, please elaborate on your reasons why, and state how you consider this should be changed?

Article 30 – Creditor Hierarchy

43. While eligible deposits are protected from losses in resolution, other eligible deposits are potentially available for loss absorbency purposes. In order to provide a certain level of protection for natural persons holding eligible deposits above the level of eligible deposits, such deposits have been given a higher priority ranking over the claims of ordinary unsecured, non-preferred creditors under Jersey insolvency law. The claim of the JDCS against all subrogated claims by depositors is then given an even higher ranking under the Jersey Resolution Regime than the aforementioned eligible deposits.
44. There are currently disparities between the creditor hierarchies set out in the laws of England and Wales, other European countries, Jersey and the other CDs. This is partly due to the level of protection afforded to depositors under each jurisdiction's  depositor  compensation  scheme  (DCS).  For example,  Jersey protects individual depositors up to £50,000, in comparison to England and Wales which protect individual depositors up to £75,000. Whilst this has been an accepted position in respect of the DCS, it will cause disparity under the resolution regimes because of the definition of covered deposit'.
45. An example is in respect of the application of the bail-in tool and the order in which liabilities can be written down or converted. Article 65(7) of the Draft Law makes provision to state that the Authority shall not exercise the write- down or conversion power in respect of covered deposits', which is the same approach taken under the BRRD. However, the definition of covered deposit' itself differs, in that the BRRD definition is wider than that in the Draft Law due  to  the  difference  in  the  deposits  covered'  by  the  DCS  in  different jurisdictions.
46. Under the Draft Law, the term Covered Deposit' is defined as the part of eligible deposits that does not exceed the maximum amount of compensation payable to a depositor under the Draft Bank Depositors Compensation (Jersey) Law 201-  (Draft  JDCS  Law).  In  summary,  the  maximum  amount  of compensation payable under the JDCS Law is £50,000 per person, per Jersey banking group for local and international depositors. The Draft JDCS Law

covers private individuals, charities and Community Savings Limited. It does not extend to corporations, SMEs, partnerships or trusts.

47. Under BRRD, Covered Deposit' is defined as the part of eligible deposits that does not exceed the coverage level laid down in Article 6 of the BRRD which confirms  protection  of  each  depositor  up  to  EUR 100,000  (approximately GBP 77,000)  and  includes  deposits  resulting  from  real  estate  transactions relating to private residential properties and deposits that serve social purposes and are linked to particular life events of a depositor, such as marriage, divorce, retirement, etc. As the law of England and Wales follows BRRD, it covers private  individuals,  SMEs,  corporate  bodies,  partnerships  and  charities (although specific rules apply in respect of turnover of charities). Therefore a wider approach is also taken by England and Wales in comparison to Jersey.
48. There is also a risk that a creditor may be worse off as a result of resolution action being taken, or the recognition by the Jersey Resolution Authority of a foreign resolution authority's actions, compared to the position otherwise under Jersey law. Also, if the creditor hierarchy is amended, there is the risk that if a bank were to fail and become insolvent, and the DCS were to pay out, that the recoveries might be less to the DCS as a result of the amended hierarchy.
49. As a matter of policy, the Government is working with the other CDs to achieve, as far as possible, a harmonised approach across the CDs in respect of creditor hierarchy. This is desirable in order to minimise exposure to the Jersey Bank Resolution Fund under the no creditor worse off' principle, and to ensure that Jersey is not placed at a competitive disadvantage in respect of the level of protection afforded to depositors.

Question 8:

Are there any preferences in terms of the approach to be adopted with regard to the creditor hierarchy, and as to the appropriate balance to be struck between a policy which favours maximising recoveries in the event of a DCS payout, or one that reduces the chances of a no creditor worse off' claim by greater harmonisation with the law of England and Wales?

Article 33 – Objectives of Resolution

50. In accordance with the general principles of BRRD, the Jersey Resolution Regime does not prescribe the exact means by which the Jersey Resolution Authority should intervene with a failing bank. Rather, it maintains and gives the Jersey Resolution Authority the flexibility to use the powers available to it under the Jersey Resolution Regime. In exercising the resolution powers and measures available to it, the Jersey Resolution Authority will be required to take into account the circumstances in which the failure occurs. For example, if the problem arises in an individual bank and the rest of the financial system is not affected, the Jersey Resolution Authority will be able to exercise the resolution powers without much concern for contagion effects, whereas greater care would need to be exercised to avoid destabilising financial markets in an economically fragile environment.

51. The Banking Act has included an objective to state that resolution action can only be taken where it is necessary in the public interest of the UK, and any interference with the rights of shareholders and creditors which results from resolution actions would have to be compatible with the Human Rights Act 1998.
52. It is considered that the use of the resolution tools and powers provided for in the Jersey Resolution Regime may, by their very nature, disrupt the rights of shareholders and creditors. One example is the power to transfer the shares or all or part of the assets of a bank to a private purchaser without the consent of shareholders, which will affect the property rights of shareholders. In addition, the power to decide which liabilities to transfer out of a failing bank based upon the objectives of ensuring the continuity of services and avoiding adverse effects on financial stability may affect the equal treatment of creditors. The Draft Law does not made it a resolution objective to avoid interference with property rights in breach of the Human Rights (Jersey) Law 2000. However, Article 33(5) requires the Jersey Resolution Authority to seek to minimize the cost of resolution and avoid destruction of value unless reasonable to achieve the resolution objectives. This principle is not included in the BRRD, but has been included due to the comparable size of Jersey (to the EU for example) and the liability risks posed by resolution. Article 34(1)(c) also requires that a stabilization tool may only be applied if the Authority is satisfied that the application of that tool is in the public interest of Jersey. The Draft Law will be reviewed generally for compatibility with the Human Rights (Jersey) Law 2000 as a matter of course by the Law Officers.

Article 35 – General Principles of Resolution

53. The Jersey Resolution Authority will be required to take into account the nature of a bank's business; shareholding structure; legal form; risk profile; size; legal status and form, and interconnectedness to other banks or to the financial system in general; the scope and complexity of its activities; whether it is a member of an  institutional  protection  scheme  or  other  co-operative  mutual  solidarity systems; whether it exercises any investment services or activities; and whether its failure and subsequent winding-up under normal insolvency proceedings would be likely to have a significant negative effect on financial markets, on other banks, on funding conditions, or on the wider economy, when developing recovery and resolution plans and when using the different powers and tools at their disposal.
54. The  general  principles  of  resolution  in  the  Draft  Law  closely  follow  the principles set out in BRRD. However, it has been proposed that the statement in Article 35(g) that: no creditor shall incur greater losses than would have been  incurred  had  the  bank  been  wound  up  under  normal  insolvency proceedings' should be constrained by the caveat, unless such is necessary in the public interest. The reason for this possible amendment is to bring the no creditor worse principle' directly into line with Article 1, Protocol 1 of the European Convention on Human Rights in respect of interference with property rights. Compensation will be paid out of the Jersey Resolution Fund, which will generally be payable by the bank in resolution. There is also a relationship with Article 78, where there is the ability for compensation to be payable following the difference in treatment' valuation.

Question 9:

Do you agree with the application of the no creditor worse off' principle as set out in the Draft Law? Should it be further constrained by a caveat: unless such interference is necessary in the public interest'? And, if so, should the principle also be linked to Article 78?

Articles 44–50 and 77–78 – Valuations

55. It is important that the Jersey Resolution Authority is able to pursue effective decision-making as regards the application of the resolution tools. The Draft Law has followed the BRRD approach in respect of the valuations to be undertaken as part of the Jersey Resolution Regime. It was considered as part of the drafting process whether a simplified approach could be taken by and in respect of banks in Jersey; however, taking a risk-based approach it was not, subject to the views of consultees, considered sensible or feasible to amend substantially the established valuation methodologies currently used in Europe.
56. Before any resolution action is taken, a fair and realistic valuation of the assets and liabilities of the bank is required to be carried out. The valuation will be an integral part of the decision made by the Jersey Resolution Authority as to whether or not to apply a resolution tool or exercise a resolution power, or the decision to exercise the write down and conversion power.
57. Where possible, a definitive valuation will take place prior to resolution. This valuation will be undertaken by an independent valuer and the purpose of the valuation will be to: (i) assess the value of the assets and liabilities of the institution/entity  and  ensure  that  the  conditions  for  resolution  are  met;

(ii) inform the determination as to what the resolution action to be taken should be; (iii) inform the decision on the extent to which the power should be used (depending on the resolution action taken and/or the resolution tools used); and

(iv) ensure that any losses on the assets of the bank are fully recognised at the moment that the resolution tools are, or the power is, applied.

58. In cases where a definitive valuation is not possible prior to resolution, and the Jersey Resolution Authority considers that the urgency of the case means that it is appropriate to make a mandatory reduction instrument (i.e. an instrument by which  the  Jersey  Resolution  Authority  exercises  the  write-down  and/or conversion power), or exercises a stabilisation power, before a valuation can be carried out by an independent valuer, it may carry out a provisional valuation of the assets and liabilities of the bank itself in order to understand whether the bank is failing or likely to fail. This provisional valuation will be the basis of resolution actions until a definitive valuation can be carried out.
59. Following the application of the resolution tools, a difference of treatment valuation' will be undertaken. This valuation will compare the treatment that shareholders and creditors have actually been afforded and the treatment that they would have received under normal insolvency proceedings. The purpose of this valuation will be to: (i) ensure that any losses on the assets of the institution/entity are fully recognised in the books of the accounts of the same; and (ii) inform a decision to write back creditors' claims or to increase the value of the consideration paid, where it is determined that shareholders and creditors

have received in payment of, or compensation for, their claims, the equivalent of less than the amount that they would have received under normal insolvency proceedings.

60. Articles 48 and 77 of the Draft Law provide for the Jersey Resolution Authority to set or adopt standards for the purpose of the valuations to be undertaken. The Jersey  Resolution  Authority  may  therefore  seek  to  follow  the  technical standards drafted by the European Banking Authority (as done in BRRD), or it may seek to produce its own.

Article 65 – Application of bail-in tool

61. There are various tools available to the Jersey Resolution Authority in the event that a bank is failing or likely to fail. However, it is considered that the tool that the Jersey Resolution Authority is most likely to apply would be the bail-in tool.
62. The Jersey Resolution Regime aims to minimise the risk that the costs of the resolution of a failing bank are borne by Jersey taxpayers. It aims to ensure that systemic banks can be resolved without jeopardising financial stability. The bail-in tool is intended to achieve these objectives by ensuring that shareholders and creditors of a failing bank suffer appropriate losses and bear an appropriate part of the costs arising from the failure of the bank. The bail-in tool therefore gives shareholders and creditors of banks a stronger incentive to monitor the health of a bank during normal circumstances, and meets the Financial Stability Board's recommendation that statutory debt write-down and conversion powers be included in a framework for resolution, as an additional option in conjunction with other resolution tools.
63. It is not appropriate to apply the bail-in tool to claims insofar as they are secured, collateralised or otherwise guaranteed. However, in order to ensure that the bail-in tool is effective and achieves its objectives, the Draft Law seeks to apply to as wide a range of the unsecured liabilities of a failing bank as possible.
64. Nevertheless, it is considered appropriate under the BRRD (and as transposed in the Banking Act) to exclude certain kinds of unsecured liabilities from the scope of application of the bail-in tool. This is the case to protect covered deposits, but also to ensure continuity of critical functions and to reduce the risk of systemic contagion.
65. As the protection for eligible depositors is one of the most important objectives of resolution, covered deposits are not subject to the exercise of the bail-in tool. Most jurisdictions  adopt the  definition  that is  utilised  under their deposit compensation regime. However, as detailed above, the current definition of covered deposits under the Draft Law (please refer to Article 65(7)(a) and the definitions set out in Article 1) is narrower than that in the BRRD and the Banking Act. The Draft Law uses the Jersey definition under the legislation relating to JDCS, rather than that under the BRRD, which defines covered deposits to include the standard eligible depositors covered under the JDCS up to the amount that they are protected by the JDCS. Amending this provision to reflect the European approach would have the effect of parity with the UK DCS and a similarity with other European jurisdictions, although it would restrict the

amount of liabilities that the Jersey Resolution Authority could bail-in as part of a resolution.

Question 10:

Do you agree that the definition of covered deposits should be linked to the existing  Jersey  definition  as  those  covered  by  the  Jersey  Deposit Compensation Scheme'? If not, please state what definition should be adopted?

66. Article 65(7)(b) has the effect of excluding from bail-in secured liabilities including covered bonds and liabilities in the form of financial instruments used for hedging purposes which form an integral part of the cover pool and which according to Jersey law are secured in a way similar to covered bonds'. Covered bonds are defined in defined in Article 2.1(96) of BRRD by reference to Article 52(4) of Directive 2009/65/EC of the European Parliament and of the Council  of  13th July 2009  on  the  co-ordination  of  laws,  regulations  and administrative provisions relating to undertakings for collective investment in transferable securities. It would need to be considered specifically by banks which liabilities held by them would fall into this category.
67. Article 65(7)(c) has the effect of excluding from bail-in any liability that arises by virtue of the holding by the bank of client assets held on behalf of a recognized fund (within the meaning of Article 1 of the Collective Investment Funds (Jersey) Law 1988) or an AIF (within the meaning of the Alternative Investment Funds (Jersey) Regulations 2012), provided that such a client's assets are protected under normal insolvency law', which follows the approach taken  under  BRRD  using  the  Jersey  equivalent  of  UCITS  as  defined  in Article 1(2) of Directive 2009/65/EC; or of AIFs as defined in point (a) of Article 4(1) of Directive 2011/61/EU of the European Parliament and of the Council'. Under BRRD, reference is made to client assets or client money', whereas the Draft Law refers only to client assets' (which is the same approach taken in the Banking Act). Client assets have been specifically defined as assets which a bank has undertaken to hold for a client (whether or not on trust, and whether or not the undertaking has been complied with).
68. Article 65(7)(d) has the effect of excluding from bail-in any liability that arises by virtue of a fiduciary relationship between the bank (as fiduciary) and another person (as beneficiary), provided that such beneficiary's interests are protected under Jersey insolvency law'. This is the same approach as that taken under BRRD.
69. Article 65(7)(e) has the effect of excluding from bail-in liabilities to a credit institution, excluding entities that are part of the same group, with an original maturity date of less than 7 days'. Credit institutions are defined specifically as a bank or an entity that is carrying on deposit-taking business (whether or not incorporated, or carrying on business, in Jersey. This would therefore exclude bank-to-bank liabilities from bail in with an original maturity of less than 7 days which is designed to prevent the freezing-up of the inter-bank lending market.

70. Article 65(7)(f) has the effect of excluding liabilities with a remaining maturity of less than 7 days, owed to payment and securities settlement systems or their participants and arising from the participation in such system. The exclusion under Article 65(7)(f) seeks to reduce the risk of systemic contagion.
71. Article 65(7)(g) has the effect of excluding certain liabilities to employees of the failing bank, or to commercial claims that relate to goods and services critical  to  the  daily  functioning  of  the  bank.  In  order to  honour  pension entitlements and pension amounts owed or owing to pension trusts and pension trustees, the bail-in tool does not apply to the failing bank's liabilities to a pension scheme. However, the bail-in tool would apply to liabilities for pension benefits attributable to variable remuneration which do not arise from collective bargaining  agreements,  as  well  as  to  the  variable  component  of  the remuneration of material risk-takers. This Article also excludes tax and social security services in Jersey and the JDCS.
72. The Jersey Resolution Authority is also able to exclude or partially exclude liabilities in a number of circumstances including where: it is not possible to bail-in such liabilities within a reasonable timeframe; the exclusion is necessary and  proportionate  to  achieve  the  continuity  of critical functions  and  core business lines; and the application of the bail-in tool to liabilities would cause a destruction in value such that losses borne by other creditors would be higher than if those liabilities were not excluded from bail-in. The Jersey Resolution Authority  would  be  able  to  exclude  or  partially  exclude  liabilities  where necessary to avoid the spreading of contagion and financial instability, which may cause serious disturbance to the economy of Jersey.

Question 11:

Do you agree with the approach being taken in respect of liabilities that are excluded under the Draft Law? If so, please explain what the issues are and how you consider they could be rectified.

Article 89 – Recognition of foreign resolution actions

73. International and European financial markets are highly interconnected with many banks operating across national borders. This is particularly noticeable in Jersey, where there are no indigenous banks. The failure of a bank in Jersey is therefore  likely  to  involve  a  backdrop  of  external  economic  shocks  and resolution  actions  being  taken  in  other  home  and  intermediate  home jurisdictions.
74. The Bank of England has stated –

"A host authority should not seek to take action with respect to subsidiaries or branches of foreign banks in its own jurisdiction which might frustrate the orderly resolution of the group being co-ordinated by the home authority.

In  support  of  these  principles  of  co-operation,  the  United  Kingdom  will co-ordinate a group-wide resolution strategy where it is the home supervisory authority  of  a  failing  cross-border  firm.  Regulatory  authorities  in  other countries may need to take supporting regulatory or indeed resolution actions

to assist in this. The Bank [of England] will co-ordinate with host authorities over any action that may be required.

Where the United Kingdom is a host of a foreign firm that needs to be resolved, the UK authorities will aim to co-ordinate closely with the home authorities, and only seek to take independent action in exceptional cases, in line with the approach for cross-border co-operation set out in the Key Attributes. These exceptions are set out in the BRRD, and include where the home country's proposed action, or inaction, is deemed not likely to maintain financial stability in the United Kingdom, and to ensure there is no discrimination against depositors or creditors of host subsidiaries or branches in a host jurisdiction.".

75. Jersey-based subsidiaries of foreign banking groups are established in Jersey and  therefore  fully  subject  to  Jersey  law  (including,  following  its implementation,  the  Jersey  Resolution  Regime).  However,  during  the production of the Draft Law it has been considered necessary for Jersey to retain the right to act also in relation to branches where the recognition and application of foreign resolution actions would endanger financial stability in Jersey or where Jersey depositors would not receive equal treatment with depositors in the bank's home (or other) jurisdictions.
76. Therefore,  the  Draft  Law  has  been  drafted  on  the  basis  that  the  Jersey Resolution Authority has the power (after consulting with the relevant foreign resolution authority) to refuse recognition of foreign resolution actions with regard to branches of foreign banking groups operating in Jersey.
77. As detailed above, it is the Government's view that it will only ever be in highly exceptional cases that the Jersey Resolution Authority would ever refuse to recognise a parent bank's resolution action and seek to resolve the Jersey branch of a foreign bank. However, it is considered necessary to keep the power for the Jersey Resolution Authority to make an instrument refusing to recognise the foreign resolution action in the event that such an action would adversely and possibly detrimentally affect Jersey's financial stability. This point also links to the broad scope of Article 3 of the Draft Law (as discussed above).

Part 7 – Banking Winding-up

78. It is a general principle of BRRD, the Banking Act, and of policy of the Government  that  a  failing  bank  be  wound  up through  normal  insolvency proceedings  unless  the  application  of  one  or  more  stabilisation  tools  is necessary to achieve the resolution objectives.
79. In the interests of the efficient stabilisation of a failing bank, and in order to avoid conflicts of jurisdiction, in the event that the Jersey Resolution Authority takes  a  decision  to  stabilise  a  bank  using  the  stabilisation  tools,  normal insolvency proceedings (including the bank winding-up procedure) will be excluded (or, if applicable, discontinued). This will not preclude the Jersey Resolution Authority from applying for a bank winding-up order where –

1. the Jersey Resolution Authority has attempted to stabilise the bank but has subsequently concluded that it has failed to do so; or

2. the Jersey Resolution Authority has successfully stabilised a failing bank,  but the  bank winding-up procedure is required  and used in conjunction with the stabilisation tool(s) to wind up the residual bank, at  the  initiative  of,  or  with  the  consent  of,  the  Jersey  Resolution Authority.

80. Where the decision has been taken to allow a bank to become insolvent (or in the absence of a decision to take action to prevent it becoming insolvent), the bank will be wound up using an appropriate procedure to ensure that depositors who are eligible for compensation under DCS either receive payouts promptly or have their accounts transferred to another bank, and to ensure that the bank is wound up with minimum disruption to critical services.  As part of the preparation of the Jersey Resolution Regime, it was noted that the Banking Act sets out a bespoke procedure for dealing with insolvent banks in the UK. It was concluded that current Jersey insolvency law is limited in the extent to which it provides for the recovery or stabilisation of failed banks, particularly where such banks involve a global or group nexus.
81. It was therefore considered necessary to create a specific bank winding-up procedure in order to set out the appropriate procedure for addressing the insolvency and liquidation of a failed bank. The intention of such a procedure is to codify the bank winding-up procedure, resulting in a framework which will clearly explain the relationship between the solvent stabilisation tools of the Jersey Resolution Regime on the one hand, and the insolvent winding-up of a bank under the bank winding-up procedure on the other.
82. The Bank Winding-up Procedure is one of the resolution tools (but not a stabilisation tool) that can be selected by the Jersey Resolution Authority when considering the best course of action to respond to a failed or failing bank.
83. The Bank Winding-up Procedure outlines a decision-making process that must be followed before an application may be made to Court for a bank winding-up order. The decision-making process determines whether it is appropriate to stabilise the bank through the use of one or more stabilisation tools, or whether it would be more appropriate to wind the bank up using the Bank Winding-up Procedure. In addition, the bank winding-up procedure may be used to wind up a residual bank following the transfer-out of shares, assets, rights or liabilities from a failed bank.
84. Furthermore, the Bank Winding-up Procedure is intended to achieve objectives that are consistent with the need to protect customers' access to deposits, taking into account the role of the JDCS, and which protects the provision of other critical services provided by the failed bank.
85. The Government's policy is that the Bank Winding-up Procedure should not differ radically from existing Jersey insolvency practice. The Bank Winding-up Procedure is therefore modelled in part on the existing law and practice of the just and equitable winding-up procedure set out in Article 155 of the Companies (Jersey) Law 1991 (Jersey Companies Law) (as that has been applied in insolvency matters), combined with the powers given to a liquidator under a creditors' winding-up in Chapter 4 of Part 21 of the Jersey Companies Law,

under the framework of principles and objectives established in the UK's Bank Insolvency Procedure.

86. The aim of the codification of case law principles established in relation to just and equitable winding-up under Article 155 is to add clarity and certainty to the process of the winding-up of a failed bank, and to provide reassurance to stakeholders in the stability of the Jersey banking industry.
87. Article 94 (Restriction of other insolvency or winding-up proceedings) of the Draft  Law  prescribes  that  the  commencement  of  the  bank  winding-up proceedings  will bar the right to commence  any other normal insolvency proceedings against the bank or a winding-up proceeding under Article 155 of the Jersey Companies Law. It also gives the Resolution Authority the power to veto  the  Court  making  an  order  for  normal  insolvency  proceedings  or proceedings under Article 155 of the Jersey Companies Law to commence.

Question 12:

Do you have any further comments on the proposals for a Bank Winding- up Procedure?

Question 13:

It has been suggested that the Bank Winding-up Procedure should be the only route available to a bank in respect for winding up (in other words, none of the other normal insolvency proceedings routes will be available to a bank). Do you envisage any issues with this proposal? If so, please provide an explanation.

Next steps

88. Following the completion of the period of consultation, any final changes will be made to the Draft Law as a result of responses, and the Draft Law will then be lodged for debate by the States Assembly.

QUESTIONS

Particular questions as stated above are: _____________________________________________________________________ Question 1:

Do you agree with the scope of the Draft Law in respect of resolution under Article 3(1) of the Draft Law? If not, then please state why and what you would prefer?

_____________________________________________________________________ Question 2:

Do you agree with the scope of the Draft Law in respect of the Bank Winding-up Procedure under Article 3(2) of the Draft Law?

_____________________________________________________________________ Question 3:

Do you agree with the approach being taken in respect of appointments to a Jersey Resolution Authority?

_____________________________________________________________________ Question 4:

Do  you  consider  that  there  should  be  a  representative  of  any  other body/group/authority represented on the Jersey Resolution Authority?

Question 5:

Do you think that there should be best endeavours taken to create a Resolution Authority spanning more than one of the CDs?

_____________________________________________________________________ Question 6:

Do  you  agree  with  the  approach  being taken  in  respect  of the  Jersey Bank Resolution Fund? If not, please elaborate on your reasons as to why and how you consider this could be changed?

_____________________________________________________________________ Question 7:

Do you agree with the approach being taken in respect of creditors' rights and the limitations of liability placed upon the Jersey Bank Resolution Fund? Could the drafting be improved to achieve the aims of transferring liability? If you do not agree with the approach taken, please elaborate on your reasons why, and state how you consider this should be changed?

_____________________________________________________________________ Question 8:

Are there any preferences in terms of the approach to be adopted with regard to the creditor hierarchy, and as to the appropriate balance to be struck between a policy which favours maximising recoveries in the event of a DCS payout, or one that  reduces  the  chances  of  a  no  creditor  worse  off'  claim  by  greater harmonisation with the law of England and Wales?

Question 9:

Do you agree with the application of the no creditor worse off' principle as set out in the Draft Law? Should it be further constrained by a caveat: unless such interference is necessary in the public interest'? And, if so, should the principle also be linked to Article 78?

_____________________________________________________________________ Question 10:

Do you agree that the definition of covered deposits should be linked to the existing Jersey definition as those covered by the Jersey Deposit Compensation Scheme'? If not, please state what definition should be adopted?

_____________________________________________________________________ Question 11:

Do you agree with the approach being taken in respect of liabilities that are excluded under the Draft Law? If so, please explain what the issues are and how you consider they could be rectified.

_____________________________________________________________________ Question 12:

Do you have any further comments on the proposals for a Bank Winding-up Procedure?

Question 13:

It has been suggested that the Bank Winding-up Procedure should be the only route available to a bank in respect for winding up (in other words, none of the other normal insolvency proceedings routes will be available to a bank). Do you envisage any issues with this proposal? If so, please provide an explanation.

DRAFT BANK (RECOVERY AND RESOLUTION) (JERSEY) LAW 201-

REPORT CONSULTATION DRAFT Explanatory Note

The object of the Bank (Recovery and Resolution) (Jersey) Law 201- (the "Law") is to make  provision  for  bank  recovery,  resolution  and  winding  up  by  implementing provisions of Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014  establishing  a  framework  for  the  recovery  and  resolution  of  credit institutions and investment firms and amending Council Directive 82/891/EEC, and Directives  2001/24/EC,  2002/47/EC,  2004/25/EC,  2005/56/EC,  2007/36/EC, 2011/35/EU, 2012/30/EU and 2013/36/EU, and Regulations (EU) No 1093/2010 and

(EU)  No  648/2012,  of  the  European  Parliament  and  of  the  Council  (OJ  L  173, 12.6.2014, p. 190).

Part 1 of the Law comprises Articles 1 to 3 which deal with preliminary matters. Article 1 sets out definitions of the terms used in the Law.

Article 2 sets out the circumstances in which a bank is deemed to be "failing or likely to fail".

Article 3 provides for the Law to apply to a person registered to carry out deposit- taking business in or from within Jersey under the Banking Business (Jersey) Law 1991; a holding company or a subsidiary of such a person or where that person is a foreign bank a branch or subsidiary of that foreign bank. However, Part 7 of the Law only applies to a person registered to carry out deposit-taking business in or from within  Jersey  under  the  Banking  Business  (Jersey)  Law  1991  or  a  company incorporated under the Companies (Jersey) Law 1991 that is a holding company or a subsidiary of such a person. Where a stabilization power is exercised in respect of a bank, it does not cease to be a bank for the purposes of the Law if it is no longer registered as referred to in paragraph (1)(a) as a result of a resolution action. Provision is made in Article 2 for the Minister to amend that Article by Order.

Part 2 of the Law comprises Articles 4 to 21 which provide for the establishment, functions and powers of the Jersey Resolution Authority ("Authority" as defined in Article 1) and for other matters in respect of the Authority.

Article 4 provides for the establishment of the Authority as a body corporate.

Article 5 provides for the States to appoint the members of the Authority from persons nominated by the Chief Minister ( "Minister" as defined in Article 1) , the Minister for Treasury and Resources and the Commission. The Minister is required to designate one member of the Authority to be the Chairman. Article 5 also provides for the functions, powers, rights and obligations of the Authority not to be affected by any vacancy in its membership or a defect in the appointment of any member. Where the Minister does not appoint the Authority, the Minister is empowered to appoint a public officer, public authority or other person to discharge the functions of the Authority and the person appointed shall have all the functions, powers, rights and obligations of the Authority. Article 5 also makes provision for the appointment of an alternate member for each member to attend, in place of a member, meetings of the Authority that the member is for any reason unable to attend.

Article 6 makes provision for the terms of appointment of members and proceedings of the Authority.

Article 7 provides for the Authority's functions which are to make preparations to facilitate the resolution of banks; to administer the resolution process; to carry out such functions in relation to bank resolution or recovery or such incidental or ancillary matters as are required or authorized by the Law or Regulations and to carry out such other functions as are conferred on it by the Law or any other enactment.

Article 8 gives the Authority the discretion to take into account any matter which it considers appropriate but the Authority is required, in particular, to have regard to the reduction of the risk to the public of financial loss due to financial unsoundness of a person to whom the Law applies; the protection and enhancement of the reputation and integrity of Jersey in commercial and financial matters and the best economic interests of Jersey.

Article 9  gives the  Authority general  powers to do anything that is calculated to facilitate, or that is incidental or conducive to, the performance of any of its functions under the Law, including the exercise of its general resolution powers under Article 29,  its  powers  of  investigation  under  Part 9  and  other  powers  as  part  of  the Authority's routine examination of a bank.

Article 10 limits the liability of the Authority, any member or any person who is, or is acting as, an officer, employee or agent of the Authority or who is performing any duty or exercising any power on behalf of the Authority and the States or any Minister in respect of any delegation of functions to the Authority.

Article 11 provides for the appointment and remuneration of officers, employees and agents of the Authority.

Article 12 provides for the delegation of the Authority's functions and powers to the Chairman, one or more members or an officer of the Authority.

Article 13 gives the Minister the power to give guidance and general directions in respect of the policies to be followed by the Authority in relation to resolution of a bank in Jersey and the manner in which any function of the Authority is to be carried out.  The  Authority  is  required  to  have  regard  to  such  guidance  and  to  act  in accordance with such directions in carrying out its functions.

Article 14 provides for the publication of information and giving of advice by the Authority on the operation of the Law, or any other enactment in connection with resolution of banks, including, in particular, the rights of depositors, the duties of a bank and the steps to be taken for enforcing those rights or complying with those duties; any matters relating to the functions of the Authority under the Law or any other enactment. The Authority may also publish information and give advice on any

other matters relating to the resolution of a bank about which it appears to it to be desirable to publish information or give advice concerning the reduction of the risk to the public of financial loss due to dishonesty, incompetence or malpractice by, or the financial unsoundness  of,  persons  carrying on deposit-taking business  in or from within Jersey; the protection and enhancement of the reputation and integrity of Jersey in commercial and financial matters or the best economic interests of Jersey.

Article 15  provides  for  the  funds  and  resources  of  the  Authority  to  be  the administrative levy payable under Article 16; any grant paid to the Authority under Article 17; any money borrowed by the Authority accordance with Article 18; any other money or property and any income derived from such money or property, as is lawfully vested in the Authority through the exercise of its powers under the Law.

Under Article 16, an annual administration levy may be raised by the Authority, in relation to a particular registration year, to enable the Authority to meet its expected recurring administrative costs in that year; to provide or maintain a reserve, of an amount  appearing  to  the  Authority  to  be  prudent  in  that  year,  against  potential recurring administrative costs in future years and to provide or maintain a reserve, of an amount appearing to the Authority to be prudent in that year, against the possibility, in the event of resolution action in respect of a bank in that or any subsequent year, of the Authority wishing to pay administrative costs without needing to wait for receipt of other funding for those costs. The term "registration year" is defined in Article 16 to mean a period of one year ending on the next day on which registrations under the Banking Business (Jersey) Law 1991 expire by virtue of Article 9(2) of that Law.

Article 17 specifies that in respect of each financial year the States may make a grant to the Authority from their annual income towards the expenses of the Authority in carrying out any of its functions. The amount of any grant must be determined by the Minister after consultation with the Authority, and in determining that amount the Minister shall have regard to the financial position and projected financial position of the Authority.

Article 18 provides for borrowing by the Authority for the purpose of enabling it to carry out its functions. The maximum amount the Authority may borrow may be prescribed by an Order made by the Minister. Article 18 also provides for the Minister, on such terms as the Minister may determine, on behalf of the States to guarantee the liabilities  of the  Authority or lend monies to the  Authority, up to the  maximum amount the Authority may borrow.

Article 19 gives the Authority the discretion to invest any of its funds which are not immediately required in accordance with guidelines set by the Minister.

Article 20 exempts the Authority from liability to income tax or GST (goods and services tax)) on goods and services supplied or goods imported for the purposes of carrying out its functions under the Law.

Article 21  requires  the  Authority  to  keep  proper  accounts  and  proper  records  in relation to its accounts and prepare accounts in respect of each financial year and a report on its operations during the year. The Authority's accounts must set out the income and expenditure of the Fund separately from any other money received, held or expended by the Authority. The Authority must have its accounts audited by an auditor and the audited accounts and the report of the auditor must be provided to the Minister within 3 months after the accounts have been audited.The Minister must lay a copy of the audited accounts and the report prepared by the Authority before the States not later than 7 months after the end of each financial year.

Part 3 of the Law comprises Article 22 which provides for the establishment of the Jersey Bank Resolution Fund for the purpose of ensuring the effective exercise by the Authority of the resolution powers and application by the Authority of the resolution tools. The Fund is to be controlled, managed and administered by the Authority. The Authority is empowered to recover any funds paid out of the Fund from the bank in resolution;  to  raise  contributions  from  banks  where  funds  are  insufficient and  to borrow from any source, including the strategic reserve fund (within the meaning given in the Public Finances (Jersey) Law 2005). All monies received by or on behalf of the Authority are to be paid into the Fund. Article 22 also places restrictions on the use of the Fund.

Part 4  of  the  Law  comprises  Articles  23  to  27  which  provide  for  recovery  and resolution planning.

Article 23 requires a bank to draw up and submit to the Commission for approval a recovery plan setting out measures to be taken by the bank for the restoration of its financial position following a significant deterioration of such financial position. A recovery plan must be drawn up and maintained in accordance with a code of practice in  respect  of  recovery  planning  issued  by  the  Commission  in  accordance  with Article 19A of the Banking Business (Jersey) Law 1991. The Commission is required to submit a copy of a recovery plan submitted to it to the Authority and the Authority may examine the recovery plan with a view to identifying any actions in the recovery plan  which  may  adversely  impact  the  resolvability  of  a  bank  and  to  make recommendations  to  the  Commission  regarding  those  matters.  The  Minister  is empowered to make an Order to provide for recovery planning in respect of a bank.

Article 24 requires the Authority to draw up a resolution plan for a bank which shall be proportionate to the systemic importance of the bank or the bank's group. The Authority must submit a resolution plan for each bank to the Commission and the Commission must examine the resolution plan with a view to identifying any actions in the resolution plan which may adversely impact the resolvability of the bank and make recommendations to the Authority with regard to those matters. The Authority is also required to provide relevant information regarding a resolution plan for a bank to the  resolution authorities in jurisdictions in which the  bank  operates branches or subsidiaries and to the home regulator and intermediate home regulator of the bank's group. Further, where the Authority is required to draw up a resolution plan which includes within its scope branches or subsidiaries of a bank in jurisdictions other than Jersey,  the  Authority  must  have  regard  to  the  potential  impact  of  the  resolution measures in such other jurisdictions.

Article 24(6) requires the Authority, as far as practicable, to communicate to a home resolution authority any decision to deviate from that home resolution authority's resolution plan.

The  Authority  has the  power to require  a  bank (whether directly or through the Commission) to cooperate, assist and provide the information specified in Part 1 of Schedule 2 for the purpose of drawing up, implementing and updating a resolution plan for the bank.

Articles 24(8) and (9) provide that details of the resolution plan may be submitted by the  Authority  to  the  bank  concerned  and  the  Authority  must  review,  and  where appropriate update, a resolution plan for a bank at least annually and after any material changes to the legal or organizational structure of the bank or to its business or its financial  position  that  could  have  a  material  effect  on  the  effectiveness  of  the resolution plan or otherwise necessitates a revision of the resolution plan.

Article 24  also  provides  for  the  contents  of  a  resolution  plan  and  empowers  the Minister to make an Order to provide for resolution planning by the Authority.

Article 25 requires the Authority, in drawing up a resolution plan for the bank, to carry out an assessment to determine whether a bank is resolvable. A bank may be required to take measures to effectively address or remove the substantive impediments to resolvability. A bank will be deemed to be resolvable if it is feasible and credible for the Authority to liquidate it under Part 7 or to resolve it by applying a stabilization tool to, and exercising the resolution powers in respect of, the bank while avoiding to the maximum extent possible any significant adverse effect on the financial system.

Under Article 26, the Commission must set for each bank a minimum requirement for own funds and eligible liabilities which the bank must meet at all times. The minimum requirement for own funds and eligible liabilities set for a bank must be calculated as a percentage of the amount of own funds and total liabilities of the bank (including liabilities arising from derivatives expressed on a net basis giving full recognition of counterparty  netting  rights).  The  Authority  is  required  to  review  the  minimum requirement for own funds and eligible liabilities and may make recommendations regarding the level of the requirement to the Commission and the Commission must act in accordance with such recommendation. The Minister is empowered by Order to make  further  provision  relating  to  the  minimum  requirement  for  own  funds  and eligible liabilities of a bank.

Under  Article 27, the Commission may require a bank to maintain at all times a minimum authorized share capital or other common equity Tier 1 instruments so that in the event of the Authority exercising a write down or conversion power in respect of the bank, the bank shall not be prevented from issuing sufficient new shares to ensure that the conversion of liabilities into shares can be carried out effectively. An assessment by the Commission as to whether to impose capital requirements, or to what extent to impose capital requirements, must be carried out in conjunction with the development of a resolution plan under Article 24 in respect of that bank.

Part 5 of the Law comprises Articles 28 to 50 which provide for resolution matters.

Article 28  requires  the  management  of  a  bank  to  notify  the  Commission  if  the management consider that the bank is failing or likely to fail. The Commission is required  to  notify  the  Authority  of  any  notifications  received  and  of  any  early intervention actions that the Commission requires a bank to take to prevent its failure or likely failure. On receiving a notification that a bank may be failing or likely to fail, the Authority must determine whether the resolution conditions are met in respect of that bank and must record its decision together with reasons for the decision and the actions  that  the  Authority  intends  to take  as  a  result  of  it. Where  the  Authority determines that the resolution conditions are met in relation to a bank, the Authority must  give  notice  of  that  determination,  its  decision  based  on  that  determination, together with reasons for the decision and the actions that the Authority intends to take as a result of the decision, as soon as practicable to specified persons including the Commission,  the  Jersey  Bank  Depositors  Compensation  Board,  the  Minister,  the Minister for Treasury and Resources, the Viscount and the home resolution authorities and intermediate home resolution authorities of the bank.

Article 29 provides for the Authority to have all the powers necessary to apply a resolution tool to a bank which meets the resolution conditions and, in particular, to have general resolution powers specified in that Article which may be exercised, individually or in any combination, for the purpose of enabling the Authority to achieve the resolution objectives.

Article 30(1) makes provision for the part of an eligible deposit which exceeds the maximum amount of a covered deposit and a deposit that would be an eligible deposit of a bank incorporated in Jersey if it was not made through a branch located outside Jersey to have the same priority ranking, which is higher than the ranking provided for the  claims  of  ordinary  unsecured,  non-preferred  creditors.  Article 30  also  makes provision for covered deposits and the Depositors Compensation Fund to have the same priority ranking which is higher than the ranking of the other deposits referred to in paragraph (1) of that Article.

Article 31 gives the Commission or the Authority the power to take early intervention measures where the Commission is satisfied that a bank infringes or is likely, in the near future, to infringe any of the minimum capital requirements placed on it by the Commission under Article 27 or the requirement that the bank is a fit and proper person  to  be  registered  to  undertake  deposit-taking  business  in  accordance  with Article 10(3)(a) of the Banking Business (Jersey) Law 1991. An infringement may occur due, among other things, to a rapidly deteriorating financial condition and may include  a  deteriorating  liquidity  situation,  an  increasing  level  of  leverage  or  an increasing  level  of  nonperforming  loans  or  a  concentration  of  exposures.  Early intervention  measures  include  the  power  of  the  Commission  or  the  Authority  to require the management of the bank to implement one or more of the arrangements or measures  set  out  in  its  recovery  plan  and  to  require  one  or  more  members  of management to be removed or replaced if those persons are deemed by the Authority or the Commission unfit to perform their duties.

Article 32 provides for the appointment of one or more temporary administrators to the  bank  where  the  Authority  or  the  Commission  deems  the  replacement  of  the management of a bank, as an early intervention measure, to be insufficient to remedy the  situation.  The  temporary  administrator  may  be  appointed  to  replace  the management of the bank temporarily or to work temporarily with the management of the bank.

Article 33 sets out the resolution objectives which the Authority must have regard to in exercising the resolution powers and in applying, or considering the application of, a resolution  tool  in  respect  of  a  bank.  The  Authority  is  required  to  exercise  the resolution powers that best achieve the resolution objectives that are relevant in the circumstances.  The resolution objectives  (which  are of equal significance) are  as follows –

1. to  ensure  the  continuity  of  banking  services  in Jersey  and  the provision of critical functions in Jersey;
2. to  protect  and  enhance  the  stability  of  the  financial  system  in Jersey, including by preventing contagion (including contagion to market  infrastructures  such  as  investment  exchanges,  clearing houses  and  central  counterparties)  and  maintaining  market discipline;
3. to protect and enhance public confidence in the stability of the financial system in Jersey;
4. to  protect  public  funds,  including  by  minimizing  reliance  on extraordinary public financial support;
5. to protect eligible depositors to the extent that they have covered deposits;
6. to protect client assets; and

7. to avoid interference with property rights in breach of the Human Rights (Jersey) Law 2000.

Article 34  sets  out  the  resolution  conditions  which  must  be  met  in  order  for  a resolution power to be exercised in respect of a bank. The resolution conditions are that –

1. the bank is failing or is likely to fail;
2. having regard to timing and other relevant circumstances, it is not reasonably likely that any action (except the exercise of the resolution power) will be taken by or in respect of the bank that will prevent the failure or likely failure of the bank within a reasonable timeframe; and
3. the application of the stabilization tools is in the public interest of Jersey.

The Authority is permitted to exercise a resolution power in respect of a bank where the  bank  does  not  in  isolation  meet  the  resolution  conditions  but  the  resolution conditions are met by another group entity in the bank's group and the failure or likely failure of another group entity would have adverse consequences for the bank in Jersey which may cause it to meet the resolution conditions in the future.

Article 35 requires the Authority, in applying a resolution tool to a bank, to take appropriate measures to ensure that resolution action is taken in accordance with the general principles of resolution which are specified in that Article.

Article 36 sets out conditions for application of a resolution tool.

Article 37 provides for the manner in which the Authority must recover from a bank in resolution  any  reasonable  expenses  properly  incurred  paid  out  of  the  Fund  in connection with the application of  a resolution tool or exercise resolution power, including the bank winding up procedure under Part 7.

Article 38  makes  provision  for  the  Authority  to  seek  funding  from  alternative financing sources through the application of the government financial assistance tool where  an  extraordinary  situation  of  a  systemic  crisis  exists,  provided  that  the contribution to loss absorption and recapitalization equal to the amount not less than 8% of the total liabilities including own funds of the bank in resolution, measured by the  pre-resolution  valuation,  has  been  made  by  shareholders,  holders  of  relevant capital instruments and other eligible liabilities through write down, conversion or otherwise. The Minister has the power to amend the amount of the total liabilities by Order.

Under Article 39, where there is a requirement to notify the Commission of a change in the level of ownership of a person by another person by virtue of the application of a stabilization tool that would result in the acquisition of a qualifying holding or holding which crosses an applicable threshold, the Commission must carry out a relevant assessment related to that notification in a timely manner that does not delay the application of the stabilization tool or prevent the taking of resolution action. The consequences of an assessment not being carried out by the Commission are set out in Article 39(2.)

Article 40  requires  that  the  Authority  have  regard  to,  and  comply  with,  the Competition (Jersey) Law 2005 in exercising its powers and carrying out its functions under the Law, except where a derogation from that Law is required in order to achieve the resolution objectives (including where the resolution objectives would not be met if additional delay were caused by the requirement to have regard to that Law.

Article 41  requires  the  Authority,  where  appropriate,  to  inform  and  consult  with employee representatives in exercising the resolution powers and applying a resolution tool in respect of a bank.

Article 42 gives the Authority the power to appoint a special manager to replace the management of a bank in resolution. The term of appointment of a special manager must  be  for a  period not exceeding one  year, except that the  Authority may, in exceptional circumstances, renew the appointment for a further period not exceeding one year if the Authority determines that the conditions for appointment of a special manager continue to be met.

Article 43 provides that nothing in the Law shall cause the Authority to be treated as a director (shadow or de facto) of a bank.

Article 44 makes provision for the Authority to carry out a pre-resolution valuation prior to taking resolution action or exercising a write down or conversion power in respect of a bank. Prior to taking resolution action or exercising a write down or conversion power in respect of a bank, the Authority shall cause a pre-resolution valuation of the assets and liabilities of the bank to be carried out or rely on a pre- resolution valuation carried out by a home resolution authority or the intermediate home resolution authority. The authority must appoint an independent valuer to carry out a pre-resolution valuation. The objective of a pre-resolution valuation shall be to assess the  value  of the  assets  and liabilities  of  a bank  that  meets  the  resolution conditions. The purpose of a pre-resolution valuation shall (among other things) be to inform the decision of whether the resolution conditions or the conditions for the write down or conversion power are met and if the resolution conditions are met, to inform the decision on which a resolution tool should be used.

Article 45 provides a provisional valuation of the assets and liabilities of a bank to be carried out where  the  Authority considers  that the urgency of the  case makes it appropriate for resolution action to be taken or for a write down or conversion power to be exercised in respect of a bank before a valuation can be carried out by an independent valuer. A provisional valuation will be a valid basis on which a decision to exercise a resolution power may be taken.

Article 46 provides for a definitive valuation of the assets and liabilities of the bank to be carried out by an independent valuer where the Authority has caused to be a provisional valuation to be carried out. The purpose of the definitive valuation is to ensure the full extent of any losses on the assets of the bank is recognized in the accounting records of the bank; and inform a decision by the Authority as to whether additional consideration should be paid by a bridge bank or asset management vehicle for any property, rights, liabilities or shares transferred under a sale of business tool, bridge bank tool or asset separation tool, or to increase or reinstate any liability which has been reduced or cancelled by a resolution instrument.

Article 47 provides that where a definitive valuation produces higher valuation of the net asset value of a bank in resolution than the provisional valuation. The Authority has the power to instruct a purchaser, bridge bank or asset management vehicle to pay additional consideration for any assets, rights, liabilities or shares transferred under the sale of business tool, bridge bank tool or asset separation tool; or to modify any liability of the bank in resolution which has been reduced, deferred or cancelled pursuant to the write down or conversion power or a resolution instrument so as to increase or reinstate that liability. The power must not be exercised so as to increase the value of the liability of the bank in resolution beyond the value it would have had if the resolution instrument which reduced, cancelled or deferred it had not been made.

The  Authority  must  issue  a  mandatory  reduction  instrument  in  accordance  with Article 74 or a supplemental resolution instrument.

Article 48  empowers  the  Authority  to  set  or  adopt  technical  standards  for  pre- resolution valuation or definitive valuation. A pre-resolution valuation or a definitive valuation shall be carried out in accordance with the technical standards set or adopted by the Authority.

Article 49 provides for the Minister to set the eligibility criteria for appointment of a person as an independent valuer under Article 44, 46 or 77.

Article 50 provides for ancillary powers of an independent valuer.

Part 6  of  the  Law  comprises  Articles  51  to  89  which  make  provision  for  the stabilization tools and the resolution safeguards.

Article 51 gives the Authority the power to apply the sale of business tool to a bank that meets the resolution conditions by effecting a sale of business of all or part of the business of the bank to one or more purchasers that are not bridge banks by making one or more share transfer instruments for the transfer of all or part of the shares of the bank or one or more property transfer instruments for the transfer of all or any assets, rights or liabilities of the bank. Subject to the resolution safeguards, the Authority may apply the sale of business tool to a bank without the consent of the shareholders of the bank or any third party other than the purchaser; and without complying with any procedural requirements under any other enactment or the constitutional documents of the bank other than those procedural requirements specified in the Law or Regulations or an Order made under the Law.

Article 52 gives the Authority the power, after the application of the sale of business tool and subject to the resolution safeguards, to transfer assets, rights, liabilities or shares transferred to the purchaser back to the bank in resolution or to original owners. The bank in resolution or the original owners are obliged to take back any such assets, rights or liabilities, or shares.

Under Article 53, where a transfer under the sale of business tool is effected by way of a transfer of shares of the bank in resolution, the bank in resolution is entitled to exercise any rights following the transfer that it was entitled to exercise prior to the transfer.

Article 54 provides for the rights of a purchaser under the sale of business tool. A purchaser will acquire the deposit-taking business and any other relevant business of the bank in resolution as a continuation of the deposit-taking business being conducted prior to the transfer to the purchaser and may continue to operate the deposit-taking business of the bank in resolution for a period not exceeding 6 months within which period an application for registration under the Banking Business (Jersey) Law 1991, registration under the Financial Services (Jersey) Law or authorization under any other enactment shall be made.

Article 54 also provides that where a transfer under the sale of business tool has been effected by way of a transfer of assets, rights, and liabilities, the purchaser shall be entitled to exercise any rights following the transfer that the bank in resolution was entitled  to  exercise  prior  to  the  transfer,  including  membership  rights,  access  to payment, clearing and settlement systems, securities exchanges and the Depositors Compensation  Scheme,  provided  that  the  purchaser  meets  the  criteria  for  such membership or participations in such systems. Where a purchaser does not meet the membership or participation criteria for a relevant payment, clearing or settlement system,  securities  exchange  or  the  Depositors  Compensation  Scheme,  the  rights transferred under the sale of business tool shall be exercised for such period as may be

specified by the Authority, not exceeding 24 months, subject to renewal on application by the purchaser to the Authority. Shareholders and creditors of a bank in resolution and other third parties whose assets, rights and liabilities are not transferred under the sale of business tool will not have any rights over or in relation to the assets, rights or liabilities transferred.

Article 55 provides for the marketing of assets, rights, liabilities or shares of a bank by the Authority where it applies the sale of business tool to the bank.

Article 56 allows for the delay of disclosure of information to the public on application of the sale of business tool.

Article 57 provides for the residual bank to be wound up if the sale of business tool has been used to transfer the bank's systemically important services or viable business to a private sector purchaser.  

Article 58 provides for the application of the bridge bank tool to a bank that meets the resolution conditions by effecting a transfer of all or part of the business of the bank to a bridge bank. For that purpose the Authority is required to cause to be registered a company that is wholly or partially owned by the Authority, is controlled by the Authority and is created for the purpose of receiving a  transfer of the shares or business of the bank in resolution by virtue of the utilization of transfer powers under the bridge bank tool with a view to maintaining access to critical functions, and in due course  selling  the  bank  or  its  business.  Subject to  the  resolution  safeguards,  the Authority may apply the bridge bank tool to a bank that is failing or likely to fail without the consent of the shareholders of the bank in resolution or any third party other than the bridge bank and without complying with any procedural requirements under any other enactment or the constitutional documents of the bank other than those procedural requirements specified in the Law or the Regulations or an Order made under the Law.

Article 59 gives the Authority the power, after the application of the bridge bank tool and without prejudice to the resolution safeguards, to transfer assets, rights, liabilities or shares transferred to the bridge bank back to the bank in resolution or to original owners.

Under Article 60, where a transfer under the bridge bank tool is effected by way of a transfer of shares of the bank in resolution, the bank in resolution may exercise any rights following the transfer that it was entitled to exercise prior to the transfer.

Under Article 61,  a  bridge will acquire the deposit-taking business and any other relevant business of the bank in resolution as a continuation of the deposit-taking business being conducted prior to the transfer to the bridge bank.

Article 61 also provides that where a transfer under the bridge bank tool has been effected by way of a transfer of assets, rights, and liabilities, the bridge bank shall be entitled to exercise any rights following the transfer that the bank in resolution was entitled  to  exercise  prior  to  the  transfer,  including  membership  rights,  access  to payment, clearing and settlement systems, securities exchanges and the Depositors Compensation Scheme, provided that the bridge bank meets the criteria for such membership or participation in such systems. Where a bridge bank does not meet the membership or participation criteria for a relevant payment, clearing or settlement system,  securities  exchange  or  the  Depositors  Compensation  Scheme,  the  rights transferred under the bridge bank tool shall be exercised for such period as may be specified by the Authority, not exceeding 24 months, subject to renewal on application by the bridge bank to the Authority.

Article 62 provides for the operation of a bridge bank.

Article 63 provides for  Authority to apply  the  asset separation tool to  a  bank in resolution by effecting a transfer of the assets, rights and liabilities of a bank in resolution, or a bridge bank to which shares or assets, rights and liabilities have been transferred under the bridge bank tool, to an asset management vehicle. The asset separation tool shall be used only in conjunction with the other stabilization tools in order to prevent undue competitive advantage for a bank in resolution.

Article 64 provides for the operation of an asset management vehicle.

Article 65  provides  for  the  application  of  the  bail-in  tool  to  meet  the  resolution objectives, in accordance with the general principles of resolution –

1. to  recapitalize  a  bank  that  meets  the  resolution  conditions  to  the  extent sufficient to restore its ability to satisfy the Commission that bank is a fit and proper  person  to  be  registered  to  undertake  deposit-taking  business  in accordance with Article 10(3)(a) of the Banking Business (Jersey) Law 1991 and to continue to carry out the activities for which it is registered under the Banking Business (Jersey) Law 1991, registered under the Financial Services (Jersey) Law 1998 or authorized under any other enactment, and to sustain sufficient market confidence in the bank; or
2. in  accordance  with  Article 74  to  exercise  the  Authority's  write  down  or conversion power to  convert to equity or reduce the  principal amount of claims or debt instruments that are transferred to a bridge bank with a view to providing capital for the bridge bank, or under the sale of business tool or the asset separation tool.

Article 66 provides for the assessment, on the basis of the pre-resolution valuation, the aggregate the amount by which eligible liabilities must be written down in order to ensure that the net asset value of the bank in resolution is equal to zero and the amount by which eligible liabilities must be converted into shares or other types of capital instruments in order to restore the Common Equity Tier 1 capital ratio of either the bank in resolution or the bridge bank.

Article 67 provides for the Authority to take certain action in respect of shareholders of a bank in resolution when applying the bail-in tool.

Article 68 provides for the sequence in which the write down and conversion power will be applied when the bail-in tool is applied.

Under  Article 69,  the  Authority  is  only  permitted  to  exercise  the  write  down  or conversion power in relation to a liability arising from a derivative contract upon or after closing-out such derivate contract.

Article 70 provides for the Authority to ensure that where the bail-in tool has been used, a business reorganization plan is drawn up and implemented.

Article 71 sets out ancillary provisions relating to bail-in.

Article 72 provides for a bank shall include in its contractual documents a contractual term by which the creditor or party to an agreement creating an eligible liability recognizes that that liability may be subject to the write down or conversion power and agrees to be bound by any reduction of the principal or outstanding amount due, conversion  or  cancellation  that  is  effected  by  the  exercise  of  that  power  by  the Authority, provided that such liability is not excluded under Article 65(7), is not a covered deposit, is governed by the law of another jurisdiction and is issued or entered into after the date on which the Law comes into force.

Article 73 gives the Authority, acting in agreement with and under the direction of the Minister, to apply the government financial assistance tool to a bank that meets the

conditions  specified  in  paragraph (4)  by  providing  extraordinary  public  financial support to the bank in accordance with this Article for the purpose of resolving the bank, including by intervening directly to avoid its winding up, with a view to meeting the resolution objectives. The Authority may only apply the government financial assistance tool to a bank as a last resort after having assessed and exploited the other stabilization tools to the maximum extent practicable whilst maintaining financial stability, and if the resolution conditions are met , and the Minister and the Authority both determine the application of the resolution tools would not suffice to avoid significant adverse effect on the financial system in Jersey or would not suffice to protect the public interest where extraordinary liquidity assistance has already been given to the bank.

Article 74 gives the Authority the power to issue a mandatory reduction instrument to write down or convert relevant capital instruments or other liabilities of a bank in resolution into shares of the bank (the "write down and conversion power as defined in Article 1"). The Authority may only exercise the write down or conversion power after the carrying out a pre-resolution valuation (or a provisional valuation if applicable).

Article 75 makes provision for determining whether a default event provision applies. A "default event provision" is defined in Article 75(9).

Articles 76 to 85 contain the resolution safeguards.

Article 76 provides for treatment of shareholders in the case of partial transfers and application of the bail in tool.

Article 77 makes provision for a difference of treatment valuation to be carried out to determine whether shareholders and creditors would have received better treatment if a bank in resolution had been wound up under normal insolvency proceedings.

Article 78 provides a safeguard for shareholders and creditors so that they would be entitled  to  the  payment  of  the  difference  from  the  Fund,  if  on  application  of  a resolution tool to a bank, they incur losses that are greater than they would have incurred under normal insolvency proceedings.

Article 79  makes  provision  for  the  procedural  requirements  (publication  and notification) after creation of a resolution instrument or share transfer order transfer order by which a resolution action is taken (including a foreign resolution instrument).

Article 80 provides for the protection of security arrangements, title transfer financial collateral arrangements, set-off arrangements, netting arrangements, covered bonds and structured finance arrangements where the Authority –

1. transfers some, but not all, of the assets, rights or liabilities of a bank in resolution to another entity or, in the exercise of a resolution tool, from a bridge bank or asset management vehicle to another person; or
2. exercises the power in Article 29(1)(p) to cancel or modify the terms of a contract to which the bank in resolution is a party or substitute a recipient as a party.

Article 81 protects title transfer financial collateral arrangements, set-off arrangements and netting arrangements by prohibiting the transfer of some, but not all, of the rights and liabilities that are protected under any such arrangement between the bank in resolution  and  another  person,  and  the  modification  or  termination  of rights  and liabilities  that are  protected  under  any  such  arrangement  through  the  exercise  of ancillary powers.

Article 82 protects liabilities secured under security arrangements by prohibiting the transfer of assets against which a liability is secured (unless that liability and the

benefit of the security are also transferred); the transfer of a secured liability (unless the benefit of the security is also transferred); the transfer of the benefit of the security (unless the secured liability is also transferred) or the modification or termination of a security arrangement (through the exercise of ancillary powers, if the effect of that modification or termination is that the liability ceases to be secured).

Article 83 protects structured finance arrangements and covered bonds by prohibiting the transfer of some, but not all, of the assets, rights and liabilities which constitute or form part of a structured finance arrangement or covered bond, or the termination or modification,  through  the  exercise  of  ancillary  powers,  of  the  assets,  rights  and liabilities which constitute or form part of a structured finance arrangement or covered bond, to which the bank in resolution is party.

Article 84 permits the transfer or modification of covered deposits and other assets, rights  or  liabilities  which  are  part  of  any  of  the  arrangements  referred  to  in Articles 81, 82 and 83 without transferring the covered deposits or other assets, rights or liabilities, where necessary in order to ensure availability of the covered deposits.

Article 85 prevents the application of a resolution tool from prejudicing the operation of payment and settlement systems where the Authority transfers some but not all of the assets, rights or liabilities of a bank in resolution to another entity or exercises its general resolution power under Article 29(1)(p) to cancel or modify the terms of a contract to which the bank in resolution is a party or to substitute a recipient as a party.

Article 86 prohibits the Authority from exercising a resolution power in respect of a bank if the Minister, the Commission or the Attorney General notifies the Authority that  the  exercise  of  that  resolution  power  would  be  likely  to  contravene  an international  obligation  of  the  United  Kingdom  or  Jersey.  Article 86  gives  the Authority the discretion to request that the Minister, Commission or Attorney General serve an international obligation notice on the Authority where the Authority believes that it is at risk of exercising a resolution power that may contravene an international obligation of the United Kingdom or Jersey.

Article 87  clarifies  that  nothing  in  Article 86(1) or (2)  requires  the  Minister,  the Commission, the Attorney General or any other person to give advice or an opinion on a  technical  area  that  is  outside  of  that  person's  scope,  jurisdiction  or  technical expertise.

Article 88 requires that the Authority submits a report to the Minister with respect to any resolution action taken in respect of a bank not more than 12 months after the resolution action has been concluded. The report must contain a summary of the financial information relating to the resolution of the bank, including the findings of each of the valuations carried out, in particular, outlining the findings of the valuations in  relation  to  the  position  of  creditors,  the  general  principle  of  resolution  under Article 35(g) and the resolution safeguard in Article 78. The Minister must lay the report submitted to him or her before the States as soon as practicable after it is submitted to him or her.

Article 89  provides  for  the  recognition  of  foreign  resolution  actions.  Where  the authority is notified of a foreign resolution action, the Authority is required to make an instrument recognizing a foreign resolution action; refusing to recognize a foreign resolution action; or recognizing part of the foreign action and refusing to recognize the  remainder of the resolution action. The  Authority may refuse to recognize  a foreign resolution action if it is satisfied recognition would have an adverse effect on financial stability in Jersey; the taking of resolution action by the Authority in relation to a branch located in Jersey of a foreign bank is necessary to achieve one or more of the resolution objectives; creditors located or payable in Jersey would not, by reason

of being located in Jersey, receive the same treatment, and have similar legal rights, as creditors (including depositors) who are located or payable in the foreign jurisdiction concerned;  or  if  the  recognition  of,  and  taking  action  in  support  of,  the  foreign resolution action would have material fiscal implications for Jersey; or recognition would be unlawful under Article 7(1) of the Human Rights (Jersey) Law 2000.

Part 7  of  the  Law  which  comprises  Articles 90 to 142  makes  provision  for  bank winding up.

Article 90 provides for an application for a bank winding up order in respect of a bank to be made on any of specified grounds which will be considered by the Court in determining the application in accordance with Articles 95 and 96. The grounds are that –

1. that the bank is unable, or likely to become unable to pay its debts;
2. the winding up of the bank would be in the public interest; or
3. the winding up of a bank would be fair.

Article 91 provides for an application for a bank winding up order to be an application for a bank winding up order to be may be made to the Court by the Authority, Commission or Minister.

Under  Article 92,  the  applicant  for a  bank  winding  up  order  shall,  not  less than 48 hours before the making of the application, give notice of the application to the Authority,  the  bank,  the  Commission,  the  Minister,  the  Jersey  Bank  Depositors Compensation Board and the Viscount.

Article 93 gives the Authority, the bank, the Commission, the Minster, the Viscount, the bank or its bank's shareholders and, on application, other interested parties, the right to be heard (or to make representations) at the proceedings for the granting of a bank winding up order.

Under Article 94, the commencement of bank winding up proceedings against a bank bars the right to commence any normal insolvency proceedings against the bank or winding up proceedings under Article 155 of the Companies (Jersey) Law 1991.

Article 94 also provides for notice to be given of an application for normal insolvency proceedings or a winding up proceeding under Article 155 of the Companies (Jersey) Law 1991 made in respect of a bank. Article 94 also provides for specified persons, including the Authority, the Commission and the bank to have the right to be heard. Where notice of normal insolvency proceedings or of a winding up proceeding under Article 155 of the Companies (Jersey) Law 1991, an application may be made within 7 days of the notice being given for a bank winding up order to be made in lieu of any other order and an order to commence normal insolvency proceedings shall not be made except with the consent of the Authority.

Article 95  gives the  Court  the power to  grant an application  and  make  the bank winding up order, adjourn the application (either sine die or to a specified a date) or dismiss the application.

Article 96 sets out the circumstances in which the court may grant an application for a bank winding up order based on the grounds for making an application specified in Article 90.

Article 97 a bank winding up order must name the persons appointed as the bank liquidators  in  accordance  with  Article 98.  The  bank  winding  up  order  must  also specify the powers of the bank liquidator set out in Article 104 and the manner in which such powers may be exercised.

Article 98 provides for the appointment of  one or more bank liquidators and the qualifications required for such an appointment. An offence is created where a person acts as a bank liquidator when not qualified to do so.

Article 99 sets out the objectives of a bank liquidator in exercising his or her duties which include to work with the Jersey Bank Depositors Compensation Board to ensure that as soon as reasonably practicable each eligible depositor has the relevant account transferred to another bank or receives payment from (or on behalf of) the Depositors Compensation Fund or from the bank liquidator or from the deposit guarantee system of another jurisdiction in which the bank has branches and to wind up the affairs of the bank so as to achieve the best result for the bank's creditors as a whole.

Under Article 100 where more than one bank liquidator is appointed in respect of a bank under Article 98, the powers and obligations granted to or imposed on a bank liquidator are exercisable by them jointly and severally such that they may act together or one may act without the other (and by doing so will bind the other) in the exercise of their powers and obligations.

Article 101 provides a bank liquidation committee to be established on the making of a bank winding up order for the purpose of ensuring that the bank liquidator properly exercises the functions of a bank liquidator. The bank liquidation committee must comprise a representative nominated by and representing each of the Authority, the Commission, the Jersey Bank Depositors Compensation Board, the Minister and the Viscount. Article 101 imposes a requirement on a bank liquidator to report to the bank liquidation committee.

Article 102 provides for a bank winding up order to take effect from the date that the bank winding up order is made.

Article 103 makes provision for the effect of a bank winding up order. Article 104 sets out the powers of the bank liquidator.

Under Article 105 the bank liquidator, may, within 6 months after the commencement of a bank winding up, by the giving of notice signed by him or her and referring to this Article and Article 107 to each person who is interested in or under any liability in respect  of  the  property  disclaimed,  disclaim  on  behalf  of  the  bank  any  onerous property of the bank.

Article 106 prevents the disclaimer of a contract lease from taking effect unless a copy of its disclaimer has been served (so far as the bank liquidator is aware of their addresses) on every person claiming under the bank as a hypothecary creditor or under lessee and either no application under Article 107 is made with respect to the contract lease before the end of the period of 14 days beginning with the day on which the last notice under this paragraph was served; or where such an application has been made, the Court directs that the disclaimer is to have effect.

Article 107 provides for the powers of court in respect of disclaimed property. Article 108 contains general provisions relating to bank winding up.

Article 109 provides for the termination of the office of a bank liquidator.

Article 110 requires a bank liquidator who resigns, is removed or for any other reason vacates office to give notice of the resignation, removal or vacation to the Registrar and the applicant for the bank winding up order. An offence is created for failure to comply with this requirement.

Article 111 provides for the application of the rules under the Bankruptcy (Désastre) (Jersey) Law 1990 in a bank winding up.

Article 112 provides for the bank liquidator to pay the bank's debts and adjust rights of contributories.

Article 113  provides  for  rescission  of  contracts  by  an  order  of  the  Court  on  the application of a person who is, as against the bank liquidator, entitled to the benefit or subject to the burden of a contract made with the bank.

Under Article 114, if a bank has at a relevant time entered into a transaction with a person at an undervalue the Court has the power on the application of the bank liquidator in a bank winding up to make such an order as the Court thinks fit for restoring the position to what it would have been if the bank had not entered into the transaction.

Under Article 115, If a bank has at a relevant time given a preference to a person, the Court has the power, on the application of the bank liquidator in a bank winding up, to make such an order as the Court thinks fit for restoring the position to what it would have been if the preference had not been given.

Article 116 contains definitions which are relevant to Articles 114 and 115.

Article 117 lays responsibility for wrongful trading by a bank on a person who as director of the bank knew that there was no reasonable prospect that the bank would avoid normal insolvency proceeding; or on the facts known to him or her, was reckless as to whether the bank would avoid such normal insolvency proceedings.

Article 118 lays responsibility for fraudulent trading by a bank on persons who were knowingly parties to the carrying on of the business by a bank in that manner.

Article 119 gives the Court the power on the application of a bank liquidator to make an order with respect to an extortionate credit transaction.

Article 120 gives the bank liquidator the power to require a person in possession of property to which a bank appears in a bank winding up to be entitled to pay, deliver, convey, surrender or transfer the property or records to the bank liquidator.

Article 121 provides for the liability of a persons in respect of purchase or redemption of shares in a bank.

Article 123 imposes a duty on the officers or employees of a bank or the secretary to a bank to co-operate with bank liquidator in a bank winding up.

Article 124 requires that a bank liquidator report to the Attorney General possible misconduct by the bank or a person in relation to a bank.

Article 125 provides that for the purpose of an investigation by the Minister or the Commission under Article 124, an obligation imposed on a person by a provision of the Companies (Jersey) Law 1991 to produce documents or give information to, or otherwise to assist, inspectors appointed as mentioned in that Article is to be regarded as an obligation similarly to assist the Minister in his or her, or the Commission in its, investigation.

Article 126 provides that, subject to Article 30 and to any other enactment as to the order of payment of debts, a bank's property shall on a bank winding up be applied in satisfaction of the bank's liabilities pari passu. The Court has the discretion to fix a time or times within which creditors of the bank are to prove their debts or claims or to be  excluded from the benefit of any distribution made before those debts are proved.

Article 127 provides for the payment of interest on any debt proved in a bank winding up, including so much of any such debt as represents interest on the remainder.

Article 128  provides for the  enforcement of a bank liquidator's duty to deliver a document or give notice in a bank winding up.

Under Article 129, a bank liquidator may apply to the Court for a determination of a question arising in the bank winding up, or for the Court to exercise any of its powers in relation to the bank winding up.

Article 130 imposes a requirement, for every invoice, order for goods or services or business letter issued by or on behalf of a bank that is being wound up, or the bank liquidator, being a document on or in which the name of the bank appears, to contain a statement that the bank is in liquidation. The bank is guilty of an offence in the event of a failure to comply with that requirement.

Article 131 provides for the liability as contributories of present and past members of a bank that is wound up.

Article 132 provides for the retention of the records of a bank that has been wound up and dissolved and those of the bank liquidator and bank liquidation committee for a period of at least 10 years after the banks dissolution. After 10 years from the bank's dissolution no responsibility rests on the bank, a bank liquidator, the bank liquidation committee or a person to whom the custody of the records has been committed, by reason of any record not being forthcoming to a person claiming to be interested in it. An offence is created for contravention of the requirement to retain the records.

Article 133(1) limits the use by the bank liquidator of information relating to a bank winding up, its customers and its creditors for the purpose of achieving the objectives referred to in Article 99(1) and provides that, in the pursuit of the objectives, the bank liquidator may disclose such information to a person, entity or insolvency practitioner as  appropriate,  including a  purchaser or potential purchaser of all or part of the business  of  the  bank,  the  Minister, the  Commission,  the  Jersey  Bank  Depositors Compensation Board, professional advisers, and as otherwise may be permitted by the Data Protection (Jersey) Law. The bank liquidator is required to seek the approval of the bank liquidation committee to disclose information referred to in Article 133(1) for any purpose other than a purpose referred to in Article 133(1), unless the disclosure of such information is routinely required to facilitate the ongoing conduct of business and the provision of services to depositors (Article 133(2)).

Article 134 makes provision for the inspection of books and papers of a bank being wound up by creditors and contributories as the Court thinks just.

Under Article 135, where a bank is being wound up, all books and papers of a bank and of the bank liquidator are treated, as between the contributories of the bank, prima facie evidence of the truth of all matters purporting to be recorded in them.

Article 136 requires that, if a bank winding up is not concluded within one year after its commencement, a progress report as to the status of the bank winding up must be submitted by the bank liquidator to the Registrar at such intervals as may be specified by the Court, until the bank winding up is concluded.

Article 137  gives  the  Court  the  power  to  direct  meetings  of  creditors  and contributories to ascertain wishes of creditors or contributories in a bank winding up.

Article 138 provides for all of the provisions of Part 7 to apply where a bank liquidator exercise his or her powers in respect of a subsidiary of a bank being wound up which by virtue of the insolvency of the bank being wound up, is also insolvent.

Article 139  empowers  the  Minister  to  make  an  Order  to  provide  for  any  other provision of Jersey insolvency law to be applied to a bank winding up.

Article 140 makes provision for the termination of a bank winding up by order of the Court on the application of the bank liquidator and for any bank liquidator appointed

for  the  purpose  of  the  bank  winding  up  to  cease  to  hold  that  office  upon  such termination.

Article 141 provides for the dissolution of a bank when the affairs of a bank are fully wound up and for the bank liquidator to make up an account and final report of the bank winding up, showing how it has been conducted and how the bank's property has been disposed of.

Article 142  makes  provision  for  assistance  to  be  given  to  foreign  authorities  in insolvency matters.

Part 8  of  the  Law  comprises  Articles  143  to  153  which  make  provision  for investigations regarding the affairs of a bank to be carried out.

Article 143 makes provision for the appointment of inspectors to investigate the affairs of a bank and to report on them as the Authority may direct. Article 143 applies whether or not the bank is in resolution or being wound up.

Article 144 provides for an inspector who is appointed to investigate the affairs of a bank and who thinks it is necessary, for the purposes of his or her investigation, to investigate also the affairs of another entity which is or at any relevant time has been the bank's subsidiary or holding company, or a subsidiary of its holding company or a holding company of its subsidiary, to have the power to do so.

Article 145 gives an inspector the power to require a person to produce and make available to the inspector all records in the person's custody or power relating to an investigation and to require the person to attend before the inspector and otherwise to give the inspector all assistance in connection with an investigation which the person is reasonably able to give. A person is under a duty to comply with the requirement of an inspector under Article 145.

Article 146 gives an inspector the power to require a director to produce and make available to the inspector all records in the director's possession or under the director's control relating to a bank account if the inspector has reasonable grounds for believing that a director, or past director, of the bank or other person whose affairs they are investigating  maintains  or  has  maintained  a  bank  account  with  another  person (whether in Jersey or elsewhere) and into or out of which there has been paid money which has been in any way connected with an act or omission, which constitutes misconduct.

Article 147 provides for an inspector to apply to the Bailiff for a warrant to search and enter specified premises.

Article 148  creates  an  offence  for  wilful  obstruction  of  any  person  acting  in  the execution of a warrant issued under Article 147.

Article 149 creates an offence for failure to co-operate with an inspector.

Article 150  makes provision for the inspector to make interim reports and a final report to the Authority.

Article 151 requires that the expenses of and incidental to an investigation by an inspector be defrayed in the first instance by the Authority, but makes the bank liable to make repayment to the Authority.

Under Article 152, a copy of a report of an inspector, certified by the Authority to be a true  copy,  is  admissible  in  legal  proceedings  as  evidence  of  the  opinion  of  the inspector in relation to a matter contained in the report.

Article 153 clarifies that nothing in Part 8 requires the disclosure or production to the Authority, or to an inspector appointed by the Authority, by a person of information or records which the person would in an action in the Court be entitled to refuse to

disclose or produce on the grounds of legal professional privilege in proceedings in the Court except, if the person is a lawyer, the name and address of his or her client.

Par  9  of  the  Law  comprises  Articles  154  to  163  which  impose  restrictions  on disclosure of information.

Article 154 imposes a restriction on the disclosure of information by a person who receives information relating to the business or other affairs of any person under the Law or who obtains any such information directly or indirectly from the person who received it without the consent of the person to whom it relates and (if different) the person from whom it was received. The restriction does not apply to information which, at the time of the disclosure, is or has already been made available to the public from other sources or to information in the form of a summary or collection of information so framed as not to enable information relating to any particular person to be  ascertained  from  it.  An  offence  is  created  for  disclosure  information  in contravention of Article 154.

Article 155 permits the disclosure of information for facilitating discharge of functions of the Authority and specified persons.

Article 156 permits the disclosure of information for facilitating discharge of functions by other authorities including the Commission, the Viscount and the Comptroller and auditor General.

Article 157 permits other types of disclosure of information, for example, disclosure of information with a view to investigation of an offence.

Article 158 gives the States the power to make Regulations to amend Articles 155, 156 and 157.

Article 159 clarifies that Articles 154 to 157 apply also to information supplied to the Authority for the purposes of its functions by a resolution authority in the jurisdiction in which a bank operates branches or subsidiaries.

Article 160 makes provision for the Authority to negotiate and enter into binding and non-binding framework co-operation agreements with the resolution authorities in other jurisdictions in which the bank's group conducts business.

Article 161 provides for the Authority to issue a public statement concerning a bank if it appears to the Authority to be desirable to issue the statement in the best interests of persons who have transacted or may transact deposit-taking business with the bank, or in the best interests of the public. If the Authority proposes to issues a public statement the Authority must serve a notice on the bank (Article 161(2)).

Article 162  prohibits  the  Authority  from  issuing  the  public  statement  before  the expiration of 14 days following the date of the service of a notice under Article 161(2), except where certain public interest criteria are met.

Article 163 provides for appeals and orders about public statements.

Part 10 of the Law comprises Articles 164 to 174 which are miscellaneous provisions.

Article 164  gives  the  Authority  the  discretion  to  apply  to  the  Court  for  the determination of a question arising in relation to the application of a resolution tool, exercise of a resolution power or the taking of resolution action.

Article 165 makes provision for the service of notices.

Article 166 provides for it to be an offence for a person to make a statement in any document, material, evidence or information which is required to be provided to the Authority or to any person entitled to the information under the Law that, at the time and in the light of the circumstances under which it is made, is false or misleading

with respect to any material fact, or that omits to state any material fact the omission of which makes the statement false or misleading. A person shall not be guilty of the offence if the person did not know that the statement was false or misleading and with the exercise of reasonable diligence could not have known that the statement was false or misleading.

Article 167 sets out the circumstances when partners, directors and officers of a body corporate, a separate limited partnership or a limited liability partnership or other partnership with separate legal identity may be criminally liable where an offence under the Law is proved against such a body corporate or partnership.

Article 168  provides  for  a  person  aggrieved  by  a  decision  of  the  Authority,  the Commission or any other person exercising a function or power under the Law, to have  the  right to  appeal to the  Court against the  decision  within 28 days  of the decision being made. An appeal may be made only on the ground that the decision of the Authority the Commission or other person was unreasonable having regard to all the circumstances of the case. The lodging of the appeal against a decision of the Authority to take a crisis prevention measure does  not automatically suspend the effects of the decision against which the appeal is made. Also, the decision of the Authority to take a crisis prevention measure shall be immediately enforceable and shall give rise to a rebuttable presumption that a suspension of its enforcement would be against the public interest.

On an appeal under Article 168, the Court has the power to make such interim or final order as it thinks fit.

Article 168 also provides that where it is necessary to protect the interests of third parties acting in good faith who have acquired shares, assets, rights or liabilities of a bank in resolution by virtue of the application of a resolution tool or the exercise of a resolution power by the Authority, the revocation of a decision of the Authority shall not  affect  any  subsequent  administrative  acts  or  transactions  concluded  by  the Authority which were based on the revoked decision and in that case the remedies for wrongful decision or action by the Authority shall be limited to compensation for the loss suffered by the applicant as a result of the decision to act.

Article 169 provides that the power to make Rules of Court under the Royal Court (Jersey) Law 1954 includes a power to make Rules for the purposes of the Law.

Article 170 provides that the rules of customary law applicable to a bank apply to a bank except in so far as they are inconsistent with the express provisions of the Law.

Article 171 gives the States the power by Regulations to make such other provision as the States think fit for the purposes of carrying the Law into effect. Article 168 also gives the States power to amend Parts 5 and 6 of the Law.

The Regulations may create offences, and specify penalties for such offences not exceeding imprisonment for 2 years and a fine and may make such consequential, incidental, supplementary and transitional provision as may appear to be necessary or expedient including, provision making consequential amendments to the Law and any other enactment.

Article 172 gives the Minister power to make an Order prescribing any matter which is to be prescribed under the Law and to amend Part 1 and the Schedules. An Order may make different provision for different cases and contain such incidental, supplemental and  transitional  provisions  as  appear  to  the  Chief  Minister  to  be  necessary  or expedient. By Article 172(3) the Chief Minister must consult the Authority or the Commission before making any Orders under the Law.

Article 173 introduces a consequential amendment of Article 8 of the Interpretation (Jersey) Law to add a bank that has been wound up to the definition "bankrupt" and enables the States, by Regulations, to make provision in this or any other Law for any transitional matter connected the coming into force of the Law.

Article 174 cites the Law as the Bank (Recovery and Resolution) (Jersey) Law 201- and provides that it shall come into force on such day or days as the States may by Act appoint.

Schedule 1 contains matters relating to the appointment of members of the Authority and the procedure of the Authority at meetings.

Schedule 2 contains information to be supplied by a bank for resolution planning, matters to be contained in the resolution plan and matters for consideration to assess resolvability of the bank.

Under the Criminal Justice (Standard Scale of Fines) (Jersey) Law 1993, level 1 is £50, level 2 is £500, level 3 is £2,000 and level 4 is £5,000.

DRAFT BANK (RECOVERY AND RESOLUTION) (JERSEY) LAW 201-

Arrangement

Article

PART 1  29

1  Interpretation .................................................................................................29 2  Circumstances in which a bank is deemed to be failing or likely to fail .......36 3  Application ....................................................................................................37

PART 2  37 JERSEY RESOLUTION AUTHORITY  37

4  Establishment of the Authority .....................................................................37 5  Appointment of members of Authority .........................................................38 6  Terms of appointment of members and proceedings of the Authority ..........39 7  Functions of the Authority ............................................................................39 8  Guiding principles .........................................................................................39 9  General powers of the Authority ...................................................................39 10  Limitation of liability ....................................................................................40 11  Appointment and remuneration of staff ........................................................40 12  Delegation to members and officers..............................................................40 13  Guidance and directions ................................................................................41 14  Publication of information and advice ..........................................................41 15  Funding of the Authority ...............................................................................42 16  Annual administration levy ...........................................................................42 17  Grants to the Authority ..................................................................................44 18  Borrowing by the Authority ..........................................................................44 19  Investment of surplus funds ..........................................................................44 20  Exemption from income tax and GST ...........................................................44 21  Accounts, audit and reports ...........................................................................45

PART 3  45 JERSEY BANK RESOLUTION FUND  45 22  Establishment of Fund ...................................................................................45

PART 4  47 RECOVERY AND RESOLUTION PLANNING  47

23  Recovery plan ............................................................................................... 47 24  Resolution plan ............................................................................................. 48 25  Resolvability ................................................................................................. 49 26  Minimum requirements for own funds and eligible liabilities ...................... 50 27  Minimum capital requirements ..................................................................... 51

PART 5  51 RESOLUTION MATTERS  51

28  Requirement for notice ................................................................................. 51 29  General resolution powers ............................................................................ 52 30  Creditor hierarchy ......................................................................................... 56 31  Early intervention.......................................................................................... 56 32  Temporary administrator .............................................................................. 57 33  Resolution objectives .................................................................................... 59 34  Resolution conditions.................................................................................... 60 35  General principles of resolution .................................................................... 60 36  Conditions for application of a resolution tool ............................................. 61 37  Manner of recovery by Authority of expenses.............................................. 62 38  Alternative financing .................................................................................... 62 39  Assessment by the Commission.................................................................... 62 40  Authority to have regard to Competition (Jersey) Law 2005 ....................... 64 41  Authority to consult with employee representatives ..................................... 64 42  Special management ..................................................................................... 64 43  Authority not to be treated as a director of a bank ........................................ 65 44  Pre-resolution valuation ................................................................................ 65 45  Provisional valuation .................................................................................... 66 46  Definitive valuation ...................................................................................... 67 47  Consequences of a higher valuation being produced by definitive

valuation........................................................................................................ 67 48  Technical standards....................................................................................... 68 49  Eligibility criteria for independent valuer ..................................................... 68 50  Ancillary powers of an independent valuer .................................................. 68

PART 6  68 STABILIZATION TOOLS AND RESOLUTION SAFEGUARDS  68

Chapter 1 – Sale of business tool  68 51  Application of sale of business tool .............................................................. 68 52  Power to transfer assets, rights, liabilities or shares transferred to the

purchaser back to bank in resolution or to original owners .......................... 70 53  Bank in resolution entitled to exercise rights after transfer .......................... 70 54  Rights of purchaser under the sale of business tool ...................................... 70 55  Marketing of assets, rights, liabilities or shares ............................................ 71 56  Delay of disclosure of information to the public on application of the

sale of business tool ...................................................................................... 72 57  Residual bank to be wound up ...................................................................... 72

Chapter 2 – Bridge bank tool  72 58  Application of bridge bank tool .................................................................... 72 59  Power to transfer assets, rights, liabilities or shares transferred to the

bridge bank back to bank or to original owners ............................................ 73 60  Bank in resolution entitled to exercise rights after transfer .......................... 74

61  Rights of bridge bank ....................................................................................74 62  Operation of bridge bank...............................................................................75

Chapter 3 – Asset separation tool  77 63  Application of asset separation tool ..............................................................77 64  Operation of asset management vehicle ........................................................78

Chapter 4 – Bail-in tool  79 65  Application of bail-in tool .............................................................................79 66  Assessment of amount of bail-in ...................................................................82 67  Treatment of shareholders in bail-in or write down or conversion ...............82 68  Sequence of write down or conversion .........................................................83 69  Derivatives ....................................................................................................85 70  Business reorganization plan .........................................................................85 71  Ancillary provisions relating to bail-in .........................................................87 72  Contractual recognition of bail-in .................................................................88

Chapter 5 – Government financial assistance tool  88 73  Application of government financial assistance tool ....................................88

Chapter 6 – Write down and conversion power  89 74  Write down or conversion power ..................................................................89

Chapter 7 – Default Event Provisions  92 75  Default event provisions................................................................................92

Chapter 8 – Resolution Safeguards  94 76  Treatment of shareholders in the case of partial transfers and

application of the bail in tool.........................................................................94 77  Difference of treatment valuation..................................................................94 78  Safeguard for shareholders and creditors ......................................................95 79  Procedural requirements after creation of a resolution instrument or

share transfer order ........................................................................................95 80  Safeguard for partial transfers .......................................................................96 81  Protection for title transfer financial collateral, set-off and netting

arrangements .................................................................................................97 82  Protection for security arrangements .............................................................97 83  Protection for structured finance arrangements and covered bonds ..............97 84  Transfer or modification of covered deposits and other assets, rights or

liabilities ........................................................................................................98 85  Protection of trading, clearing and settlement systems .................................98

Chapter 9 – Miscellaneous  98 86  International obligations ................................................................................98 87  No requirement for advice or opinion on technical area ...............................99 88  Post resolution report ....................................................................................99 89  Recognition of foreign resolution actions ...................................................100

PART 7  101 BANK WINDING UP  101

90  Grounds for application for bank winding up order ....................................101 91  Application for bank winding up order .......................................................101 92  Notice of application ...................................................................................102 93  Right to be heard .........................................................................................102

94  Restriction of other insolvency or winding up proceedings........................ 102 95  Decision of the Court .................................................................................. 103 96  Grant of bank winding up order .................................................................. 103 97  Contents of bank winding up order ............................................................. 103 98  Appointment of bank liquidator .................................................................. 104 99  Objectives of a bank liquidator in exercising his or her duties ................... 105 100  Persons appointed as bank liquidator to act jointly and severally .............. 106 101  Bank liquidation committee ........................................................................ 106 102  Commencement of bank winding up order ................................................. 109 103  Effects of bank winding up order................................................................ 109 104  Powers of bank liquidator ........................................................................... 110 105  Power to disclaim onerous property ........................................................... 112 106  Disclaimer of contract leases ...................................................................... 113 107  Powers of court in respect of disclaimed property ...................................... 113 108  General provisions relating to bank winding up ......................................... 114 109  Termination of office of bank liquidator..................................................... 115 110  Notification by bank liquidator of resignation ............................................ 116 111  Application of the law relating to désastre.................................................. 116 112  Bank liquidator to pay debts and adjust rights of contributories ................ 117 113  Rescission of contracts by the Court ........................................................... 117 114  Transactions at an undervalue ..................................................................... 117 115  Giving of preferences .................................................................................. 119 116  Definitions relating to transactions at an undervalue and preferences ........ 121 117  Responsibility of persons for wrongful trading .......................................... 122 118  Responsibility for fraudulent trading .......................................................... 123 119  Extortionate credit transactions................................................................... 123 120  Delivery and seizure of property................................................................. 124 121  Liability in respect of purchase or redemption of shares ............................ 125 122  Resolutions passed at adjourned meetings .................................................. 126 123  Duty to co-operate with bank liquidator ..................................................... 126 124  Bank liquidator to report possible misconduct ........................................... 127 125  Obligations arising under Article 124 ......................................................... 128 126  Distribution of bank's property ................................................................... 128 127  Interest on debts .......................................................................................... 129 128  Enforcement of liquidator's duty to make returns, etc................................ 129 129  References to the Court ............................................................................... 130 130  Notification that the bank is in liquidation.................................................. 130 131  Liability as contributories of present and past members............................. 130 132  Retention and disposal of records ............................................................... 131 133  Disclosure of information by a bank liquidator .......................................... 131 134  Inspection of bank's books etc. by court order ........................................... 132 135  Bank's books to be evidence....................................................................... 132 136  Information as to pending liquidations ....................................................... 132 137  Meetings to ascertain wishes of creditors or contributories ........................ 132 138  Power of bank liquidator to act in respect of subsidiary ............................. 133 139  Order for Jersey insolvency law to apply.................................................... 133 140  Termination of a bank winding up .............................................................. 133 141  Final dissolution .......................................................................................... 134 142  Assistance for foreign authorities in insolvency matters ............................ 135

PART 8  135 INVESTIGATIONS  135

143  Appointment of inspectors ..........................................................................135 144  Powers of inspector .....................................................................................135 145  Production of records and evidence to inspector.........................................136 146  Power of inspector to call for directors' bank accounts ..............................136 147  Authority for search ....................................................................................137 148  Obstruction ..................................................................................................137 149  Failure to co-operate with inspectors ..........................................................137 150  Inspector's reports .......................................................................................138 151  Expenses of investigating a bank's affairs ..................................................138 152  Inspectors' report to be evidence ................................................................139 153  Privileged information.................................................................................139

PART 9  139 RESTRICTION ON DISCLOSURE OF INFORMATION  139

154  Restricted information .................................................................................139 155  Disclosure for facilitating discharge of functions of the Authority and

specified persons .........................................................................................139 156  Disclosure for facilitating discharge of functions by other authorities .......141 157  Other permitted disclosures .........................................................................142 158  Regulation making power to amend disclosure provisions .........................143 159  Information supplied to Authority by resolution authority .........................143 160  Co-operation with resolution authority .......................................................143 161  Public statement ..........................................................................................143 162  Notice period ...............................................................................................144 163  Appeals and orders about public statements ...............................................145

PART 10  145 MISCELLANEOUS  145

164  References to the Court ...............................................................................145 165  Service of notices ........................................................................................145 166  False or misleading information ..................................................................147 167  Criminal liability of partners, directors and other officers ..........................147 168  Appeal .........................................................................................................147 169  Rules of Court .............................................................................................148 170  Customary Law ...........................................................................................148 171  Regulations ..................................................................................................148 172  Orders ..........................................................................................................149 173  Amendments of other enactments ...............................................................149 174  Citation and commencement .......................................................................149

SCHEDULE 1  150 APPOINTMENT OF MEMBERS AND PROCEEDINGS OF THE

AUTHORITY  150

1  Terms of appointment of members .............................................................150 2  Disclosure of interest ...................................................................................151 3  Procedure at meetings .................................................................................151 4  Transaction of business without meeting ....................................................151