BoE updates bank failure rules after US SEC assurances

The Bank of England has introduced updated guidance for handling bank failures, establishing an alternative bail-in mechanism that changes how bondholders are compensated during a rescue. This move follows the central bank securing assurances from the United States that the new system would not trigger enforcement actions under American securities laws. The United Kingdom central bank stated that the revisions were based on lessons from the 2023 collapses of Silicon Valley Bank and Credit Suisse, which was subsequently acquired by UBS GROUP AG-REG. Under the new approach, bondholders whose debt is converted or wiped out will receive temporary placeholder rights, known as Provisional Rights to Profits and Proceeds (PROPPs), instead of immediate shares. These rights are a provisional entitlement that will later be converted into actual equity once regulators determine the exact amounts owed to creditors. This mechanism addresses concerns that issuing shares to U.S.-based bondholders without SEC approval could breach American rules, a challenge highlighted during the Credit Suisse crisis. The U.S. Securities and Exchange Commission (SEC) provided a no-action letter to the Bank of England, confirming it would not recommend enforcement if the PROPPs mechanism is used without registration under the U.S. Securities Act. SEC Chair Paul Atkins emphasized the importance of regulatory clarity for these time-sensitive situations. > "Bail-ins are by nature emergency operations that must often be completed over a single weekend." Atkins has directed staff to draft a rule exempting banks from registering securities offered during foreign bail-in rescues, providing a permanent solution for international bank resolutions involving U.S. investors.