Commentary on provisions of Act Section 1: Recapitalisation payments
This section amends Part 15 of FSMA 2000, specifying the text that will be inserted as a new section 214E (recapitalisation payments). This includes:
Allowing the Bank to require the FSCS (referred to as the "scheme manager") to transfer funds to the Bank or another person (e.g., directly to the failing firm) when the Bank is exercising its stabilisation powers under the resolution regime to either transfer a failing or failed bank to a private sector purchaser or a bridge bank (subsection (1) of new section 214E);
Specifying that such a payment will be known as a "recapitalisation payment" and will be the Bank’s estimate of the likely costs of recapitalising the firm and any other expenses that the Bank or a relevant person may incur in connection with the recapitalisation or the exercise of the stabilisation power (subsection (2) of new section 214E). A "relevant person" is defined as the Treasury, a bridge bank or an asset management vehicle where the latter two have the meanings given by sections 12 and 12ZA of the Banking Act (subsections (6) and (7) of new section 214E);
Requiring that the Bank must consult the FSCS before requesting that the FSCS transfer funds under the new mechanism (subsection (3) of new section 214E);
Specifying that the funds the FSCS provides will be classed as an "expense under the compensation scheme" of the FSCS (subsection (4) of new section 214E). This has the effect of ensuring that the FSCS can levy the financial services industry to recover these expenses; and
Specifying that, in the new sections 214E and 214H of FSMA 2000, a "financial institution" means a bank, building society or investment firm (subsection (7) of new section 214E).