Commentary on Sections Specific issues Section 217: Backing assets
471.Subsection (1) provides that the banknote regulations must require authorised banks to have backing assets.
472.Subsection (2) defines “backing assets”. The term means those assets of a kind specified in the banknote regulations. This may include Bank of England banknotes, UK coins, or funds held in a specified bank account at the Bank of England or another institution or class of institution.
473.Subsection (3)(a) requires the banknote rules to include provision for determining the value of backing assets to be held.
474.Subsections (3)(b) and (3)(c) provide that the banknote regulations must require certain backing assets to be held at certain prescribed locations. Bank of England notes may be held only by the Bank of England or at locations approved by the Bank of England. UK coin may be held only at locations approved by the Bank of England. Approval will be subject to compliance with conditions determined by the Bank of England pursuant to section 226.
475.Subsection (4) provides a broad power for the Treasury to make further provisions in the banknote regulations about backing assets, in particular for the purposes set out in paragraphs (a) to (d).
476.Subsection (5) provides that the banknote regulations may make provision about the treatment of backing assets in relation to insolvency (as defined in subsection (6)). In particular, the banknote regulations may modify insolvency law to ensure that the backing assets are “ring-fenced” and are available only to noteholders for a certain specified period. The regulations may allow the Treasury to extend this period if required. The regulations may also make provision for a note exchange programme, in which noteholders would exchange their notes for Bank of England notes and coins, or for funds paid directly into their bank account.