Bank of England Issues Consultation Paper on the Suspension of Customers' Early Termination Rights
The Bank of England issued a consultation paper, titled "Contractual stays in financial contracts governed by third-country law," that proposes a new rule regarding the suspension of customers' early termination rights.
The consultation paper proposes a new rule for the Prudential Regulation Authority ("PRA") Rulebook. The rule would require the adoption of UK resolution stays in certain financial contracts (including derivative, repurchase and reverse repurchase agreements, or securities financing transactions) governed by the laws of jurisdictions outside the European Economic Area.
The proposals covered in the consultation paper apply to the following:
- UK banks and building societies;
- PRA-designated investment firms and their qualifying parent undertakings (i.e., financial holding companies and mixed financial holding companies);
- credit institutions and investment firms, and financial institutions that are the subsidiaries of these firms; and
- counterparties of any of the foregoing.
According to the Bank of England's press release about the consultation paper, the proposal "is part of a coordinated effort among members of the Financial Stability Board . . . to improve cross-border recognition of resolution stays by obliging firms to adopt contractual solutions where statutory recognition regimes are lacking."
Comments on the consultation paper must be submitted by August 26, 2015.