Statute Details
- Title: Financial Services and Markets (Resolution of Financial Institutions) Regulations 2024
- Act Code: FSMA2022-S403-2024
- Type: Subsidiary legislation (SL)
- Enacting Act: Financial Services and Markets Act 2022 (“FSMA 2022”)
- Regulation Number: S 403/2024
- Commencement: 10 May 2024
- Current version status: Current version as at 27 Mar 2026
- Key amendment noted in timeline: Amended by S 1065/2024 (effective 31 Dec 2024)
- Parts: Part 1 (Preliminary) to Part 9 (Miscellaneous)
- Core subject areas: compulsory transfer of business; reverse/onward transfer; compulsory transfer of shares/restructuring; bail-in powers; termination rights; compensation; exemptions; saving/transitional
- Key definitions (extract): “affected person”, “excluded financial institution”, “pertinent financial institution”, “financial contract”, “significant shareholder”, and related thresholds
What Is This Legislation About?
The Financial Services and Markets (Resolution of Financial Institutions) Regulations 2024 (“Resolution Regulations”) are subsidiary rules made under FSMA 2022 to operationalise the resolution toolkit for failing financial institutions. In plain language, the Regulations set out the mechanics for how certain resolution actions—such as transferring parts of a business, restructuring shares, applying bail-in to liabilities, and dealing with contract termination—work in practice.
Resolution regimes are designed to prevent disorderly failure of financial institutions from destabilising the financial system. Rather than relying solely on liquidation, the law allows the relevant authority to intervene quickly, preserve critical functions, and allocate losses to stakeholders in an orderly manner. The Regulations therefore focus on the “plumbing” of resolution: how rights and obligations are treated, how information must be provided, and how protected arrangements (for example, certain secured or market-infrastructure-related rights) are handled.
Although the Regulations are structured as a standalone instrument, they are tightly linked to FSMA 2022. Many provisions in the Regulations refer to specific sections of the Act (for example, information requirements under sections 67(2), 71(2), 73(2), 76(2), 79(2), 84(4), and moratorium and termination provisions under sections 92 and 93). Practitioners should therefore read the Regulations together with FSMA 2022 and any related resolution directions or determinations.
What Are the Key Provisions?
1) Preliminary definitions and scope (Part 1). The Regulations begin by defining key terms that determine who is affected and what resolution actions can be taken. The extract shows definitions for “affected person”, “excluded financial institution”, “pertinent financial institution”, and “financial contract”. These definitions are crucial because resolution actions often have different consequences depending on whether a counterparty is an affected person, whether the institution is “pertinent”, and whether a particular arrangement qualifies as a “financial contract”.
Part 1 also introduces threshold-based concepts for controllers (e.g., “5% controller”, “12% controller”, “20% controller”, “50% controller”). These thresholds are not merely corporate governance concepts; they are used to identify significant shareholders and related persons for resolution purposes. The Regulations cross-reference definitions in other sectoral statutes (such as the Banking Act 1970, Financial Holding Companies Act 2013, Payment Services Act 2019, Securities and Futures Act 2001, and Trust Companies Act 2005). This ensures consistency across the financial regulatory perimeter.
2) Compulsory transfer of business (Part 2). Part 2 sets out the operational rules for compulsory transfer of the business of a “pertinent financial institution”. It includes provisions on (i) setting-off and netting rights, (ii) rights and liabilities connected with clearing and settlement arrangements of market infrastructure, (iii) rights and liabilities connected with designated systems, and (iv) treatment of secured liabilities and “protected covered bonds”.
In practical terms, these provisions address a common problem in resolution: counterparties may attempt to accelerate, terminate, or set off obligations when a transfer occurs. The Regulations seek to preserve the continuity of critical market functions and to prevent resolution from triggering chaotic contractual outcomes. For example, the rules on setting-off and netting rights indicate when and how counterparties can net mutual obligations, which can materially affect recoveries and the valuation of transferred assets and liabilities.
3) Reverse transfer and onward transfer (Part 3). Resolution actions may be followed by subsequent transfers—for example, transferring assets and liabilities back (reverse transfer) or onward to another entity. Part 3 contains rules similar in theme to Part 2, but tailored to these later stages. It covers setting-off and netting rights, rights and liabilities connected with market infrastructure clearing and settlement arrangements, rights and liabilities connected with designated systems, and secured liabilities in relation to reverse and onward transfers.
Part 3 also includes restrictions on reverse transfer and information requirements under specified FSMA 2022 sections (notably sections 71(2) and 73(2) of the Act, as reflected in the Regulations’ headings). These provisions are designed to ensure that reverse transfers do not undermine resolution objectives or create opportunities for arbitrage by counterparties. The information provisions support transparency and allow affected parties and the authority to understand the scope and consequences of transfers.
4) Compulsory transfer of shares / restructuring of share capital (Part 4). Part 4 addresses equity-level resolution actions: compulsory transfer of shares or compulsory restructuring of share capital. The Regulations include information requirements under FSMA 2022 sections 76(2) and 79(2). While the extract does not reproduce the text of those sections, the headings indicate that the Regulations specify what information must be provided and to whom when equity actions are taken.
5) Bail-in powers (Part 5). Bail-in is one of the most significant tools in modern resolution regimes. It involves writing down, converting, or otherwise modifying eligible liabilities so that losses are borne by investors and creditors rather than taxpayers. Part 5 provides the framework for bail-in by defining “Division 6 FI” and “eligible instrument”, setting restrictions on eligible instruments, and imposing disclosure requirements.
For practitioners, the key takeaways are: (i) not all liabilities are bail-inable; (ii) eligible instruments are subject to restrictions; and (iii) there are mandatory disclosure obligations. These elements are essential for compliance, litigation risk management, and investor communications. Bail-in can also interact with contractual terms and statutory rights, so the “eligible instrument” definition and restrictions will be central to advising counterparties and affected stakeholders.
6) Termination rights (Part 6). Resolution can suspend or limit certain termination rights that counterparties might otherwise exercise upon insolvency or similar triggers. Part 6 includes provisions identifying persons excluded from FSMA 2022 section 93, and it provides for contractual recognition of sections 92 and 93. There is also a specific provision (section 33A) dealing with the expiry of suspension by notice under section 93 in respect of reinsurance contracts.
This is a particularly practitioner-sensitive area. Contractual termination rights can be embedded in ISDA-style documentation, reinsurance agreements, and other financial contracts. The Regulations’ approach—requiring contractual recognition of statutory restrictions—helps ensure that resolution measures are effective even where contracts attempt to “opt out” or rely on insolvency triggers.
7) Compensation (Part 7). Where resolution measures affect rights, the law typically provides for compensation to ensure that affected parties are not worse off than they would have been under an alternative scenario (often liquidation). Part 7 sets out the form, manner and timing for payment of compensation, criteria for appointment and removal of a valuer, valuation principles, and the information to be specified in a valuation report.
These provisions matter for disputes and for advising on evidence and valuation methodology. The appointment/removal criteria for valuers can influence independence and procedural fairness. Valuation principles and required report content affect how compensation claims are assessed and how they may be challenged.
8) Exemption from moratorium provisions (Part 8). Part 8 provides an exemption from moratorium provisions of FSMA 2022. Moratorium rules generally pause certain enforcement actions during resolution. Exemptions can be critical for operational continuity (for example, permitting specific payments or actions necessary to maintain essential services). Practitioners should identify the exact scope of the exemption to determine which counterparties and obligations are not subject to the pause.
How Is This Legislation Structured?
The Regulations are organised into nine Parts, moving from definitions to resolution mechanics and then to post-resolution outcomes and procedural matters:
Part 1 (Preliminary) contains citation/commencement and core definitions, including thresholds for controllers and key resolution terms.
Part 2 governs compulsory transfer of business, including netting/setting-off, market infrastructure and designated system rights, secured liabilities, and protected covered bonds.
Part 3 governs reverse transfer and onward transfer, again addressing netting/setting-off and rights connected with market infrastructure and designated systems, plus restrictions and information requirements.
Part 4 addresses compulsory transfer of shares or compulsory restructuring of share capital.
Part 5 sets out the framework for bail-in powers, including eligible instruments, restrictions, and disclosure.
Part 6 addresses termination rights and contractual recognition of statutory provisions, including a reinsurance-specific expiry mechanism.
Part 7 provides the compensation regime: valuation, valuer appointment, valuation principles, and payment mechanics.
Part 8 provides exemptions from moratorium provisions.
Part 9 contains miscellaneous provisions including revocation and saving/transitional provisions.
The Regulations also include Schedules: First Schedule (affected persons), Second Schedule (relevant provisions), Third Schedule (significant shareholders), and Fourth Schedule (significant shareholder provisions).
Who Does This Legislation Apply To?
The Regulations apply primarily to a “pertinent financial institution” undergoing resolution under FSMA 2022 and to the parties whose rights and obligations are affected by resolution actions. These parties include “affected persons” (as defined in Part 1 and listed in the First Schedule) and, depending on the resolution tool used, counterparties to financial contracts, secured creditors, market infrastructure participants, and holders of eligible instruments subject to bail-in.
In addition, the Regulations’ controller and significant shareholder definitions indicate that certain shareholders and controllers—identified by percentage thresholds and cross-referenced statutory definitions—are within the resolution framework. This is relevant for equity transfers, share restructuring, and the identification of stakeholders who may be impacted by bail-in or other measures.
Why Is This Legislation Important?
For practitioners, the Resolution Regulations are important because they translate FSMA 2022’s resolution powers into enforceable operational rules. Without such subsidiary detail, key resolution actions could be undermined by contractual complexity (netting, set-off, termination triggers) and by the need to coordinate with market infrastructure and designated systems.
The Regulations also reduce uncertainty for counterparties by specifying how rights are treated during compulsory transfers and bail-in. This matters for risk management, documentation review, and dispute prevention. For example, understanding how setting-off and netting rights are handled can affect exposure calculations and settlement planning. Similarly, knowing how termination rights are contractually recognised helps counsel advise on whether counterparties can lawfully terminate or accelerate obligations during resolution.
Finally, the compensation provisions provide a structured pathway for valuation and payment. In any resolution scenario, compensation is often where disputes arise. The Regulations’ requirements on valuer appointment/removal, valuation principles, and report content are therefore central to advising clients on evidentiary strategy and potential litigation or administrative review considerations.
Related Legislation
- Financial Services and Markets Act 2022
- Banking Act 1970
- Business Trusts Act 2004
- Companies Act 1967
- Finance Companies Act 1967
- Financial Advisers Act 2001
Source Documents
This article provides an overview of the Financial Services and Markets (Resolution of Financial Institutions) Regulations 2024 for legal research and educational purposes. It does not constitute legal advice. Readers should consult the official text for authoritative provisions.