The States Assembly passed the Bank (Recovery and Resolution) (Jersey) Law 201- on 14th February 2017 (Resolution Law).  The Law is likely to be registered in the Royal Court in May or June 2017 and be brought into force shortly thereafter.

The Resolution Law creates a resolution regime (Jersey Resolution Regime) in line with developments internationally. The aims of the Resolution Law are to ensure the continuity of critical banking functions, to avoid adverse effects on financial stability, to protect public funds by minimising reliance on extraordinary public financial support to failing banks and to protect covered depositors and clients’ assets.  It places obligations on banks to comply with numerous provisions as well as setting in place new annual levies.  The consequences for depositors and creditors could be stark and must be taken into account by banks if customers are treated fairly.

It is essential that banks in Jersey consider the dramatic changes brought about by the Resolution Law and plan or seek advice about its coming into force. 

Why is the law needed?

Banks fail.  Governments no longer wish to foot the bill.  During the financial crisis a large number of credit institutions and investment firms were in difficulty.  They were either saved by governments injecting money, or entered bankruptcy causing widespread financial contagion.  The international response was led by the G20 who formed the Financial Stability Board which published Key Attributes for Effective Resolution Regimes for Financial Institutions (Key Attributes).

This new framework removed the implicit government guarantee that governments would save systemically important banks by bailing them out.  In the past Jersey has always relied on this cover. Without it, a Jersey Resolution Regime was needed to work in tandem with overseas regimes.

Key Facts

  • The Resolution Law provides tools for addressing banks in financial difficulty within the jurisdiction. It is based on the European Union’s Bank Recovery and Resolution Directive and the UK’s Special Resolution Regime.
  • A new resolution authority (the “JRA”) will be set up. The role may be given to the Jersey Financial Services Commission (the “JFSC”).
  • A new bank winding up procedure is created to wind up a bank that is not systemically important.  
  • A systemically important bank can be resolved using the bail in tool, the bridge bank tool, the asset separation tool, the government financial assistance tool or by recognizing foreign resolution actions. 

When will the powers be used in practice?

If a bank failed it is envisaged that the JRA would normally either:

  • Assist a foreign jurisdiction in respect of a resolution action being taken on a bank conducting business in Jersey through a branch or subsidiary by recognizing the foreign action for a branch or bailing in the creditors of a Jersey subsidiary in line with a bail in of up-streamed deposits; or
  • Use standalone powers to resolve a bank failure in Jersey (either as a result of the overseas jurisdiction taking action which does not satisfactorily deal with the Jersey business, or because Jersey is the home jurisdiction of the bank in difficulty).

How does the bail tool in work?

In deciding whether to use resolution powers, the Jersey Resolution Authority will be required to take into account factors including such matters as the nature of a bank’s business; shareholding structure;  interconnectedness to other banks or to the financial system in general; the scope and complexity of its activities; and whether its failure and subsequent winding up under normal insolvency proceedings would be likely to have a significant negative effect on financial markets, on other banks, or on the wider economy.

Before any resolution action is taken, a fair and realistic valuation of the assets and liabilities of the bank is required to be carried out. The valuation will be an integral part of the decision made by the Jersey Resolution Authority as to whether or not to apply a resolution tool.

If the bank is failing or likely to fail and no capital can be injected from the group, the bail in tool may be selected. Its application ensures that shareholders and creditors of a failing bank suffer appropriate losses of the costs arising from the failure of the bank.  If there is a 10% shortfall of assets to liabilities then once shareholders are written down the remaining shortfall will be reduced by writing down the value of the creditors’ claims.  Creditors will be given shares in the bank to compensate them for the haircut imposed.  

If a quick ‘provisional’ valuation process has been followed due to time constraints, a ‘definitive’ valuation must be carried out.  This is a fully valuation process. Afterwards, the JRA may use its powers to reinstate or increase any liabilities that have been written down.

Following the application of the resolution tools, a ‘difference of treatment valuation’ will be undertaken. This valuation will compare the treatment that shareholders and creditors have actually been afforded and the treatment that they would have received under normal insolvency proceedings. The purpose of this valuation will be to ensure that people are treated fairly.

Once the valuation process is finalized any creditors and shareholders who have incurred greater losses than they would have under insolvency proceedings is entitled to compensation from the JRA.


It is worth noting that the usual appeals process is restricted due to the need for the JRA to take quick action.  A distinction is made between measures taken to restore a bank to good health when it is in difficulty but not insolvent and measures taken where resolution action is necessary because a bank is failing. The normal appeals process can be followed in the first scenario whereas only compensation is payable in the latter.    

What obligations are placed on banks?

Banks will pay the costs of the Resolution Law.  In his speech to the States Assembly the Chief Minister stated that consultation will shortly commence on the amount of the new annual administration levy.

The JFSC may ask banks to prepare recovery plans.  The JFSC may also ask for these under the Banking Business Law and may commence this process before the Resolution Law comes into force.  Considerations will need to be given to the sufficiency of such plans.

The Resolution Authority shall set for each bank a minimum requirement for own funds and liabilities.  Banks that are Jersey companies will need to maintain certain amounts of authorized share capital.  

Management need to be aware of reporting obligations placed on banks and put proper procedures in place.

The Authority will draw up resolution plans which can be made in dialogue with the bank.  A discussion may need to take place with the Authority as to the appropriate structure of the bank and if there are material impediments to resolution.

Banks need to be aware of the potential use of the resolution tools and of the potential effect on their customers. For example, the bail in tool may be used to write down creditors of the bank.  Depositors and other creditors need to be informed of the potential effects of the Law. 

 James Mews, Counsel

James Mews, Counsel

Pinel Advocates' Banking and Regulatory Team

Pinel Advocates has unique experience of banking and regulatory matters including this Resolution Law.  James Mews, Counsel, chaired the States of Jersey working parties developing the Resolution Law James also led the consultation process with the JFSC, the Bank of England Resolution Directorateand the Jersey Bankers Association and advised the Chief Minister on the passage of the Resolution Law through the States Assembly in 2017.     

He has led and chaired working parties for the last ten years on other banking and regulatory developments including the Dormant Accounts (Jersey) Law 2017, amendments to the Banking Business (Jersey) Law in 2016 and sat on Jersey’s Financial Crime Strategy group considering changes to AML and terrorist financing laws.