Bank of England gets US assurances over updated bank rescue regime

LONDON, April 13 (Reuters) - The Bank of England updated its guidance on handling bank failures on Monday, introducing an alternative bail-in mechanism that changes how bondholders are compensated during a rescue, after securing assurances from U.S. regulators.

The BoE said it had received a no-action letter from U.S. regulators, assuring it that U.S. authorities would not pursue enforcement action over use of the new mechanism.

The new guidance was supported by lessons learned from the failures of Credit Suisse and Silicon Valley Bank, the BoE said.

Under the new approach, bondholders whose debt is wiped out or converted as part of a bank rescue will first receive temporary placeholder rights rather than shares in the rescued bank.

These rights, known as PROPPs, are a provisional entitlement that will later be converted into actual shares in the recapitalised bank once regulators have worked out exactly how much each creditor is owed.

"The key addition is the introduction of an alternate approach to bail-in where affected creditors receive non-transferable contingent beneficial interests," the BoE said in a statement.

The central bank received a "no action letter" from the U.S. Securities and Exchange Commission, giving it "additional assurance" that the U.S. authorities would not recommend enforcement action if a failing bank uses the new PROPPs mechanism without registration under the U.S. Securities Act.

U.S. SEC Chair Paul Atkins said on Friday he had directed staff to draft a rule that would exempt banks from having to register securities offered and sold as part of a foreign bail-in rescue with the SEC.

U.S. securities law applies whenever bondholders are based in the United States, regardless of where the bank is headquartered. The no-action letter and proposed rule change address concerns that issuing new shares to those bondholders without SEC approval could breach U.S. rules - a problem first identified during the collapse of Credit Suisse in 2023.

Atkins said providing regulatory clarity was a priority, noting that bail-ins are by nature emergency operations that must often be completed over a single weekend. (Reporting by Sam Tabahriti and Phoebe Seers; Writing by Catarina Demony; Editing by William James and Hugh Lawson)