Bank of England introduces contingent interests to resolve US-based bondholder conflicts

Bondholders in a failing bank may now receive non-transferable contingent beneficial interests instead of immediate shares. These interests represent a potential right to shares or proceeds from the sale of shares once a resolution has concluded. This alternative bail-in approach follows a no-action letter from the US Securities and Exchange Commission signaling that US authorities will not pursue enforcement action linked to the use of the new mechanism. The US SEC chair Paul Atkins has also directed staff to draft a rule exempting banks from registering securities offered and sold as part of a foreign bail-in rescue. US securities law can apply to bondholders based in the US regardless of where the bank is headquartered. The Bank of England revised its guidance on bank failures to address concerns that issuing new shares to US bondholders without SEC approval could breach US rules, a problem identified during the collapse of Credit Suisse in 2023.