SEC Chairman Atkins Directs Rulemaking on Registration Exemption for Bail-in Exchanges
SEC Chairman Paul Atkins announced on April 10, 2026 that he has directed the Commission’s Division of Corporation Finance to prepare a rulemaking recommendation to address the application of the registration requirements under the Securities Act of 1933 to the emergency mechanics of bail-in procedures established by foreign banking authorities.
The announcement came in a statement released alongside a no-action letter issued to the Bank of England (the "Bank") addressing a hypothetical exchange of certain bail-inable debt securities for ordinary shares, without registration under the 1933 Act, at the Bank’s direction pursuant to its statutory bail-in power and in connection with the resolution of a failed U.K. bank or U.K.-regulated investment firm. The Bank's recently announced bail-in mechanism contemplates the issuance of non-transferable contingent beneficial interests called Potential Rights to Onward Property or Proceeds (“PROPPs”) to holders of the bank's or firm's bail-inable debt securities, alongside a more typical conversion of those securities to equity. Although the Division confirmed it would not recommend enforcement action under the circumstances presented in the Bank's request for a no-action determination, the no-action letter acknowledges that, under certain circumstances, an offer and sale of securities in connection with a bail-in may well require registration under the 1933 Act. For example, the relief in the no-action letter appears to be based in part on the fact that the interim issuance of the PROPPs, prior to their replacement with ordinary shares, are generally non-transferable instruments.
Of course, preparing a registration statement in connection with an exchange of bail-inable securities is not likely to be a practical option. Indeed, as the Bank's hypothetical scenario contemplates and as Chairman Atkins acknowledged in his statement, a bail-in may be executed quickly and over a single "resolution weekend," making the mechanics of registration under the 1933 Act incompatible with the timeline for executing a bail-in.
The Bank of England no-action letter is an important step, but may not be the final step, in bringing greater clarity and certainty to the application of U.S. securities laws to foreign bail-in processes. The Bank of England's bail-in powers represent a single bail-in framework that is one among many global but relatively harmonized frameworks; however, the proposed issuance of non-transferable PROPPs reflects a more specific approach to effecting a bail-in. Accordingly, the Chairman's statement encourages non-U.S. regulators and bank issuers to contact the Division to discuss the bail-in processes and procedures that may be applicable in their particular jurisdictions. These discussions will help inform the SEC's planned rule-making process.
