FCA published a statement that is relevant for firms preparing for transposition of the revised Bank Recovery and Resolution Directive (BRRD2). HM Treasury laid a statutory instrument before the UK Parliament on October 15, 2020 to transpose BRRD2, which the UK is required to do by December 28, 2020. Certain provisions of this directive will come into effect on December 28, 2020, but then will cease to be effective in the UK on December 31, 2020. Unlike PRA, that has consulted on short-lived rule changes to come into effect on December 28, 2020, FCA has not identified any conflicts between its current requirements and those in the statutory instrument that will implement BRRD2. The statement highlights that FCA will not be addressing those new requirements in BRRD2 that do not apply to FCA solo-regulated firms. Firms should consult the website of HM Treasury and PRA for further information on these changes.
FCA also highlighted the following relevant areas that apply to FCA-regulated firms:
- Article 48(7) on the priority of debts in insolvency—As transposed by HM Treasury, certain changes are made to the priority of debts in insolvency in the case of insolvency proceedings commenced during the four-day period.
- Article 55 on the Contractual Recognition of Bail-in—FCA has requirements in place for firms to include terms in their contracts recognizing that a liability may be “bailed in” (for example the debt may be written-down or converted into equity) by the resolution authority. BRRD2 adds to these with a mechanism for firms to notify the resolution authority in situations where it is “legally or otherwise impracticable” to include the required terms in contractual provisions. These additional requirements do not conflict with existing rules of FCA. Any notifications submitted that have not already been acted upon will automatically lapse on January 01, 2021.
- Other potentially relevant article—Article 44a addresses the sale of subordinated eligible liabilities to retail clients and will be introduced via Handbook rules. FCA is consulting on the introduction of the requirements in this area in its quarterly consultation paper (No. 30), which was published on December 04, 2020.
Related Link: FCA Statement
Keywords: Europe, UK, Banking, Securities, BRRD2, BRRD2 Transition, Resolution Framework, Basel, Bail-In, Brexit Transition, HM Treasury, FCA
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