EBA published the final draft regulatory technical standards on contractual recognition of stay powers under the Bank Recovery and Resolution Directive (BRRD). The technical standards provide further specification of essential elements to ensure the effectiveness of the resolution regime established by BRRD. These standards are part of EBA's major program of work to implement BRRD and address the problem of too-big-to-fail banks. The draft technical standards will be submitted to EC for endorsement before being published in the Official Journal of the European Union. The technical standards will apply from the twentieth day following that of their publication in the Official Journal of the European Union.
The final draft regulatory technical standards on contractual recognition of stay powers have been developed according to Article 71a(5) of BRRD, which requires EBA to further determine the contents of the term required in paragraph 1 of article 71a of the BRRD, taking into account institutions' and entities' different business models. The regulatory standards aim to ensure the effective application of stay power. Where financial contracts are governed by the law of a third country, BRRD requires these contracts to include a contractual recognition term by which the parties acknowledge that the contract may be subject to these stay powers and agrees to be bound by their effect. The EBA approach is designed to strike a balance between the need for harmonization and the need for flexibility to take account of any issues arising in relation to a specific third-country law and type of financial contract. In the draft standards, EBA has proposed a list of mandatory components that must be present in the contractual term required in the financial contracts. These components include the following:
- Provisions specifying the acknowledgement and acceptance that the contract may be subject to the exercise of the powers by the resolution authority
- A description of the powers in question and the parties’ recognition that they are bound by those powers to suspend certain obligations and restrict some rights and that they are bound by the requirements of Article 68 of the BRRD
- Acknowledgement by parties that no other contractual term impairs the effectiveness and enforceability of this clause
This approach is intended to strike a balance between achieving an appropriate level of convergence and ensuring that differences in the legal systems of third countries and other differences arising from different forms of financial contracts can be taken into account by the resolution authorities, institutions, and relevant entities through the addition of further elements. EBA also acknowledged its awareness of the ongoing international work in relation to statutory and contractual approaches to the recognition of the exercise of resolution powers. In particular, EBA notes the Principles for cross-border effectiveness of resolution actions of FSB, which were published on November 03, 2015, and has sought to align its proposals with the FSB proposals insofar as is compatible with the BRRD and otherwise appropriate.
Keywords: Europe, EU, Banking, BRRD, Regulatory Technical Standards, Contractual Recognition, Basel, Too Big to Fail, Resolution Framework, Crisis Management Framework, Bail-In, EBA
BIS Innovation Hub published the work program for 2021, with focus on suptech and regtech, next-generation financial market infrastructure, central bank digital currencies, open finance, green finance, and cyber security.
In an article published by SRB, Mairead McGuinness, the European Commissioner for Financial Services, Financial Stability, and Capital Markets Union, discussed the progress and next steps toward completion of the Banking Union.
EBA finalized the two sets of draft regulatory technical standards on the identification of material risk-takers and on the classes of instruments used for remuneration under the Investment Firms Directive (IFD).
EC published, in the Official Journal of the European Union, a notification that the European Court of Auditors (ECA) has published a special report on resolution planning in the Single Resolution Mechanism.
BoE published a scenario against which it will be stress testing banks in 2021, in addition to setting out the key elements of the 2021 stress test, guidance on the 2021 stress test, and the variable paths for the 2021 stress test.
PRA published a consultation paper (CP3/21) proposes rules regarding the timing of identity verification required for eligibility of depositor protection under the Financial Services Compensation Scheme (FSCS).
FSB published the work program for 2021, which reflects a strategic shift in priorities in the COVID-19 environment.
FCA announced that 50% firms have started using the new data collection platform RegData, which is slated to replace the existing platform known Gabriel.
Bundesbank published Version 5.0 of the derivation rules for completeness check at the form level, with respect to the data quality of the European harmonized reporting system.
FED finalized a rule that updates capital planning requirements to reflect the new framework from 2019 that sorts large banks into categories, with requirements that are tailored to the risks of each category.