Featured Product

    EBA Proposes Contractual Recognition Standards for Bail-In Under BRRD

    July 24, 2020

    EBA proposed regulatory and implementing technical standards on the impracticability of contractual recognition of write-down and conversion powers and related notifications, as laid down in the Bank Recovery and Resolution Directive (BRRD). The draft implementing technical standards specify uniform formats and templates for notification to resolution authorities of contracts meeting the conditions of impracticability defined in the draft regulatory technical standards. EBA also published the draft templates and instructions for impracticability notifications. The consultation runs until October 24, 2020. After the consultation period, EBA will deliver the final draft regulatory and implementing technical standards to EC.

    These standards aim to promote effective application of resolution powers to banks and banking groups and to foster convergence of practices between relevant authorities and institutions across EU. To facilitate and improve the bail-in process in the event of resolution, BRRD requires inclusion of a contractual recognition of the effects of the bail-in tool in contracts or agreements governed by third country law. However, there might be instances where it is impracticable for institutions or entities to include those contractual terms. EBA is mandated to develop the draft regulatory technical standards to specify the conditions of impracticality. The draft regulatory technical standards define the conditions under which it would be legally or otherwise impracticable for an institution or entity to include the contractual term for the recognition of the bail-in. The regulatory standards also define the conditions and reasonable timeframe for the resolution authority to require the inclusion of contractual terms for the bail-in recognition.

    The draft implementing technical standards are based on Article 55(8) of the BRRD. The mandate for EBA does not cover exclusions from the scope of bail-in or from the scope of the Article 55 of BRRD. The draft regulatory technical standards cannot specify certain instruments as “impracticable,” as the mandate is to identify the underlying conditions creating the impracticability to include in the contractual provisions the term by which the counterparty recognizes the effects of a possible bail-in. The process that would take place in the instances of impracticability would follow these steps:

    • Institutions and entities should notify the relevant resolution authority if they determine that it is legally or otherwise impracticable to include the contractual provisions in a contract. The determination should be based on the conditions of impracticability set in article 1 of the draft regulatory technical standards.
    • The notification to the resolution authority should be made in accordance with the draft implementing technical standards provided in this consultation paper.
    • Resolution authorities should assess the institution’s or entity's determination that it is impracticable to include contractual recognition clauses. If it concludes that it is not impracticable to include the contractual term, it shall, within a reasonable timeframe, require the inclusion of such term. The reasonable timeframe is set by EBA in Article 3 of the draft regulatory technical standards.
    • The resolution authority shall require the inclusion of the contractual term taking into account the conditions defined in Article 2 of the draft regulatory technical standards. The conditions for the resolution authority to require the inclusion of the contractual term is defined in Article 2 of the draft regulatory technical standards
    • Where liabilities not including the contractual term of impracticability lead a resolution authority to determine the existence of a substantive impediment to resolvability, it can apply the powers provided in Article 17 of BRRD as appropriate to remove that impediment to resolvability.
    • Institutions and entities should be prepared to justify their determination. In addition, to ensure that the resolvability of institutions and entities is not affected, liabilities for which the relevant contractual recognition provisions are not included are not be eligible for Minimum Requirement for own funds and Eligible Liabilities or MREL. Furthermore, bail-in-able liabilities arising from contracts that do not include the contractual term are not excluded from bail-in.

     

    Related Links

    Comment Due Date: October 24, 2020

    Keywords: Europe, EU, Banking, BRRD, Regulatory Technical Standards, Implementing Technical Standards, Contractual Recognition, Bail-In, Resolution Framework, MREL, Basel, EBA

    Featured Experts
    Related Articles
    News

    EBA Issues Erratum for Phase 2 Package of Reporting Framework 3.0

    EBA published an erratum for the technical package on phase 2 of the reporting framework 3.0.

    April 08, 2021 WebPage Regulatory News
    News

    MAS Amends Notice on Related Party Transactions of Banks

    MAS amended Notice 643A that addresses requirements for banks to prepare statements of exposures and credit facilities to related concerns or parties.

    April 08, 2021 WebPage Regulatory News
    News

    ECB Amends Guideline on Euro Short-Term Rate

    ECB has published, in the Official Journal of the European Union, the Guideline 2021/565 on the euro short-term rate (€STR) and this guideline amends the previous ECB Guideline 2019/1265.

    April 07, 2021 WebPage Regulatory News
    News

    EBA Consults on Standards Related to FRTB-SA

    EBA launched a consultation on the draft regulatory technical standards on the list of countries with an advanced economy for calculating the equity risk under the alternative standardized approach (FRTB-SA).

    April 07, 2021 WebPage Regulatory News
    News

    PRA Proposes Rules Related to IRB Approach for Credit Risk

    PRA is proposing, via CP7/21, the approach to implementing new requirements related to the specification of the nature, severity, and duration of an economic downturn in the internal ratings-based (IRB) approach to credit risk.

    April 07, 2021 WebPage Regulatory News
    News

    BoE Outlines Regulatory Treatment of Recovery Loan Scheme of UK

    The UK government launched the Recovery Loan Scheme (RLS) as part of its continued COVID-19 support for UK businesses, as announced by HM Treasury on March 03, 2021.

    April 06, 2021 WebPage Regulatory News
    News

    FSB Addresses G20 on COVID Measures, TBTF Reforms, and Climate Risks

    FSB published a letter, from its Chair Randal K. Quarles, to the G20 Finance Ministers and Central Bank Governors, ahead of their virtual meeting on April 07, 2021.

    April 06, 2021 WebPage Regulatory News
    News

    OSFI Unwinds Temporary Increase to Covered Bond Limit for Banks

    OSFI issued a letter to the deposit-taking institutions issuing covered bonds and announced the unwinding of the temporary increase to the covered bond limit for deposit-taking institutions, effective immediately.

    April 06, 2021 WebPage Regulatory News
    News

    EU Amends CRR and Securitization Regulation in Response to Pandemic

    To support recovery from the COVID-19 crisis, EU has published two regulations to amend the securitization framework, as set out in the Securitization Regulation (2017/2402) and the Capital Requirements Regulation or CRR (575/2013).

    April 06, 2021 WebPage Regulatory News
    News

    HM Treasury Announces G7 Agreement on Green Agenda Ahead of COP26

    HM Treasury announced that G7 Finance Ministers and Central Bank Governors met ahead of COP 26, the 2021 UN Climate Change Conference, and agreed on green agenda.

    April 06, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6821