EBA Finalizes Standards on Contractual Recognition of Stay Powers
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.
Related Links
Keywords: Europe, EU, Banking, BRRD, Regulatory Technical Standards, Contractual Recognition, Basel, Too Big to Fail, Resolution Framework, Crisis Management Framework, Bail-In, EBA
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Related Articles
US Agencies Issue Several Regulatory and Reporting Updates
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
ECB Issues Multiple Reports and Regulatory Updates for Banks
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
CBIRC Revises Measures on Corporate Governance Supervision
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
HKMA Publications Address Sustainability Issues in Financial Sector
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
EBA Updates Address Basel and NPL Requirements for Banks
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.
ESMA Publishes 2022 ESEF XBRL Taxonomy and Conformance Suite
The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.
FCA Sets up ESG Committee, Imposes Penalties, and Issues Other Updates
The Financial Conduct Authority (FCA) is seeking comments, until December 21, 2022, on the draft guidance for firms to support existing mortgage borrowers.
FSB Reports Assess NBFI Sector and Progress on LIBOR Transition
The Financial Stability Board (FSB) published a report that assesses progress on the transition from the Interbank Offered Rates, or IBORs, to overnight risk-free rates as well as a report that assesses global trends in the non-bank financial intermediation (NBFI) sector.
