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
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
