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

    ESAs Issue Multiple Regulatory Updates for Financial Sector Entities

    The three European Supervisory Authorities (ESAs) issued a letter to inform about delay in the Sustainable Finance Disclosure Regulation (SFDR) mandate, along with a Call for Evidence on greenwashing practices.

    November 15, 2022 WebPage Regulatory News
    News

    ISSB Makes Announcements at COP27; IASB to Propose IFRS 9 Amendments

    The International Sustainability Standards Board (ISSB) of the IFRS Foundations made several announcements at COP27 and with respect to its work on the sustainability standards.

    November 10, 2022 WebPage Regulatory News
    News

    IOSCO Prioritizes Green Disclosures, Greenwashing, and Carbon Markets

    The International Organization for Securities Commissions (IOSCO), at COP27, outlined the regulatory priorities for sustainability disclosures, mitigation of greenwashing, and promotion of integrity in carbon markets.

    November 09, 2022 WebPage Regulatory News
    News

    EBA Finalizes Methodology for Stress Tests, Issues Other Updates

    The European Banking Authority (EBA) issued a statement in the context of COP27, clarified the operationalization of intermediate EU parent undertakings (IPUs) of third-country groups

    November 09, 2022 WebPage Regulatory News
    News

    OSFI Sets Out Work Priorities and Reporting Updates for Banks

    The Office of the Superintendent of Financial Institutions (OSFI) published an annual report on its activities, a report on forward-looking work.

    November 07, 2022 WebPage Regulatory News
    News

    APRA Finalizes Changes to Capital Framework, Issues Other Updates

    The Australian Prudential Regulation Authority (APRA) finalized amendments to the capital framework, announced a review of the prudential framework for groups.

    November 03, 2022 WebPage Regulatory News
    News

    BIS Hub and Central Banks Conduct CBDC and DeFI Pilots

    The Bank for International Settlements (BIS) Innovation Hubs and several central banks are working together on various central bank digital currency (CBDC) pilots.

    November 03, 2022 WebPage Regulatory News
    News

    ECB Sets Deadline for Banks to Meet Its Climate Risk Expectations

    The European Central Bank (ECB) published the results of its thematic review, which shows that banks are still far from adequately managing climate and environmental risks.

    November 02, 2022 WebPage Regulatory News
    News

    ESAs, ECB, & EC Issue Multiple Regulatory Updates for Financial Sector

    Among its recent publications, the European Banking Authority (EBA) published the final standards and guidelines on interest rate risk arising from non-trading book activities (IRRBB)

    October 31, 2022 WebPage Regulatory News
    News

    EC Adopts Final Rules Under CRR, BRRD, and Crowdfunding Regulation

    The European Commission (EC) recently adopted regulations with respect to the calculation of own funds requirements for market risk, the prudential treatment of global systemically important institutions (G-SIIs)

    October 26, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8582