EBA is consulting on the regulatory technical standards for contractual recognition of stay powers laid down in the Bank Recovery and Resolution Directive (BRRD). The regulatory technical standards support effective application of temporary restrictions on early termination rights (resolution stays) in relation to financial contracts governed by the law of a third country. These standards constitute the first EBA mandate stemming from the revised BRRD and aim to promote the effective application of recovery and resolution powers to banks and banking groups. The consultation period for the regulatory technical standards ends on August 15, 2020.
BRRD requires member states to ensure that their resolution authorities can effectively make use of the stay powers on contracts that an institution or entity has entered into, in case resolution powers or crisis prevention measures are applied. The draft regulatory technical standards being consulted on specify the contents of the contractual terms required to be included in relevant financial contracts where no alternative mechanism (that is, statutory) exists to secure recognition by the counterparty of the resolution authority’s powers to suspend or restrict rights and obligations. These include provisions specifying the acknowledgement, description of the powers, and recognition of the parties that they are bound by the powers to suspend certain obligations and restrictions of some rights and that they are bound by the requirements of Article 68 of BRRD. In addition, the parties acknowledge that no other contractual term impairs the effective and enforceability of this clause.
This approach is intended to strike a balance between the need to achieve an appropriate level of convergence while ensuring that differences in legal systems of third countries as well as other differences arising from different forms of financial contracts can be taken into account by resolution authorities, institutions, and relevant entities through the addition of further elements, if necessary; the aim is to achieve the policy goal of ensuring that the powers to suspend or restrict rights and obligations can be applied effectively in relation to financial contracts governed by the law of a third country.
Comment Due Date: August 15, 2020
Keywords: Europe, EU, Banking, BRRD, Resolution Framework, Regulatory Technical Standards, Financial Contract, Basel, EBA
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