European Banking Authority Consults on Technical Standards on Impracticability of Contractual Recognition of Bail-In07/24/2020The European Banking Authority has launched a consultation on draft Regulatory Technical Standards and draft Implementing Technical Standards on the impracticability of contractual recognition of write-down and conversion (i.e. bail-in) powers under the EU Bank Recovery and Resolution Directive. Responses to the consultation should be submitted by October 24, 2020.
BRRD requires certain firms to include contractual recognition of bail-in in their contractual agreements covering particular liabilities which are governed by the law of a third country. However, amendments introduced in June 2019 (via the amending Directive known as BRRD 2) included a new exemption to the requirement for contractual recognition of bail-in where firms consider that it is legally or otherwise impracticable to include the contractual recognition. Liabilities subject to this waiver cannot count towards MREL, must be senior to unsecured claims arising from certain debt instruments and firms intending to take advantage of the exemption should notify their resolution authority. The EBA's proposed draft RTS specify: (i) the conditions under which it would be legally or otherwise impracticable for a firm to include the contractual recognition of bail-in; (ii) the conditions under which the resolution authority may require that the contractual term be included; and (iii) the reasonable timeframe for the resolution authority to require the inclusion of the contractual term. The draft ITS set out the formats and templates by which firms should notify their national regulators of contracts that meet the impracticability standards.
EU Member States are required to transpose BRRD 2 into their national laws and apply the provisions by no later than December 28, 2020, except for provisions relating to MREL, which apply from January 1, 2024. In the U.K., the PRA's policy on contractual recognition of bail-in for third-country-law governed agreements already allows firms not to include contractual terms in certain contracts where this would be impracticable. HM Treasury is now consulting on the full implementation of the BRRD 2 provisions on impracticability of contractual recognition of bail-in. Under the PRA's proposed post-Brexit regime, U.K. firms will not be required to amend existing EEA law-governed contracts to include contractual recognition of bail-in. However, new EEA law-governed contracts that come into effect after exit day or existing contracts that are materially amended will need to include the contractual recognition provision. The EEA has made no equivalent exemption from contractual recognition requirements for existing English law-governed contracts.
In parallel, the EBA is consulting on draft RTS for the methodology that Member State resolution authorities should use to estimate the Pillar 2 and combined buffer requirements used to set the minimum requirement for own funds and eligible liabilities under BRRD.
View the EBA's consultation on technical standards on the impracticability of contractual recognition of bail-in.
View details of the EBA's consultation on technical standards for Pillar 2 and combined buffer requirements for the purposes of MREL under BRRD.
View details of HM Treasury's consultation on the implementation of BRRD 2.
View details of BRRD 2.
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