Final Draft EU Technical Standards on Conditions of Impracticability of Bail-in Clauses
12/23/2020The European Banking Authority has published a final report and final draft Regulatory Technical Standards and Implementing Technical Standards on the impracticability of contractual recognition of write-down and conversion (i.e., bail-in) under the EU Bank Recovery and Resolution Directive. 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. This is now a more significant issue than previously, given the prevalence of English law contractual documentation in European financial markets, including following Brexit. A new exemption to the contractual bail-in requirement was introduced under BRRD 2 (which EU member states must apply through national laws from December 28, 2020) 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 final draft RTS set out the conditions of impracticability, the conditions for the resolution authority to require its inclusion and the timeframe for the resolution authority to require the inclusion of a contractual term. The final draft ITS provide the uniform formats and templates for the notification by a firm to a resolution authority of a determination of impracticability.
View the final report and final technical standards on the impracticability of contractual recognition of bail-in.
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