On 26 May 2015, the Prudential Regulation Authority (“PRA”) of the UK issued a consultation paper entitled “Contractual stays in financial contracts governed by third-country law”, proposing a new restriction that would apply to the business of UK banks, building societies and investment firms supervised by the PRA, as well as their UK parent companies.
Background -
The Financial Stability Board (“FSB”), in its 2011 publication, “Key Attributes of Effective Resolution Regimes for Financial Institutions”, established common principles for the development of recovery and resolution regimes for failing banks. These Key Attributes have been endorsed by the G20 group of nations and have been largely adopted by several of those jurisdictions into their national laws, for instance via the Bank Recovery and Resolution Directive in the EU (“BRRD”). One of the most important features of an effective bank resolution regime is the ability of the national resolution authority to stabilise a failing bank long enough to give a breathing space within which decisions can be made as to how to resolve that bank while minimising disruption to its critical functions and the consequent adverse effect that would have on financial stability.
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