Contractual Recognition of Bail-In - EBA publishes Final Draft RTS but practical difficulties remain

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Following our article1  on the European Banking Authority's (EBA) consultation paper on the contractual recognition of bail-in, and industry responses to it, EBA has published the Final Draft Regulatory Technical Standards (RTS).2

The Final Draft RTS address a number of issues raised in the responses to the consultation but there are practical difficulties which market participants will need to deal with, unless the Level 1 text of the Bank Recovery and Resolution Directive is amended.

Some headline points are as follows:

  • EBA stresses its inability to extend the exclusion to cover other liabilities such as trade finance, de minimis liabilities, standardised contracts, contingent liabilities, etc. However, there are a handful of clarifications, including, for example, on committed but undrawn facilities.
  • EBA clarifies that only a material amendment to an agreement existing before the transposition date would be sufficient to result in it being caught and it defines what it means by a material amendment.
  • EBA refuses to provide a model clause for contractual bail-in and adopts a more principles-based approach.
  • The RTS still contain mandatory components of a clause but they remove the entire agreement element and the identification of the specific resolution authority. They also soften the requirement from having to get "acknowledgment, agreement and consent" to just "acknowledgment and acceptance".
  • Our view is that the mandatory elements of the clause in the Final Draft RTS are less onerous than in the draft RTS in the consultation paper. Existing clauses (e.g. to meet PRA's early transposition) that followed the original draft RTS should not need to be amended.
  • In terms of next steps, the Final Draft RTS will be submitted to the Commission for endorsement. The RTS will then be published in the OJEU and they will apply from the 20th day after its publication.

 

1 Contractual Recognition of Bail-In Powers article  - click here to read more

2 EBA publishes final technical standards to ensure effective resolution under the BRRD article - click here to read more

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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