Banks have been rushing to meet the Prudential Regulation Authority’s (PRA’s) deadline of 1 January 2016 to insert a “bail-in” clause into certain non-EU law governed agreements. However, just over a month before this deadline, the PRA has given institutions some hope that they may have longer to achieve compliance.
On the 25th November the PRA published a “waiver by consent” in relation to certain liabilities subject to the requirements in Article 55 of the Bank Recovery and Resolution Directive (BRRD). This waiver will allow implementation to be delayed until 30 June 2016 in situations where it would be impracticable for institutions to comply with the requirements. This has of course triggered more questions, such as where the line between “practicable” and “impracticable” is, how long the waiver application process will take and how many institutions will be granted a waiver. However, in theory at least, many banks can breathe a semi-sigh of relief, knowing that they may just have an extra six months to get their non-EU law governed agreements in line.
Yet, the fact that banks need more time to comply with this Article 55 rule also raises wider questions around the way in which financial institutions manage their contract data. This is especially the case when looking at BRRD more broadly and the upcoming BRRD requirements under Article 78(1) which will make effective contract data management key.
The PRA’s Article 55 requirement has shone the spotlight on document management systems and contract data stores and has asked institutions to look at where information on contracts is stored and how it is maintained. Yet again banks need to know exactly where agreements are, what they contain and how they are monitored not just for EU entities through which they operate but also for branches across the globe. This focus on contract data management through BRRD implementation will not stop once the Article 55 requirements have been dealt with. The importance of good contract data management is only going to become more apparent as banks also start to address Article 71(8) of BRRD (along with the regulatory technical standards that accompany it) which directly requires banks to keep records of a long list of data from financial contracts.
So whilst some banks may be celebrating the fact that they have an extra six months to comply with the PRA’s Article 55 rule, they should not sit back and relax. What the struggles in complying with this requirement have demonstrated is that efficient document management systems and comprehensive contract data stores are now going to be the key players in meeting any regulatory deadlines. Certainly this is something that institutions are going to have to address if they want any hope of storing and monitoring all of the contract data that will soon be required under Article 71(8) of the BRRD.