PRA’s rules currently implement article 55 of the BRRD, and address part of the FSB Key Attributes for effective resolution regimes by requiring BRRD firms to include in non-EU law contracts governing liabilities a term by which the creditor recognises that liability may be bailed-in by BoE as the resolution authority. PRA is aware firms may sometimes find compliance with this requirement impractical. Currently, firms can benefit from a modification by consent (see FReD 27 November 2015) to disapply certain rules. The modification expires on 30 June and PRA is consulting on changing its rules from 1 July to achieve the same effect as the modification has done, and also to comply with the draft EBA RTS (see FReD 10 July 2015). PRA proposes three additional technical amendments to take account of the RTS:
- to include contractual recognition language into contracts for liabilities that (i) are not fully secured when created and (ii) are fully secured but not governed by contractual terms that oblige full collateralisation in accordance with EU or equivalent third-country law;
- to include contractual recognition language in contracts governing debt instruments issued on or before 19 February 2015 and in contracts governing liabilities created before 31 December 2015, but materially amended after 30 June 2016; and
- to replace the reference to liabilities “arising” after a certain date in PRA rules with a reference to liabilities “created” after that date.
The proposed rule change, to the Contractual Recognition of Bail-in part of the PRA Rulebook, is accompanied by a draft supervisory statement, setting out how PRA expects firms to make a reasoned assessment on whether including the relevant language in a phase 2 liability is impractical. The statement gives examples of situations that might qualify, and reasons that would not be acceptable. PRA notes that neither it nor BoE will approve firms’ judgements of impracticability. Consultation closes on 16 May. (Source:PRA consults on contractual recognition of bail-in)