On November 5, 2014, the EBA published is proposed RTS required under the Banking Recovery and Resolution Directive (“BRRD”) to specify when the contractual recognition of bail-in is required and the contents of the term itself. Under the BRRD, EU resolution authorities will have powers to write-down and convert certain liabilities of an investment firm or bank during resolution of that firm. To ensure that those powers are effective cross-border, firms will be required to include a contractual term in relevant agreements governed by the law of a non-EU member state which obliges the creditor to recognize that it may be subject to a write-down or conversion powers and to agree to be bound by the reduction of the principal or outstanding amount due, conversion or cancellation that is put in place.
The proposed RTS set out a minimum a list of factors which need to be present for an EU resolution authority to determine that its bail-in powers may be exercised under the law of a third country or under an agreement with the relevant third country. The proposed draft RTS also include a list of mandatory elements for inclusion in the contractual term required under the BRRD, such as express acknowledgement of and consent to the application of the bail-in powers. Under the BRRD, the requirement to include the contractual term applies to liabilities issued or entered into after a member state has adopted provisions to transpose the relevant section of the BRRD. Member states are required to transpose the BBRD into national laws by December 31, 2014. However, the bail-in provisions need only apply from January 1, 2016. The EBA is proposing that liabilities subject to the contractual requirement include: (i) liabilities under agreements entered after the relevant transposition date; (ii) liabilities under agreements created after the transposition date under agreements entered into before that date; (iii) liabilities under agreements entered into before the transposition date but amended after that date; and (iv) liabilities under debt instruments issued after the transposition date, including programs existing prior to the transposition date. The EBA’s consultation closes on February 5, 2015.
The EBA consultation paper is available at: