On August 23, 2016, a Commission Delegated Regulation on the valuation of derivatives for the purpose of bailing-in derivative liabilities in the form of RTS was published in the Official Journal of the European Union. The final RTS do not differ substantively from the RTS adopted by the European Commission on May 23, 2016. The BRRD provides that a resolution authority may bail-in relevant derivative liabilities provided that the authority complies with certain conditions, including exercising the bail-in power only upon or after closing out the derivatives and ensuring that derivatives subject to a netting agreement are bailed-in on a net basis following the terms of the netting agreement. Before exercising the bail-in power, a resolution authority is required to ensure that an independent valuation of the assets and liabilities of a firm is carried out. For derivative liabilities, the valuation will determine the value of those derivative liabilities at the moment of exercise of the resolution power. The RTS provide a methodology for resolution authorities to follow when comparing the destruction in value that would arise from the close-out with the losses that those derivatives would incur in a bail-in, principles for determining the point in time at which the value of a derivative should be established and measures for establishing the value of classes of derivatives. The RTS entered into force on September 12, 2016.
The RTS on the Valuation of Derivatives for Bail-In is available at: http://eur-lex.europa.eu/legalcontent/EN/TXT/PDF/?uri=CELEX:32016R1401&from=EN.