On 23 June 2020, HM Treasury issued a consultation concerning the transposition of the Bank Recovery and Resolution Directive II (BRRD II). The BRRD II makes amendments to the 2014 Bank Recovery and Resolution Directive in order to update the EU’s resolution policy and minimum requirements for own funds and eligible liabilities (MREL) framework. The BRRD II must be transposed into national law by 28 December 2020. HM Treasury’s consultation seeks views on the UK’s approach to the transposition of the BRRD II.
Key points in the consultation include that in its transposition of BRRD II HM Treasury is not intending to transpose the requirements in the Directive that do not need to be complied with by firms until after the end of the transition period, in particular Article 1(17) which revises the framework for MREL requirements across the EU. The BRRD II states that the deadline for institutions and entities to comply with end state MREL requirements shall be 1 January 2024. Given this is after the end of the transition period, HM Treasury states it is right that the UK exercises its discretion about whether to transpose these requirements.
HM Treasury consults on the following:
- The introduction of the concepts of ‘resolution entities’ and ‘resolution groups’ which derive from the same terms used in the Financial Stability Board’s total loss absorbing capacity standard.
- The power for the resolution authority to prohibit certain distributions, where the entity fails to meet its combined buffer requirement, when considered in addition to its MREL requirements.
- The power for the resolution authority to suspend any contractual payment or delivery obligations after a firm is deemed failing or likely to fail, but before entry into resolution.
- Restrictions on the selling of subordinated eligible liabilities to retail clients.
- Amendments to the requirements on the contractual recognition of bail-in, to address circumstances in which it would be legally or otherwise impractical to include a contractual term.
- A requirement for entities to include, in financial contracts governed by third country law, a term by which the parties recognise that the financial contract may be subject to the exercise of powers by the resolution authority to suspend or restrict obligations.
The deadline for responding to the consultation is 11 August 2020.