On 15 May 2020, the European Banking Authority (EBA) issued a consultation on draft regulatory technical standards (RTS) for contractual recognition of stay powers laid down in the Bank Recovery and Resolution Directive (BRRD).
The draft RTS are made under Article 71a(5) of the BRRD, which requires the EBA to develop RTS to further determine the contents of the terms required in the first paragraph of Article 71a BRRD, taking into account institutions’ and entities’ different business models.
Pursuant to Article 71a(1) of the BRRD, Member States shall require institutions and entities referred to in points (b), (c) and (d) of Article 1(1) of that Directive to include in any financial contract which they enter into and which is governed by third-country law, terms 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 rights and obligations under Articles 33a, 69, 70, and 71 of the BRRD and recognise that they are bound by the requirements of Article 68 of BRRD.
Consistent with its mandate under Article 71a(5) of the BRRD, the EBA has proposed in the draft RTS a list of mandatory components which must be present in the contractual term required in the financial contracts. These include provisions specifying the acknowledgement, description of the powers and recognition of the parties that they are bound by the powers to suspend certain obligations and restrictions of some rights and that they are bound by the requirements of Article 68 of BRRD. In addition, the parties acknowledge that no other contractual term impairs the effective and enforceability of this clause.
The EBA reports that its approach is intended to strike a balance between the need to achieve an appropriate level of convergence whilst ensuring that differences in legal systems of third countries as well as other differences arising from different forms of financial contracts can be taken into account by resolution authorities, institutions and relevant entities through the addition of further elements if necessary to achieve the policy goal of ensuring that the powers to suspend or restrict rights and obligations can be applied effectively in relation to financial contracts governed by the law of a third country.
The deadline for comments on the consultation is 15 August 2020.
The EBA will hold a public hearing on the draft RTS, which will take place via conference call on 16 July 2020 from 10:00 to 13:00 CET. The dial in details will be communicated in due course.