On 16 December 2020, the European Banking Authority (EBA) published a final report containing that draft regulatory technical standards (RTS) that it is mandated to develop under Article 71a(5) of the Bank Recovery and Resolution Directive (BRRD). Article 71a(5) of the BRRD requires the EBA to develop draft RTS in order to determine the contents of the contractual term required to be included in relevant financial contracts, taking into account institutions’ and entities’ different business models.
Consistent with Article 71a(5) of the BRRD, the EBA has proposed in the draft RTS a list of mandatory components that must be present in the contractual term required in the financial contracts. These include provisions specifying the acknowledgement and acceptance that the contract may be subject to the exercise of the powers by the resolution authority, a description of the powers in question and the parties’ recognition that they are bound by those powers to suspend certain obligations and restrict some rights and that they are bound by the requirements of Article 68 of the BRRD. In addition, the parties must acknowledge that no other contractual term impairs the effectiveness and enforceability of this clause. The EBA states that this approach is intended to strike a balance between achieving an appropriate level of convergence and ensuring that differences in the legal systems of third countries and 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 these are required to achieve the policy goal of ensuring that 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 draft RTS will be submitted to the Commission for endorsement before being published in the Official Journal of the European Union. The technical standards will apply from the twentieth day following that of their publication in the Official Journal of the EU.