On 9 December 2020, the FCA updated its webpage on ‘RRD: Handbook rules’ by adding a new section on ‘Preparing for the Bank Recovery and Resolution Directive II’.
The new section provides that:
- Certain provisions in the statutory instrument transposing the Bank Recovery and Resolution Directive II (BRRD II) come into effect on 28 December 2020, but then cease to have effect in the UK from 11pm GMT on 31 December 2020.
- Unlike the PRA – which has consulted on short-lived rule changes to come into effect on 28 December 2020 – the FCA has not identified any conflicts between its current requirements and those in the statutory instrument that will implement BRRD II.
- Firms should be aware that the FCA will not be addressing those new requirements in BRRD II that do not apply to FCA solo-regulated firms. Firms should consult HM Treasury’s and the PRA’s website for further information on these changes.
- The FCA highlights the following relevant areas that apply to FCA 730k firms:
- Article 48(7) on the priority of debts in insolvency: Firms should be aware that, as transposed by HM Treasury, this makes certain changes to the priority of debts in insolvency in the case of insolvency proceedings commenced during the 4-day period.
- Article 55 on the Contractual Recognition of Bail-in (‘CROB’): The FCA has requirements in place (in IPFRU 11.6) for firms to include terms in their contracts recognising that a liability may be ‘bailed in’ (for example the debt may be written-down or converted into equity) by the resolution authority. BRRD II adds to these with a mechanism for firms to notify the resolution authority in situations where it is ‘legally or otherwise impracticable’ to include the required terms in contractual provisions. These additional requirements do not conflict with the FCA’s existing rules. Any notifications submitted that have not already been acted upon will automatically lapse on 1 January 2021.
- Article 44a addresses the sale of subordinated eligible liabilities to retail clients and will be introduced via Handbook rules. The FCA is consulting on the introduction of the requirements in this area in its Quarterly Consultation Paper No. 30.