Bank Recovery and Resolution Directive (BRRD)

Council of EU Agrees on Approach to Legislative Proposals for Insolvency Hierarchy Directive and IFRS 9 Regulation

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The Council of the EU has agreed on a general approach to the legislative proposals for a directive (which will relate to the ranking of unsecured debt instruments in insolvency) amending the Bank Recovery and Resolution Directive (2014/59/EU) (“BRRD“) and a Regulation amending the Capital Requirements Regulation (Regulation 575/2013) (“CRR“) (which concerns transitional periods under the International Financial Reporting Standard 9 (“IFRS 9“)).

A press release published on June 16, 2017, by the Council of the EU (in its configuration as the Economic and Financial Affairs Council (ECOFIN)) outlined the following general approach on the legislative proposals:

  • In relation to BRRD, the Council agreed on the text set out in the Council’s final compromise proposal dated May 31, 2017 (9479/17).
  • In relation to CRR, the Council agreed on the text set out in the Council’s final compromise proposal dated May 31, 2017 (9480/17).
  • On June 12, 2017, the Council’s Permanent Representatives Committee recommended that the Council agree on these texts as their general approach.

The press release states that EU ministers have asked the Council Presidency to start talks with the European Parliament on these proposals as soon as the Parliament has approved its own negotiating stance. It quotes the finance minister of Malta (which currently holds the Council Presidency), stating that the Council hopes that “the Parliament will be able to start negotiating by the end of this year.”

The draft Insolvency Hierarchy Directive and the IFRS 9 Regulation form part of the package of banking reforms that were adopted by the European Commission in November 2016. The EU authorities have decided to fast-track these relatively discrete measures ahead of their consideration of the remainder of the reforms.

EBA Publishes Draft RTS in Relation to the BRRD

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The EBA has published the following draft RTS in connection with the Bank Recovery and Resolution Directive (2014/59/EU) (BRRD):

  1. Final draft RTS on the valuation of derivatives under Article 49(4);
  2. A document setting out final draft RTS and guidelines on the business reorganization plans to be submitted where a resolution authority decides to apply the bail-in tool under the BRRD; and
  3. Final draft RTS on the information that should be contained in the detailed records of financial contracts required in support of the power to impose a stay on claims by creditors under Article 71. The final draft RTS also specify the circumstances in which the requirement to maintain detailed records will be imposed.

European Commission Requests 11 Member States to Implement Bank Recovery and Resolution Directive (BRRD)

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On May 28, 2015, the European Commission published a press release announcing that it has requested 11 member states (Bulgaria, the Czech Republic, France, Italy, Lithuania, Luxembourg, the Netherlands, Malta, Poland, Romania, and Sweden) to fully implement the BRRD.

The member states in question have failed to meet the deadline of December 31, 2014 for incorporating the BRRD into their national law. If any of the countries fail to comply within two months, the Commission may decide to refer them to the European Court of Justice.

EBA Publishes Guidance on How to Determine Whether a Firm is Failing or Likely to Fail Under the BRRD

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On May 26, 2015, the European Banking Authority (EBA) published its final guidelines (EBA/GL/2015/07) on how to determine whether an institution is failing or likely to fail for the purposes of the BRRD.

Under Article 32(1) of the BRRD, the relevant authority must determine that the firm is failing or likely to fail before resolution action can be taken. The guidelines provide separate guidance for competent authorities and resolution authorities. Competent authorities should base their determination on their assessment of the firm’s viability under the supervisory review and examination process set out in the CRD IV Directive (2013/36/EU).  Resolution authorities must consider the firm’s capital and liquidity position, as well as other requirements set out in the BRRD. The guidelines will apply from January 1, 2016.

EBA Publishes Final Guidelines on Public Support Measures under BRRD

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On September 22, the European Banking Authority (EBA) published final guidelines specifying the types of tests, reviews or exercises that may lead to support measures under Article 32(4)(d)(iii) of the Bank Recovery and Resolution Directive (BRRD).

The BRRD establishes a framework for dealing with unsound or failing credit institutions and investment firms. Article 32(4) of the BRRD stipulates that a firm should be deemed to be failing, or likely to fail, if, among other things, there is a need for extraordinary public support, unless all the conditions listed in Article 32(4)(d) are met. Under Article 32(4)(d), the EBA is required to issue guidelines on the type of tests, reviews or exercises that may lead to capital shortfalls that may be eligible to be covered by public recapitalization. Final Guidelines.