We communicate that the European Banking Authority (EBA) has published the Final Draft Regulatory Technical Standards (RTS) for the contractual recognition of stay powers under Bank Recovery and Resolution Directive (BRRD).
1. Context
Directive (EU) 2019/879 of the European Parliament and of the Council of 20 May 2019 amended Directive 2014/59/EU by introducing, amongst other, certain safeguards in order to enhance effective resolution execution in relation to financial contracts subject to third-country law in the absence of a statutory cross-border recognition framework, which ensures the effectiveness of the contractual recognition of stay powers by a Member State's resolution authority. This amendment also align the BRRD with the relevant international standards for cross-border effectiveness of resolution actions such as the Financial Stability Board’s ‘Key Attributes of Effective Resolution Regimes for Financial Institutions’, and ‘Principles for Cross-border Effectiveness of Resolution Actions’.
In this context, the EBA has published the Final Draft RTS on the contractual recognition of stay powers under BRRD with the aim to determine the content of the contractual term to be included in financial contracts, so that the parties recognize that the contract may be subject to the exercise of the powers of the resolution authorities to suspend or restrict the rights and obligations established in BRRD.
2. Main points
Contents of the contractual term. Contractual recognition term in a relevant financial contract governed by third country law shall include all of the following terms:
- Acknowledgement and acceptance by the parties that the contract may be subject to the exercise of powers by a resolution authority to suspend or restrict rights and obligations under BRRD.
- Description of or a reference to the powers of the relevant resolution authority as set out in BRRD and a description of the conditions of exclusion of certain contractual terms in early intervention and resolution.
- Recognition by the parties that they are bound by the effect of an application of the powers and requirements referred in the previous point and by the requirements of exclusion of certain contractual terms in early intervention and resolution. This powers are specifically:
- The suspension of any payment or delivery obligation.
- The restriction of enforcement of any security interest.
- The suspension of any termination right under the contract.
- Acknowledgement and acceptance by the parties that the contractual recognition term is exhaustive on the matters described therein to the exclusion of any other agreements, arrangements or understandings between the counterparties relating to the subject matter of the relevant agreement.
3. Next steps
The final draft RTS will apply from the twentieth day following that of their publication in the Official Journal or the European Union.