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Art. 55 BRRD – No-Action Letter Brit-style

The PRA has today issued a short-term waiver in respect of phase 2 liabilities under its transposition of Article 55 BRRD. Its rules require firms to amend contracts with 3rd country counterparties, to include a term that subordinates liabilities to the Bank’s resolution authority, a contractual recognition of bail-in. The requirement was imposed via a two-stage phase process: phase 1 (unsecured debt, tier 1&2 instruments) from 19 February 2015, phase 2 (all other liabilities which are not excluded by the BRRD) from 1 January 2016. The wide scope of the second phase has caused difficulties both in identification and in securing counterparty agreement to the amendment, phase 2 liabilities include, but are not limited to: trade finance, operational liabilities, uncovered corporate deposits and liabilities to 3rd country FMIs. The PRA offers a time-limited modification of rules 1.2 and 2.1, disapplying each where compliance in respect of a phase 2 liability is “impracticable”. The PRA will undertake a consultation with a view to making the modification permanent (and presumably to defining the limits of “practicable”). Firms wishing to benefit from the waiver should request a modification direction from the PRA, which will confirm its decision in writing and by publication on the Financial Services Register. If granted, the modification is valid until the earlier of 30 June 2016, or the amendment/revocation of the relevant rules.

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