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Art 55 BRRD- PRA no action permanent

The PRA yesterday issued a consultation paper (CP)proposing to make permanent its time-limited 25 November 2015 waiver of Article 55 BRRD compliance, in respect of phase 2 liabilities. The waiver took effect via modification by consent, the consent being that of the PRA. If granted, the modification is valid until the earlier of 30 June 2016, or the amendment/revocation of the relevant rules. The CP aims to amend the relevant rules by making changes to Contractual Recognition of Bail-In Part of the PRA Rulebook. The proposed amendment would accordingly apply from 1 July 2016.

The amendment would disapply rules 1.2 (definitions)and 2.1 (mandatory inclusion of bail-in language)for phase 2 liabilities where compliance would be “impracticable”. Phase 2 liabilities are simply defined as unsecured liabilities which are not debt instruments, a grouping which includes, but is not limited to:  trade finance, operational liabilities, uncovered corporate deposits and liabilities to 3rd country FMIs. The PRA expects firms to make a “reasoned assessment” as to whether inclusion of bail-in language is impracticable or not. While the term resists close definition, Appendix 2 lays out some instructive examples such as 3rd country illegality and lack of agency. The CP also adds a number of amendments to PRA rules to reflect changes in the final draft RTS, these are summarised below:

  • Bail-in language to be included in contracts which are not fully secured and secured liabilities which are not subject to a full collateralisation requirement
  • Bail-in language to be included in contracts which are subject to material amendment after 30 June 2016
  • The reference to liabilities “arising” after a certain date is replaced with a reference to liabilities “created” after a certain date

The consultation closes on 16 May 2016. Comments should be addressed to cp8_16@bankofengland.co.uk. We should expect to see the FCA equivalent of the above in due course.

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