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BRRD Level II OJ’d

The Delegated Regulation (DR) supplementing the BRRD was published in the OJ on the 8 July 2016, having passed consideration by the Council and the Parliament, triggering its entry into force on 28 July 2016. The draft RTS was submitted to the EC by the EBA in December 2015, then adopted by the Commission under its Article 71 BRRD powers on 7 June 2016. The Delegated Regulation comprises 110 Articles containing RTS detailing the following fundamental areas:

  • The content of recovery plans, resolution plans and group resolution plans under Article 5(10) BRRD
    • Articles 3-15. The DR determines and specifies the minimum information to be included in resolution plans with respect to: the plan summary, governance, strategic analysis, description of preparatory measures and communication of the plan
  • The minimum criteria that the competent authority is to assess regarding recovery plans and group recovery plans under Article 6(8) BRRD
    • Articles 16-21. The DR identifies the stages of plan and the principles and criteria such assessment with respect to completeness, quality, feasibility and credibility
  • The conditions for group financial support under Articles 23 and 26 BRRD
    • Article 23 BRRD stipulates a number of conditions to permit intra-group financial support under early intervention
    • Articles 33-36. The DR requires firms to assess reasons for the financial distress with regard to its business model, the market situation and potential adverse developments. The assessment must include a description and projection of capital and liquidity needs
    • Article 26 BRRD requires group entities to publicise the general terms of intra-group financial support including the names of entities involved
    • The DR specifies that all relevant information is published on the institution’s website, without detriment to commercial confidentiality
  • The requirements for independent valuers under Article 36(14) BRRD
    • Article 38-41. The DR contains general criteria to assess valuer independence and potential circumstances that may be adverse
    • Two specific cases that would invalidate independence are cited: when the valuer has acted as auditor for the institution with the previous year and when the value is not separate from any relevant public authority
  • The contractual recognition of write-down and conversion powers under Article 55
    • Article 55(1) BRRD requires BRRD undertakings to include a contractual term recognising that relevant liabilities may be subject to bail-in write-down and conversion powers
    • Article 43.The DR clarifies the exclusion for secured liabilities and specifies key elements that should be assessed before determining write-down/conversion eligibility of third-county assets or liabilities
    • Article 55(3) BRRD requires the EBA to determine the list of liabilities which are excluded from the requirement and the content of the contractual term to be included
    • Article 44 provides a list of mandatory components in the Article 55(1) BRRD contractual term, including the express acknowledgement, agreement and consent of the counterparty to the application of write-down and conversion powers
  • The procedures and contents of notification requirements and notice of suspension under Article 81 and Article 83 BRRD
    • Article 46.Notification to a competent authority when management consider an entity to be failing or likely to fail
    • Article 47.Notification to the resolution authority by the competent authority and measures required under Article 104 CRD IV
    • Article 48.Notification to Article 81(3) BRRD relevant authorities by competent/resolution authorities of imminent/actual failure of an entity
    • Article 49.The procedures and content of the resolution action summary notice. The notice delineates the impact of resolution on the contractual rights of different stakeholder categories in accordance with Articles 69,70 and 71 BRRD
  • The operational functioning of the resolution colleges for EEA cross-border groups under Article 88(7) BRRD
    • Articles 50-60.The operational organisation of resolution colleges, including provisions on establishment
    • Articles 61-96. Joint decision group resolution planning- relevant planning steps, content of group resolution plan and resolvability assessment, measures to address impediments to resolvability and setting up MREL
    • Articles 97-109. Cross-border group resolution- assessment of need and joint decision-making

As a direct transcription of earlier final drafts, the Delegated Regulation contains no particular surprises and has little immediate impact beyond ongoing Article 55 outreach efforts . In the wider BRRD context, market participants will be more concerned at the outcome of delayed talks to harmonise MREL and TLAC subordination.

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