The European Banking Authority published a comparative report on recovery plan scenarios used by firms across the EU. The EBA aims to provide national regulators and firms with an overview of developments in recovery plan scenarios as well as identify best practices and areas where improvement is needed. Under the EU Bank Recovery and Resolution Directive, banks must prepare recovery plans which include a range of scenarios of severe macroeconomic and financial stress relevant to a bank's specific conditions. The recovery plan must be assessed and approved by a banks relevant national regulator. The EBA's analysis is that while some banks' recovery plans comply with the requirements of the BRRD and the secondary legislation and guidelines, other do not. The EBA identifies key areas for improvement, including: (i) recovery plans should make clear the relevance of each scenario to the individual bank; (ii) the scenario and its impacts need to be explained so that the severity of the scenario is clear; (iii) the recovery plans should depict events as a sequence, not as point-in-time, so that a complete assessment of the recovery capacity of a firm can be made; and (iv) the link between a scenario and its indicators and options must be apparent so that an assessment of the adequacy of the framework of indicators and the recovery capacity is possible.

View the report.

The US Federal Reserve Board approved a final rule detailing its procedures for emergency lending under Section 13(3) of the Federal Reserve Act. The Dodd-Frank Wall Street Reform and Consumer Protection Act limited the Federal Reserve Board’s emergency lending authority to programs and facilities with “broad-based eligibility” established with the approval of the US Secretary of Treasury and prohibited lending to entities that are insolvent, among other things. The final rule clarifies the Federal Reserve Board’s implementation of these and other statutory requirements. Some of the changes from the proposed rule include additional limitations to the definition of “broad-based” to support the revisions made by the Dodd-Frank Act that a program should not be for the purpose of aiding specific companies to avoid bankruptcy or resolution. The final rule also broadens the definition of insolvency to cover situations where a company has not yet entered formal bankruptcy or resolution proceedings, but may be insolvent from an accounting or other perspective. Under the final rule, all lending programs under Section 13(3) must be approved by the Secretary of the Treasury, though the Federal Reserve Board must still find that “unusual and exigent circumstances” exist as a pre-condition to authorizing emergency credit programs. 

View the press release.

View the final rule. 

The Council of the European Union published a press release announcing that a sufficient number of EU Member States have ratified an Intergovernmental Agreement (known as an IGA) on the Single Resolution Fund. This means that the Single Resolution Mechanism, which aims to ensure the orderly resolution of failing banks without any recourse to taxpayers' funds, will enter into force on January 1, 2016, as envisaged. The full resolution powers of the Single Resolution Board will therefore apply as of this date and the SRF will begin to be credited with funds from national resolution funds in the euro area. The IGA sits alongside the SRM Regulation and, as a treaty, required the ratification of national parliaments by November 30, 2015.
 
View the press release.

US Federal Reserve Bank of New York President, William C. Dudley, and US Federal Reserve Bank of Cleveland President, Loretta Mester, delivered speeches at The Clearing House annual conference. Dudley noted that much progress has been made toward eradicating the notion that firms are “too big to fail” but work remains to be done to ensure large institutions will fail in an orderly manner without necessitating taxpayer bailout. He touted the Federal Reserve Board’s recent issuance of a proposed rule to establish long-term debt and total loss-absorbing capacity requirements for US global systemically important banks, but remarked that institutions need to further simplify legal structures in order to ensure that they remain operational in times of stress. Mr. Dudley also justified the Federal Reserve Board’s history of implementing rules that are more restrictive than international standards, citing that the US financial system is typically more complex, thereby requiring greater oversight. Ms. Mester’s speech focused on initiatives aimed at improving the US payment systems speed, efficiency and security. She stressed the importance of collaboration between the Federal Reserve Board and the private-sector industry players in order to foster payment-system improvement. She also discussed the roles of two new task forces created by the Federal Reserve, one focused on faster payments and the other on the security of payments.

View Mr. Dudley’s speech.
​
View Ms. Mester’s speech. 

The Prudential Regulation Authority published its Policy Statement, including final rules, and Supervisory Statement on contractual stays in certain financial contracts governed by third-country law. The rules will apply to all UK incorporated PRA-authorized banks, building societies, PRA-designated investment firms and their qualifying parents.  Those firms will need to agree with their counterparties to certain financial contracts governed by the laws of a jurisdiction outside the EEA that any action taken by the UK authorities to stay the termination rights in those contracts or to enforce a security interest would be recognized. Contractual agreement in writing is not required, as initially proposed. Instead, firms must ensure that the counterparty has agreed in an "enforceable manner" that its termination rights and rights to enforce a security interest will be limited according to the UK rules. The PRA states that legal opinions are not required as a matter of course but firms will need to ensure and demonstrate that they are in compliance. The rules will apply to contracts with counterparties that are credit institutions or investment firms from June 1, 2016 and to contracts with all other counterparties from January 1, 2017.
 
View the Policy Statement.
 
View the Supervisory Statement.

The International Swaps and Derivatives Association re-launched the ISDA Resolution Stay Protocol. The new Protocol, called the ISDA 2015 Universal Resolution Stay Protocol, was developed in coordination with the Financial Stability Board. The ISDA 2015 Universal Resolution Stay Protocol includes an annex covering securities financing transactions, developed by ISDA with the International Capital Market Association (ICMA), the International Securities Lending Association (ISLA) and the Securities Industry and Financial Markets Association. 21 financial institutions have adhered to the new Protocol and ISDA expects more to do so. By adhering to the Protocol, relevant parties are able to amend the terms of Protocol Covered Agreements and opt in to existing and forthcoming resolution regimes, ensuring that cross-border derivatives and securities financing transactions are caught by statutory stays on cross-default and early termination rights under the US Bankruptcy Code, should a counterparty enter into resolution.
 
View the Protocol.

The Financial Stability Board published a report on removing remaining obstacles to resolvability. The report states that significant work is still to be carried out to make resolution plans fully operational and recognizes that not all FSB jurisdictions have a bank resolution regime that is in line with the FSB's key attributes of effective resolution regimes for financial institutions, which were last updated in October 2014. The FSB intends, amongst other things, to develop guidance to implement the Total Loss-Absorbing Capacity standard and undertake work on CCP resolution and resolution planning, including possibly making a proposal for draft guidance.
 
View the report.

The European Banking Authority published a consultation paper on the draft Guidelines on the disclosure of confidential information in summary or collective form under the Bank Recovery and Resolution Directive. BRRD prohibits the disclosure of confidential information received by national regulators, resolution authorities, the EBA, central banks and government ministries as well as potential acquirers, bridge institutions and others involved in the resolution of a financial institution unless such disclosure is in the exercise of their functions under the BRRD, or is made with the express and prior consent of the authority or institution providing the information or the information is in summary or collective form which does not identify the individual institution or entities. The EBA's proposed Guidelines specify how confidential information in a summary or collective form must be disclosed, requiring that the information is: (i) in an anonymized format; (ii) relates to a minimum of three entities subject to certain exceptions; and (iii) avoids making reference to specific characteristics, distinctive features or other qualitative data that would identify specific firms. The draft Guidelines are expected to apply from February 2016. Comments on the proposed Guidelines are due by January 27, 2016.

View the consultation paper.

The European Commission announced that it had referred the Czech Republic, Luxembourg, the Netherlands, Poland, Romania and Sweden to the Court of Justice of the EU for failing to transpose the Bank Recovery and Resolution Directive into national legislation.  The BRRD was due to be transposed by all EU Member States by December 31, 2014. The referral follows a request in May 2015 by the Commission to eleven Member States, including the above six Member States, to fully implement the BRRD.

View the press release.

The European Banking Authority published translations of its final guidelines on the application of simplified obligations under the Bank Recovery and Resolution Directive. The EBA's guidelines set out: (i) criteria for considering whether a firm can be subject to simplified obligations; (ii) entitlement for national regulators to attribute certain weightings to such criteria; and (iii) creation of mandatory indicators which must be used and optional indicators which may be used, in assessing application criteria. The BRRD allows national regulators to apply simplified recovery obligations, including simpler requirements as to the contents and details of resolution plans, and less frequency in their updates. Such obligations will not apply to globally systemically important institutions and other systemically important institutions. The Guidelines are addressed to national regulators and national resolution authorities and will apply from December 17, 2015.

View the Guidelines.

The Prudential Regulation Authority published a consultation paper proposing the creation of a new framework that would require firms to ensure operational continuity of shared services that are considered critical to the economy. This would mean that in the event of failure of a firm, recovery action, resolution or post-resolution restructuring would be facilitated. This consultation is relevant to banks, building societies and PRA-authorised investment firms and follows the PRA's previous discussion paper on this topic, published in October 2014, which includes draft rules and a supervisory statement. The consultation paper does not define the size of firms that are intended to be in scope, but notes that those firms that are deemed to perform functions critical to the economy as well as ring-fenced bodies and global systemically important banks are likely to be included. Similarly, the EU Bank Recovery and Resolution Directive would also preserve critical functions of firms by allowing authorities to place them into resolution, and in light of this, the PRA is consulting on such proposals. The PRA aims to publish an addendum to the consultation which will define the scope of the requirements together with a Bank of England consultation on the calibration of the minimum requirement for own funds and eligible liabilities. The PRA invites respondents to provide comments on the proposals but notes that respondents may wish to wait for the publication of the addendum before doing so. The addendum will set the closing date for the consultation period.
 
View the consultation. 

The European Securities and Markets Authority published its Opinion on the application of the International Financial Reporting Standards requirements for the recognition of contributions to Deposit Guarantee Schemes in IFRS accounts. The opinion relates to the accounting of ex-ante non-refundable cash contributions to DGSs for which the obligating event takes place at a single point in time. The Opinion states that a contribution must be recognised as an expense in full once a non-refundable cash contribution to a DGS is identified. ESMA will expect national regulators to take remedial measures if any material mis-statements are identified in the requirements. 

View the Opinion.

The European Banking Authority published translated versions, dated September 11, 2015, of its final guidelines on payment commitments under the EU Directive on Deposit Guarantee Schemes. The DGS Directive provides that banks must pre-finance the DGS in its home member state. One of the methods available for such pre-financing is a payment commitment, provided that the total share of payment commitments does not exceed 30 per cent of the total amount of available financial means raised. The EBA guidelines on payment commitments set out the terms to be included in the contractual or statutory arrangements for a bank to provide payment commitments to a DGS, as well as the criteria for eligibility (i.e. sufficiently low risk) and management of the collateral. According to the guidelines, a bank may make payment commitments by either a Payment Commitment Arrangement or a Financial Collateral Arrangement. DGSs, relevant designated authorities, resolution authorities  and national regulators should implement the guidelines by December 31, 2015 and confirm to the EBA, by November 11, 2015, the status of the guidelines.

The translated guidelines are available on the EBA's website.

The Federal Reserve Bank of Richmond published an August Economic Brief titled "Living Wills for Systemically Important Financial Institutions: Some Expected Benefits and Challenges." The brief considers challenges faced by regulators who must oversee the transition of systemically important financial institutions to resolvability, and some possible approaches to managing them.

Challenges include ascertaining short-term financing needs, organizational complexity of SIFIs and cross-border resolution hurdles. However, regulators may find that their authority under Dodd-Frank to impose changes in firm structures, together with market forces that may incentivize more streamlined organizational structures, may offer means to address some of these challenges.

View the Economic Brief.

The Single Resolution Board published a decision from its plenary and executive sessions of April 29, 2015 adopting its rules of procedure. The SRB works closely with the resolution authorities of EU member states that participate in the Single Supervisory Mechanism, the European Central Bank and the European Commission to ensure the orderly resolution of banks that are failing or likely to fail and to prevent any negative impact on the economy that could arise from such failings. The SRB has been operational in developing resolution plans for banks since January 1, 2015 and will be fully operational with a comprehensive set of resolution powers from January 2016. The SRB’s rules of procedure supplement the Singe Resolution Mechanism Resolution and include details on the SRB’s chairmanship, attendance of members at meetings, decision-making and voting.

View the Plenary decision.

View the Executive decision.

The European Banking Authority published technical advice to the European Commission under the Bank Recovery and Resolution Directive on the classes of arrangements to be protected in a partial property transfer. A partial property transfer occurs when some but not all of the assets, rights and liabilities of a failing firm are transferred to a new entity. Under the BRRD, the European Commission must adopt legislation that specifies which arrangements must be safeguarded to prevent linked liabilities, rights and contracts of a failing firm from being split in a partial property transfer. The EBA advises that a list of arrangements is not feasible because it would need to be exhaustive to capture the different legal frameworks in Member States, in particular, insolvency laws as well as any future developments. Instead, the EBA specifies the arrangements according to rules and definitions in a more specific way than the provisions of the BRRD itself. The criteria for whether an arrangement is within scope of the protection include the type, scope, economic purpose, the counterparties and the governing law of the arrangements. The EBA also recommends distinguishing between a core category of arrangements that should be protected in any event and others where the protection would depend on additional criteria and the specific circumstances. The EBA also advises that certain arrangements that would impair the feasibility of a partial property transfer resolution strategy should be excluded from protection. Finally, the EBA considers that where the BRRD text is unclear, resolution authorities should have the power to interpret the scope of the safeguards restrictively.

View the EBA’s advice.

The European Banking Authority published final translations of certain of its Guidelines which are required under the Bank Recovery and Resolution Directive. The Guidelines are on: (i) the interpretation of the different circumstances in which a firm will be considered as failing or likely to fail; (ii) the minimum list of “critical” services or facilities that are necessary to enable a recipient to operate a business transferred to it; (iii) the asset separation tool, which provides guidance on the assets that may be transferred to an asset management vehicle (known as a “bad bank”); and (iv) the sale of business tool, which specifies how national regulators can deviate from standard marketing requirements for the sale of a business under resolution, if that failure presents a material risk to financial stability.

View the Guidelines on failing or likely to fail.

View the Guidelines on critical services.

View the Guidelines on asset separation tool.

View the Guidelines on the sale of business tool.
 

The Prudential Regulation Authority published new waivers for firms on the notifications required for depositor protection. The recent changes require firms to notify all depositors of the limit change from £85,000 to £75,000 by September 1, 2015 and provide the Information Sheet to depositors between January 1 and July 1, 2016. The PRA’s preference is that firms send out the notification of changes to all depositors by September 1, 2015 and do not send out the Information Sheet or exclusions notification before January 1, 2016. However, to relieve some of the burden on firms, the PRA will allow firms to send the deposit limit change notification by September 1, 2015 to any depositor who is no longer covered by the depositor protection scheme and any depositor who holds aggregate eligible deposits of over £50,000 and either: (i) make the required systems or other changes to ensure that no Information Sheets or exclusions notifications are sent to depositors prior to January 1, 2016; or (ii) amend the Information Sheet to the new limit of £75,000 and send it with the exclusions notification on account opening and as an annual mailing between now and July 1, 2016.

View the modification by consent.

The Prudential Regulation Authority published a Policy Statement which includes final rules which will allow depositors affected by the recent change in level of deposit protection to adjust to the new limit without loss of interest or incurring any penalties. The PRA announced on July 3, 2015 that the existing £85,000 level of deposit protection will change to £75,000 after December 31, 2015. Depositors that are contractually tied into products with balances above £75,000, either currently or at product maturity, will be able to request, until December 31, 2015, to withdraw funds between the old and new limits. Firms are prohibited from requiring a depositor making such a request to close an entire account unless the funds are placed into a new product with similar terms. A firm must return funds to a depositor within the earlier of two months of the request or by January 31, 2016. The PRA also published a revised Supervisory Statement on depositors and dormant account protection which now includes the PRA's expectations of firms regarding the definition of "affected person", notification requirements, withdrawal of affected funds and the charges, penalties and loss of interest.

View the Policy Statement.

View the amended rules.

View the revised Supervisory Statement. 

The European Banking Authority launched a consultation on proposed guidelines for cooperation agreements between deposit guarantee schemes. Under the recast Deposit Guarantee Schemes Directive, designated authorities or deposit guarantee schemes must enter into written cooperation agreements. The proposed guidelines set out the objectives and minimum content of such cooperation agreements as well as a multilateral framework cooperation agreement which deposit guarantee schemes or designated authorities could adhere to unless they enter into bilateral agreements which go beyond the level of detail required by the framework agreement. In addition, the EBA proposes a sequence and timing framework governing when an EU host deposit guarantee scheme pays depositors of an EU branch of a non-EU headquartered firm. The consultation is open until October 29, 2015.

View the consultation paper.

The EBA published final guidelines on conditions for group financial support under the BRRD, together with final draft Regulatory Technical Standards, specifying the conditions for group financial support and final draft RTS on the form and content of disclosure of financial support agreements. The EBA’s guidelines enhance the means through which one member of a banking group may provide support to another member of the same group, which is in financial difficulty. This overcomes the current lack of a comprehensive group support mechanism across the EU, ensuring that such support may be enforced between cross-border institutions forming part of the same banking group. The RTS outline the factors to be considered when ascertaining whether the conditions for the provision of group financial support are satisfied. National regulators are also required to consider the possible reasons for the financial distress of the relevant entity (e.g., whether this is due to its business model, the current market situation or other circumstances). The guidelines and RTS also confirm that group support may be enforced in certain instances, even where prudential requirements have not been met.
 

The final guidelines and draft RTS.

The EBA published a final report, including final guidelines and final draft Implementing Technical Standards on the eligibility of institutions for simplified obligations in the context of recovery planning, resolution planning and resolvability assessments under the Bank Recovery and Resolution Directive. The EBA also published final draft ITS on the procedures, forms and templates for submitting information on resolution plans. The BRRD allows national regulators to apply simplified recovery obligations, including simpler requirements as to the contents and details of resolution plans, and less frequency in their updates. Such obligations will not apply to globally systemically important institutions and other systemically important institutions. The EBA’s final guidelines set out: (i) criteria for considering whether a firm can be subject to simplified obligations; (ii) entitlement for national regulators to attribute certain weightings to such criteria; and (iii) creation of ‘mandatory indicators’ which must be used and ‘optional indicators’ which may be used, in assessing application criteria. The technical standards specify general reporting procedures, including further instructions for completing the reporting form. National regulators retain the power to select which form a particular firm is required to complete. Authorities are to report within two months of publication of the translated versions of the guidelines on the EBA website how they assessed the application of the criteria and indicators to their institutions. The EBA will then assess any difference in the modes of assessment by the jurisdiction, and will submit a report of its findings to the European Parliament, Council and European Commission by December 31, 2017.

View the final report, guidelines and draft ITS.

The European Banking Authority has published draft final Regulatory Technical Standards under the EU Bank Recovery and Resolution Directive on the criteria for assessing the independence of valuers from both the resolution authority and the firm or entity subject to the valuation, including ensuring that the valuer has no actual or potential material interests in common or in conflict with any relevant authority or entity concerned which might influence the valuer’s judgement in performing the valuation. The RTS identify two situations which preclude a person per se from being an independent valuer: (i) where the valuer is not legally separate from an authority or entity subject to valuation; and (ii) where the person, in the year preceding the date on which his independence is assessed, has completed a statutory audit of the relevant entity. The RTS will, once they enter into force, apply directly across the EU.

View the RTS on valuers.

The European Banking Authority has published the following final draft Regulatory Technical Standards which it is responsible for preparing under the EU Bank Recovery and Resolution Directive:
 
1. RTS on the operational functioning of resolution colleges which will be established for groups that operate on a cross-border basis in the European Economic Area. The RTS set out details on the establishment of a college, describe the resolution planning process, provide for the manner in which the resolution of a cross-border group should be undertaken, the exchange of information and interaction between resolution authorities, the requirements for EU resolution authorities to develop a framework for involvement of third country resolution authorities and the process for reaching decisions in the event of disagreement between resolution authorities.

2. RTS on notification which set out the process and information required for firms to notify their national regulators that the firm is failing or likely to fail, for national regulators to then notify the resolution authority and the publication by the resolution authority of the resolution action taken using its powers under the BRRD. The RTS also cover the situation where the national regulator assesses for itself that a firm is likely to fail or is failing.

The RTS will, once they enter into force, apply directly across the EU.

View the RTS on resolution colleges.

View the RTS on notification requirements.

The European Banking Authority has published the following final draft Regulatory Technical Standards which it is responsible for preparing under the EU Bank Recovery and Resolution Directive:

1. RTS on the minimum requirement for own funds and eligible liabilities, known as MREL, to ensure firms have adequate loss absorbing capacity. MREL will be set by resolution authorities for each firm so that resolution plans are effective and will be linked to the capital requirements of a firm. A tailored approach is set out for financial market infrastructures that are also subject to MREL requirements and for subsidiaries of groups. The RTS aim to ensure that the MREL requirements are compatible with the proposed Total Loss Absorbing Capacity requirements, known as TLAC, which are being developed at international level.

2. RTS on the contractual recognition of bail-in of contracts governed by the law of a non-EU country which set out when the contractual recognition clause requirement does not apply, for example, if the non-EU country has a statutory regime which provides for the recognition of the write-down and conversion powers of an EU resolution authority. 

The RTS will, once they enter into force, apply directly across the EU.


View the RTS on MREL. 

View the RTS on contractual recognition of bail-in powers.

The European Banking Authority published technical advice on the target level and initial period for contributions to the Single Resolution Fund under the Single Resolution Mechanism. The EBA’s advice was requested by the European Commission to assist it in developing legislation which specifies criteria for: (i) the spreading out in time of the contributions to the SRF; (ii) determining the number of years by which the initial period for reaching the target level can be extended; and (iii) establishing the annual contribution when the available financial means of the SRF falls below its target level after the initial period. The SRM and the SRF provide for the resolution of credit institutions and certain investment firms established in Member States within the Eurozone or in Member States that participate in the Banking Union. The SRF will support resolution measures for those banks and investment firms and will be financed by bank levies raised at national level. Ex ante contributions by those firms must be made to ensure that the SRF reaches a level of one per cent of the protected deposits of all banks within the Banking Union within eight years. The SRM and SRF are due to come into effect from January 1, 2016.

View the EBA's advice.

The European Banking Authority published its final guidelines on the circumstances in which an institution shall be considered as "failing or likely to fail" under the Bank Recovery and Resolution Directive. The guidelines are aimed at national regulators and resolution authorities who will determine at their discretion whether an institution is failing or likely to fail. The guidelines set out the broad elements that should be taken into account for such a determination, namely: (i) a current or likely infringement of the requirements for continuing authorization in a way that would justify the withdrawal of authorization; (ii) assets currently lower or likely to be lower than liabilities; (iii) a current or likely inability to pay debts or other liabilities as they fall due; and (iv) a need for extraordinary public financial support. The guidelines will apply from January 1, 2016.

View the guidelines.

The Prudential Regulation Authority published a consultation paper on contractual stays in financial contracts governed by non-EEA law. The consultation paper proposes a new rule to be included in the PRA rulebook that would require the contractual adoption of UK resolution stays in certain financial contracts governed by the laws of a jurisdiction outside the EEA. The rule would apply to PRA regulated banks and investment firms, prohibiting firms from creating new obligations or materially amending existing obligations under a financial contract governed by third country law, unless there is agreement in writing with the counterparty to the contract concerning stays in resolution. The rule’s aim is to reduce risks of contagion from the failure of a firm and to support orderly resolution so that when resolution action is taken against a firm, this does not immediately lead to the early termination of financial contracts governed by third country law while its financial contracts governed by UK or EU law are stayed. The deadline for comments on the proposed rule is August 26, 2015.

View the consultation paper.

The Bank of England launched a consultation on its proposed approach for exercising its power to direct firms to address impediments to resolvability under the Banking Act 2009, including a proposed Statement of Policy. The Banking Act 2009 implements the Bank Recovery and Resolution Directive. The BoE, in preparing the resolution plan for a firm, must assess the resolvability of a firm. If any substantive impediments are identified during that assessment or otherwise, the BoE has the power to require the firm to remove any such obstacle, including requiring the amendment of a group financial support agreement, the disposal of certain assets or a change to its legal or operational structure. The proposed Statement of Policy also includes a list of possible scenarios in which the BoE might consider using its power of direction, including: (i) the issuance of debt instruments at parent company level to allow for loss absorption and recapitalization of group entities; (ii) to ensure continuity of services in resolution such as operational services, trading agreements and access to payment services and financial market infrastructures; and (iii) for systems to be put in place to support rapid and effective valuation. The consultation is open until August 22, 2015. The BoEintends to issue later this year a separate statement on its power to direct firms to maintain a minimum requirement for own funds and eligible liabilities, known as MREL.

View the consultation paper.

The European Banking Authority published three sets of final guidelines on the implementation of the resolution tools under the Bank Recovery and Resolution Directive. The final guidelines, which will apply to national resolution authorities from August 1, 2015, are: (i) guidelines on the determination of when the liquidation of assets or liabilities under normal insolvency proceedings could have an adverse effect on one or more financial markets; (ii) guidelines on factual circumstances amounting to a material threat to financial stability and on the elements related to the effectiveness of the sale of business tool; and (iii) guidelines on the minimum list of services or facilities that are necessary to enable a recipient to operate a business transferred to it under the BRRD.

View the final guidelines.

The Prudential Regulation Authority published a Policy Statement on depositor and dormant account protection which sets out the final rules that aim to reduce the adverse effects that the failure of a firm may have on the stability of the UK financial system as well as improve depositor confidence. The Policy Statement includes the amended rules for the Depositor Protection and Dormant Account Scheme rules in the PRA Rulebook. An updated Supervisory Statement on the PRA’s expectations of firms in connection to the amended rules was also published on the same day. The amended rules include a definition of public authority, extend deposit protection to deposits held by local authorities with an annual budget of up to €500,000, add a requirement for firms to inform depositors of deposits that are no longer covered by a deposit guarantee scheme from July 3, 2015 and a new requirement for deposit-takers to provide the Financial Services Compensation Scheme with information held on dormant accounts that have been transferred to a dormant account fund operator.

View PRA’s Policy Statement.
View updated Supervisory Statement.

The European Banking Authority published its proposed draft Regulatory Technical Standards on the valuation of derivatives under the Banking Recovery and Resolution Directive. Under the BRRD, a resolution authority may bail-in relevant derivative liabilities provided that the authority complies with certain conditions including exercising the bail-in power only upon or after closing out the derivatives and ensuring that derivatives subject to a netting agreement are bailed-in on a net basis following the terms of the netting agreement. Before exercising the bail-in power, a resolution authority is required to ensure that an independent valuation of the assets and liabilities of a firm is carried out. For derivative liabilities, the valuation will determine a value of those derivative liabilities at the moment of exercise of the resolution power. The EBA’s proposed draft RTS (i) provides a methodology for resolution authorities to follow with the close-out amount being based on the principle of replacement cost; and (ii) sets out the approach for resolution authorities to follow when comparing the destruction in value that would arise from the close-out with the losses that those derivatives would incur in a bail-in which should be done on a case-by-case basis. The consultation closes on August 13, 2015. The EBA is required to submit the final draft RTS to the European Commission by January 3, 2016. Member states are required to implement the bail-in tool by January 1, 2016.
 

View the EBA’s consultation.

Martin J. Gruenberg, Chairman of the US Federal Deposit Insurance Corporation, delivered a speech regarding the progress the FDIC has made in developing a framework for the orderly resolution of large, complex, systemically important financial institutions (SIFIs) in the event that a SIFI experiences failure or other financial distress. Among other topics, the speech addressed the FDIC’s effort to strengthen the bankruptcy process and define the purpose of Orderly Liquidation Authority, a public-sector bankruptcy process prescribed by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd Frank Act) for institutions whose resolution under the US Bankruptcy Code Bankruptcy Code would pose systemic concerns.

View the full text.

The European Banking Authority published its final report on guidelines on triggers for the use of early intervention powers under the Bank Recovery and Resolution Directive. The final guidelines provide national regulators with guidance on when to apply early intervention measures to firms. National regulators are not obliged to apply the triggers automatically and may even apply the measures when the triggers are not met. The guidelines identify the following triggers: (i) overall Supervisory Review and Evaluation Process score and outcome, expanding on when regulators should consider application of the early intervention measures; (ii) material changes or anomalies identified in the monitoring of key financial and non-financial indicators under SREP; and (iii) significant events indicating that the conditions for early intervention are met. The final guidelines will apply from January 1, 2016.

View the guidelines.

The EBA published its final report on guidelines on the minimum list of qualitative and quantitative recovery plan indicators, including the final guidelines. Under the Banking Recovery and Resolution Directive, banks and certain investment firms are required to prepare recovery plans setting out the measures that a firm would take to restore its financial position. Recovery plans are required to include a set of indicators which identify when any of the measures included in the recovery plan are to be invoked. The final guidelines, which should be read in conjunction with the guidelines on the range of scenarios to test recovery scenarios, must be agreed by the national regulator charged with approving the overall recovery plan of a firm. The final guidelines specify that each recovery plan must include capital, liquidity, profitability and asset quality recovery plan indicators. Market-based indicators and macroeconomic indicators must also be included in a recovery plan unless the national regulator agrees that such indicator/s is not relevant to the firm’s legal structure, risk profile, size and complexity. For each category of indicators, the guidelines set out the specific indicators to be included. The guidelines are a minimum list of indicators and firms should not limit their indicators to that minimum. The guidelines will apply from July 31, 2015 to banks and investment firms subject to the BRRD and to national regulators.

View the guidelines.

The Financial Stability Board published a statement written by FSB Chairman Mark Carney to the International Monetary and Financial Committee. The statement contains information on ongoing work to finalize post-crisis reforms and measures being taken by the FSB to promote financial stability. The letter discusses certain financial vulnerabilities, such as diminished market liquidity, asset price discontinuities, financial institution misconduct and contagion across markets. The statement reports certain measures taken by the FSB to address these risks, including the formulation of a plan to identify financial stability risks associated with market liquidity in fixed-income markets and asset management activities, ending too-big-to fail for global systemically important banks and developing procedures for implementation monitoring of the agreed international financial regulatory reforms.
 

View the statement.

The Financial Stability Board initiated the second review of resolution regimes in FSB member jurisdictions. The goal of the review is to survey the scope of resolution powers that are available in FSB jurisdictions for the banking sector. As part of the review, the FSB invites feedback from financial institutions, industry associations, and other stakeholders on the implementation of reforms to resolution regimes. Feedback should be submitted to the FSB by May 8, 2015 and the peer review report will be published in early 2016.

View the press release.

View the details of the peer review.

The International Organization of Securities Commissions launched two consultations on business continuity plans for trading venues and for market intermediaries which aim to address weaknesses and gaps in the business continuity plans and recovery strategies of trading venues and market intermediaries. The first consultation report, “Mechanisms for Trading Venues to Effectively Manage Electronic Trading Risks and Plans for Business Continuity,” focuses on how trading venues manage technology and the potential risks arising from technological developments and electronic trading. The second consultative report, “Market Intermediary Business Continuity and Recovery Planning,” proposes standards for regulators and sound practices for market intermediaries whilst recognizing that not all of the sound practices are suitable for each type of intermediary. Both consultations close on June 6, 2015.
 

View the consultation papers.

The Federal Reserve Board and the FDIC permanently changed the annual resolution plan or “living will” deadline for four non-bank systemically important financial institutions (“non-bank SIFIs”) from July 1 to December 31 beginning in 2016. The institutions include American International Group, Inc., General Electric Capital Corporation, Inc., MetLife Inc., and Prudential Financial, Inc. The agencies previously temporarily extended the 2015 living will deadlines for American International Group, General Electric Capital Corporation, and Prudential Financial to December 31, 2015. MetLife, recently designated as systemically important, is required to submit its first resolution plan by December 31, 2016.

Resolution plans are required by the Dodd-Frank Wall-Street Reform and Consumer Protection Act for the largest financial institutions. Each living will must describe the company’s strategy for rapid and orderly resolution under the US Bankruptcy Code in the event of material financial distress or failure of the company.

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The Single Resolution Board announced its priorities for 2015 following its first plenary meeting. The SRB is part of the Single Resolution Mechanism in the Eurozone and will have the powers of a resolution authority under the Banking Recovery and Resolution Directive. The SRM is part of the Banking Union and therefore the SRB will only have powers over Eurozone banks or banks in those Member States that opt into the Banking Union. The SRB’s priorities in 2015 will be to (i) establish cooperation with key stakeholders and international partners; (ii) set standards for credible resolution plans; and (iii) focus on resolution planning, including at an international level, to address obstacles to resolution. The SRB will have full powers by 2016 to carry out its resolution powers.

View the SRB announcement.

The Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation announced the completion of reviews of annual resolution plans or “living wills” submitted in 2014 by three foreign banking organizations and gave feedback letters to each bank. The FBOs included BNP Paribas, HSBC Holdings plc and The Royal Bank of Scotland Group plc.

The FDIC announced that the living wills were “not credible” and that 2015 plans would be required to demonstrate significant progress. Common shortcomings identified across the FBOs included: (i) unrealistic assumptions about behavior of various parties (i.e., customers, counterparties, investors, or regulators); and (ii) insufficient analysis on the inter-connectedness between banks. The Federal Reserve Board and the FDIC will expect that the annual plans submitted by the three banks on or before December 31, 2015, demonstrate that the banks are making significant progress to address the shortcomings identified, and are taking actions to improve their resolvability under the US Bankruptcy Code.

View the press release.

HM Treasury published its revised “Banking Act 2009 Special Resolution Regime Code of Practice”. The Code aims to encourage financial stability by resolving institutions such as banks, building societies and certain investment firms that are failing, and protecting depositors, taxpayers and the wider economy from the consequences of such failure. The Code has been amended to take into account the provisions of the Bank Recovery and Resolution Directive, and provides guidance on how special resolution tools are to be used by the relevant resolution authority. Section 1 of the Code sets out guidance relating to banking institutions whose failure has become highly likely, and includes: (i) five stabilization options including transfers of business to private sector purchasers or bridge entities; (ii) the bank’s insolvency procedure, facilitating prompt payouts to depositors via the Financial Services Compensation Scheme; and (iii) the bank administrative procedure, where a partial transfer of the business of a failing institution takes place. Section 2 of the Code deals with the Special Resolution Regime for CCPs, which are outside the scope of the BRRD. This section sets out guidance on how the relevant resolution authority can apply stabilization powers to CCPs, including powers to transfer: (i) some or all of the business of a CCP to a commercial purchaser or to a bridge CCP; and (ii) the ownership of the CCP to any person.

View the SRR code of practice

The European Banking Authority published a consultation paper on draft Regulatory Technical Standards and Guidelines on business reorganization plans under the Bank Recovery and Resolution Directive. Under the BRRD, a financial institution that has been resolved by a resolution authority must prepare a business reorganization plan that sets out the measures the financial institution will take to restore its viability and operability. The draft RTS set out the minimum requirements that must be included in the institution’s business reorganization plan, such as the identification of the causes of failure and financial performance projections. The Guidelines set out the criteria that resolution authorities must take into account when assessing and approving business reorganization plans, such as assessing the credibility and strategies of those plans. Comments on the consultation paper may be submitted until June 9, 2015.

View the consultation paper

The EBA published three sets of technical advice to the European Commission on the resolution framework for EU banks and a related comparative analysis of the recovery plans of 27 European cross-border banking groups. The technical advice covers (i) the definition of critical functions and core business lines; (ii) the deferral of ex-post contributions to the resolution fund; and (iii) rules for the exclusion of liabilities from the application of the bail-in tool for which the EBA states that resolution authorities should assess each case for suitability for exemption to avoid motivating bank structures for the purpose. The technical advice will assist the European Commission to prepare secondary legislation on these issues that are required under the Banking Recovery and Resolution Directive.

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The European Banking Authority launched a consultation on proposed Regulatory Technical Standards on the detailed records of financial contracts that banks and relevant investment firms will need to maintain. Under the Bank Recovery and Resolution Directive, resolution authorities may temporarily suspend the termination rights of any party to a contract with a firm that is under resolution. The proposed draft RTS set out the minimum information on financial contracts which a firm will be obliged to keep detailed information of. Member states would be able to impose additional requirements if appropriate. The consultation closes on June 6, 2015.

View the consultation paper

Secondary legislation was enacted which amends the Financial Services and Markets Act 2000 (Over the Counter Derivatives, Central Counterparties and Trade Repositories) Regulations 2013. The amending regulations correct the original legislation and ensure that the special resolution regime under the Banking Act 2009 applies to UK-based CCPs regardless of whether or not they are authorized under the European Market Infrastructure Regulation, from March 18, 2015 until such time as the CCP becomes authorized. The amending regulations come into force on March 18, 2015. The special resolution regime under the Banking Act 2009 will apply to all EMIR authorized CCPs upon that authorization.

View the amending regulations

The Federal Deposit Insurance Corporation extended the submission deadline for resolution plans for three non-bank financial companies including American International Group, Inc., General Electric Capital Corporation, Inc., and Prudential Financial, Inc. Originally due July 1, 2015, the “living wills” are now due on December 31, 2015. The Dodd-Frank Wall Street Reform and Consumer Protection Act requires non-bank financial companies designated by the Financial Stability Oversight Council for supervision by the Federal Reserve Board to submit plans describing their resolution strategy in the case of material distress. The extension is consistent with extensions to other firms and will give the companies additional time to prepare their resolution plans.

View the FDIC press release.

The International Swaps and Derivatives Association published a proposed recovery and continuity framework for CCPs. The framework focuses on losses caused to a CCP by the default of one of its clearing participants and not on other losses that a CCP may incur due to, for example, liquidity shortfalls or non-default losses. CCPs are already required to prepare recovery and resolution plans in many jurisdictions. The ISDA recovery and continuity framework sets out proposals for: (i) recovery measures that should be available to a CCP which include portfolio auction of a defaulting clearing member's portfolio, limited cash calls, loss-allocation mechanisms and consideration of a partial contract tear-up to assist a CCP to re- establish a matched book; (ii) transparency and timing requirements so that recovery measures are clearly defined in the clearing rule book, providing clearing members with certainty about the maximum time frame for the default management process to run before it is considered to have failed as well as the applicable legal construct, source and utilization of resources; (iii) considerations for the use of recovery measures beyond pre-funded resources such as cash calls or loss allocation to clearing members; (iv) requirement for CCPs that offer several clearing services to segregate those services so that there is limited recourse between the services to limit contagion; (v) considerations for either partial or full contract tear-up if measures to re-establish a matched book fail; (vi) compensation by the CCP to clearing members for loss allocation or partial contract tear-up measures through pro-rata shares in the CCP's claims against the estate of defaulting clearing members and future CCP revenues or profits; and (vii) conditions for entry into resolution of a CCP.
 

The Council Implementing Regulation specifying uniform conditions for implementing the obligation of the Single Resolution Board to calculate the contributions of individual institutions to the Single Resolution Fund under the Single Resolution Mechanism was published in the Official Journal of the European Union. The Single Resolution Fund is intended to be used following exercise of resolution powers, for example as a shareholder for a "good bank" created on a good bank/bad bank split. It will be contributed to by banks potentially subject to the resolution regime. The Single Resolution Mechanism applies to banks in Eurozone and to banks in EU Member States participating in the Single Supervisory Mechanism. The Regulation will apply from January 1, 2016 or such time as the available financial means of the Single Resolution Fund, as set out under the Single Resolution Mechanism, are met.

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The Delegated Regulation on ex ante contributions to resolution financing arrangements supplementing the Bank Recovery and Resolution Directive was published in the Official Journal of the European Union. The Delegated Regulation deals with issues including the determination of annual contributions, risk adjustments and annual contributions of small institutions. The Delegated Regulation enters into force on February 6, 2015.

View the Delegated Regulation.