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.

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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.

View the Regulation.

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.

The US Federal Reserve Board and the US Federal Deposit Insurance Corporation made portions of resolution plans, for firms with generally less than $100 billion in qualifying nonbank assets, publically available. Certain banking organizations with total consolidated assets of $50 billion or more and nonbank financial companies designated for enhanced prudential supervision by the Financial Stability Oversight Council are required to periodically submit resolution plans to the Federal Reserve Board and the FDIC. A resolution plan contains both a public and confidential section describing the company’s strategy for rapid and orderly resolution in the event of material financial distress or failure of the company. The FDIC also released the public sections of the recently filed resolution plans of 22 insured depository institutions, the majority of which are subsidiaries of bank holding companies. The insured depository institution plans are mandated by a separate regulation issued by the FDIC requiring a covered insured depository institution with assets greater than $50 billion to submit a plan under which the FDIC might resolve the institution under the Federal Deposit Insurance Act.

View the public portions of resolution plans required by the Federal Reserve Board.

View the public portions of resolution plans required by the FDIC.

The European Banking Authority published for consultation draft Implementing Technical Standards which set out the procedures, forms and templates for the preparation of resolution plans by resolution authorities. To obtain the information needed to prepare a resolution plan for a particular firm, the EBA is proposing that resolution authorities first request the information from the firm’s national regulator. If the national regulator does not have the relevant information or the information is not available in the required format, then the resolution authority may approach the firm directly for the information. When a firm provides the information to the resolution authority, it must do so using the proposed forms and templates. The forms and templates are in Excel format and cover organizational structure, governance and management, critical functions and core business lines, critical counterparties, structure of liabilities, funding sources, off-balance sheet, payment systems, information systems, interconnectedness, authorities and legal framework, in line with the required information under the Bank Recovery and Resolution Directive. The forms and templates will be the minimum set of harmonized information which group-level resolution authorities must share with the EBA, relevant EU resolution authorities and national regulators, as required under the BRRD. Responses to the consultation are due by April 14, 2015.

View the consultation paper.