BRRD rubber-stamp delayed

The European parliament has updated its BRRD procedure file, postponing the plenary consideration of the proposal to its 14-17^th April session. The regulatory framework has been agreed, however the plenary vote is a very necessary formality. Any further delay would place this cornerstone of EU banking reform perilously close to the 22^nd May EU election.

Hong Kong Consults on New Resolution Regime

Introduction

On 7 January 2013, the Hong Kong Monetary Authority (HKMA) issued a press release announcing the publication of its first stage public consultation, drafted in conjunction with the Securities and Futures Commission (SFC) and the Insurance Authority (IA), on establishing an effective resolution regime for financial institutions, including financial market infrastructures, in Hong Kong. 

RRP: PRA Gently Turns the Screw (but to what end?)

Introduction

On 19 December 2013, the Prudential Regulation Authority (PRA) issued Policy Statement PS8/13 together with two Supervisory Statements, SS18/13 on recovery planning, and SS19/13 on resolution planning.  Together, this guidance details the PRA’s final RRP rules for UK banks, building societies and UK designated investment firms. Their publication follows on from the FSA’s original consultation paper (CP11/16) and Feedback Statement (FS12/1).  The final rules are set out in the PRA Rulebook Recovery and Resolution Instrument 2013 (PRA 2013/37), which is annexed to PS8/13 and come into force 1 January 2014.

Single Resolution System- closer to being resolved

MEP’s voted on the 17^th to establish their position on critical details of the single resolution system. During yesterday’s Parliamentary hearing, ECB President Mario Draghi said,

EU Banking Reform Legislation Expected January 2014

On 11 December 2013, the European Commission published a press release containing remarks made by Michel Barnier, European Commissioner for Internal Market and Services on EU banking structural reform.  Mr Barnier stated that the legislative proposal on EU banking reform will be presented at the beginning of January 2014.  Following the recent publication of the Volcker Rule on 10 December 2013, the Commission will also look at the details of this new rule (see this blog post for more details).  For certain banks deemed too big to fail, he explained that the EU banking reform proposal will consider separation, calibration and treatment of the risks taken by these banks.

Trilogue Agreement Reached on RRD

On 12 December 2013, the European Commission published a press release announcing that on 11 December 2013, Parliament and Council Presidency negotiators reached political agreement in trilogue on the proposed Recovery and Resolution Directive (RRD). The Directive will enter into force on 1 January 2015 and will introduce the bail-in principle which will apply from 1 January 2016. The Directive now needs official approval by the Parliament and Council of the EU at first reading.

CS Takes the Sub Way

This is a link to an FT article explaining the changes currently being implemented by Credit Suisse to its legal structure in response to the resolution planning requirements of its main regulator.

FMLC Provides Additional Commentary on RRD

On 25 October 2013, the Financial Markets Law Committee (FMLC) published a second discussion document on the EU Commission’s General Approach to the proposed Recovery and Resolution Directive (RRD).

The document is generally supportive of the changes made within the General Approach, but highlights a few remaining areas of concern with respect to legal uncertainty, including those set out below:

• Bail-in: The RRD does not provide a set of principles to guide a resolution authority’s choice as to whether to convert debt to equity or whether to write-down debt.  In addition, contractual bail-in provisions may not operate in the same way as statutory bail-in provisions;
• Valuation:  It is unclear on what basis the valuation (which must be independent) is to be carried out, notwithstanding that Article 30 of the RRD provides that the valuation should be fair and realistic.  This drafting ambiguity gives rise to legal uncertainty as to the status of a resolution action which is taken when a valuation at the proscribed standard has not been carried out, owing to practical difficulty or impossibility; and
• General Resolution Powers:  Articles 56(1)(h) and 56(1)(l) of the RRD give a resolution authority the power to cancel or amend the terms of “debt instruments”.  However, this definition is wider than that of “capital instruments” – the term used to describe the instruments that are eligible to be ‘bailed-in’.

RRP for Non-Banks Moved Forward

On 22 October 2013, the EU Parliament updated it procedural file on the recovery and resolution framework for non-bank institutions.  The indicative first or single reading plenary session scheduled for 13 January 2014 has been moved forward to 9 December 2013.

DB Experience Highlights RRP Challenge

Risk Magazine has published an article in which Deutsche Bank highlights the issues it has experienced in complying with global recovery and resolution plan (RRP) requirements.

This is an all too common story.  The lack of guidance from regulators, absence of globally coordinated regulatory requirements and the move towards subsidiarisation combine to pose a significant challenge to firms which are subject to RRP rules.  From experience, the only real solution lies in the creation of a robust yet flexible data architecture, capable of serving up only that view of information which is necessary for the particular audience and with the capacity to adapt to meet future regulatory developments.