Published on 29 June 2016
The contractual recognition of bail-in: amendments to Prudential Regulation Authority rules - PS17/16
This Prudential Regulation Authority (PRA) policy statement (PS) provides feedback on responses to Consultation Paper (CP) 8/16 ‘The contractual recognition of bail-in: amendments to Prudential Regulation Authority rules’. It sets out the final rules and supervisory statement (SS) intended to implement Article 55 of the Bank Recovery and Resolution Directive (BRRD). The rules will come into force on 1 August 2016, rather than 1 July as anticipated in CP8/16.
Article 55 requires firms to include in certain non-EU law contracts governing liabilities a term by which the relevant creditor or party to the contract recognises that the liability may be bailed in by the Bank of England as resolution authority.
his PS is relevant to BRRD undertakings to which the Contractual Recognition Part of the PRA Rulebook applies.
The final rule and SS7/16 address the broad scope of the contractual recognition requirement and acknowledge that the inclusion of contractual recognition language is in some instances impracticable. The amendments to the PRA Rulebook follow a modification by consent issued by the PRA in November 2015. The modification provided an interim solution while the consultation was carried out. The modification originally disapplied the contractual recognition requirement for the 1 January 2016 to 30 June 2016 period for ‘phase 2’ liabilities where compliance with the requirement was impracticable. The PRA has extended the modification by one month until 31 July 2016 – firms will be contacted to confirm whether they wish to have the extension applied.
PRA RULEBOOK: CRR FIRMS AND NON-AUTHORISED PERSONS: CONTRACTUAL RECOGNITION OF BAIL-IN INSTRUMENT 2016
Published on 15 March 2016
The contractual recognition of bail-in: amendments to Prudential Regulation Authority rules - CP8/16
In this consultation paper (CP) the Prudential Regulation Authority (PRA) puts forward proposals to amend the Contractual Recognition of Bail-In Part of the PRA Rulebook, along with a draft supervisory statement reflecting the PRA’s expectations. The proposals are consistent with the modification by consent published by the PRA in November 2015.
This CP is relevant to Bank Recovery and Resolution Directive (BRRD) undertakings to which the Contractual Recognition Part of the PRA rulebook applies, hereafter referred to as ‘BRRD firms’.
Current PRA rules on contractual recognition require BRRD firms to include in non-EU law contracts governing liabilities a term by which the creditor recognises that the liability may be bailed in by the Bank of England as resolution authority. The rules implement Article 55 of the BRRD.
The contractual recognition requirement is designed to ensure the effectiveness of the bail-in tool in a cross-border resolution and to promote equal treatment between EU and third-country liability holders. The requirement is in line with the Financial Stability Board’s (FSB) international standard for effective resolution regimes (the Key Attributes). The BRRD and the United Kingdom implementing legislation are designed to reflect the Key Attributes.
The scope of current PRA rules on contractual recognition is broad and there may be circumstances where BRRD firms find compliance with the requirement impracticable. To address such concerns, the PRA published a modification by consent which disapplies the rules for a subset of liabilities where compliance is impracticable and where BRRD firms have notified the PRA that they consent to the modification. The modification expires on 30 June 2016.
Summary of proposals
The PRA proposes to amend its rules to disapply the contractual recognition requirement for ‘phase 2’ liabilities (those liabilities other than unsecured debt instruments) where the inclusion of such language is impracticable.
The PRA also proposes three technical amendments to PRA rules to ensure consistency between the rules and the final draft European Banking Authority Regulatory Technical Standards on the contractual recognition of bail-in due to be adopted shortly by the European Commission.
The PRA proposes that the amended rules apply from 1 July 2016.
This consultation closed on Monday 16 May 2016.