EBA public hearing on financial contracts under the BRRD

On the 8th May 2015, the European Banking Authority (EBA) opened its doors for a public hearing regarding financial contracts under the Bank Recovery and Resolution Directive (Directive 2014/59/EU) (BRRD). Members from the affected industries were invited to participate and question the provisions of the Consultation Paper- Draft RTS on a minimum set of the information on financial contracts that should be contained in the detailed records and the circumstances in which the requirement should be imposed (Article 71(8) BRRD), published by the EBA on 6 March 2015. The consultation closes on 06.06.2015.

Background

Article 71(1) of the BRRD sets out the power for resolution authorities to temporarily suspend the termination rights of any party to a contract with an institution under resolution. In order to assist the application of this power, Article 71(7) of the BRRD provides that competent authorities or resolution authorities may require an institution or relevant entity (referred to in point (b), (c) or (d) of Article 1(1) of BRRD) to keep detailed records of their financial contracts. The ultimate objective of these provisions is to ensure that all the necessary information needed for a timely resolution action is available and obtained in advance.

Article 71(8) of the BRRD mandates the EBA to develop and draft RTS which specify a number of components for the purposes of Article 71(7):

  • a minimum set of information on financial contracts that should be contained in the detailed records; and
  • the circumstances in which the requirement to maintain detailed financial records should be imposed on institutions and relevant entities (referred to in point (b), (c) or (d) of Article 1(1) of BRRD)

In accordance with the mandate, the EBA specifies the circumstances in which the requirement to maintain detailed records should be imposed (Article 2), and lists the information which should be kept at a minimum (Article 3 and the Annex) in the draft RTS.

RTS goals

The main objective of the RTS is to ensure that both competent and resolution authorities are able to access information for grounds arising under the BRRD, and to ultimately promote the effective and efficient application of the resolution tools and powers

Discussion points

The main concerns raised during the public hearing related to the broad definition of ‘financial contracts’ (Article 2(100) of the BRRD) and the implication and justification behind the recommended technological requirements requiring for information to be stored on a central relational database. The EBA representative, Laurynas Balciunas from the Resolution unit, confirmed that the maintenance of the information is not mandatory and that there is no automatic need to continually supply information, this being triggered only if requested by the competent authority.

Temporary suspension of termination rights was also discussed, in the context of whether temporary suspension would apply to both parties or solely to the reporting counterparty.

The EBA also confirmed that the Annex to the RTS does not represent a template but specifies the minimum set of information on financial contracts that should be included in the detailed records.

The EBA welcomes any additional questions, proposals or comments relating to the draft RTS to be submitted in writing, prior to the deadline of 06.06.2015.

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