On 15 October 2020, HM Treasury published its response to the consultation on the transposition of the revised Bank Recovery and Resolution Directive (BRRD II).
Key points in the response include:
- HM Treasury is transposing BRRD II either via secondary legislation or regulator rules, in line with its previous approach to the transposition for BRRD.
- The two provisions HM Treasury is intending to transpose into regulatory rules includes the new Article 44a of BRRD II using FCA rules. HM Treasury is also intending to transpose the new Article 71a by simply including the new pre-resolution moratorium power within the definition of ‘crisis management measure’ in the Banking Act 2009. This will mean that no changes of substance are required to the PRA’s stay rules, and so will not require firms that are already compliant with the PRA’s stay rules to repaper contracts.
- HM Treasury is not intending to implement the requirements of the BRRD II that do not need to be complied with by firms until after the transition period, in particular Article 1(17) which revises the framework for MREL requirements across the EU. The UK already has in place a MREL framework in line with international standards (the Financial Stability Board’s total loss absorbency capacity standards).
- HM Treasury is intending to include sunset clauses in its secondary legislation transposing BRRD II for the following provisions that will cease to have effect in the UK from 1 January 2021:
- Article 1(6) of BRRD II which inserts a new Article 16a in BRRD to provide the resolution authority with the power to prohibit an entity from distributing more than the ‘Maximum Distributable Amount’ relating to the minimum requirement for own funds and eligible liabilities (M-MDA), where the entity fails to meet the combined buffer requirement, subject to certain conditions. The article also sets out the way in which the M-MDA should be calculated.
- Article 1(12), which inserts a new Article 33a in BRRD to introduce a pre-resolution moratorium power. The inclusion of the pre-resolution moratorium power within the definition of ‘crisis management measure’ in the Banking Act 2009 will also be sunsetted.
- Article 1(20) of BRRD II which introduces Article 48(7) of BRRD, making changes to priority of debts in insolvency.
- Article 1(21) of BRRD II, which updates Article 55 of BRRD on the contractual recognition of bail-in. The existing PRA Rules on contractual recognition of bail-in (CROB) will be revoked from 28 December for the remainder of the transition period and new PRA Rules will have effect from 1 January 2021. The PRA will conduct a public consultation on changes to PRA Rules on CROB.
- Article 1(30) which amends the existing in-resolution moratorium power under Article 69 of BRRD.
The draft statutory instrument for BRRD II, The Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020, has been published on legislation.gov.uk together with a draft explanatory memorandum.