Transposing the BRRD

28 09 2014

th-27Directive 2014/59/EU, or the Bank Recovery and Resolution Directive (BRRD), aims to ensure that the European Union (EU) effectively addresses the risks posed by the banking system. The BRRD contains 133 Recitals and stretches 132 Articles and it aims to create a harmonised framework across Europe for dealing with the problem of “too big to fail” through bank recovery and resolution. It entered into force on 2 July 2014 and establishes a common approach within the EU to the recovery and resolution of banks and investment firms. Article 130 (Transposition) exacts that the Member States shall adopt and publish by 31 December 2014 the laws, regulations and administrative provisions necessary to comply with the BRRD and that the text of those measures shall be communicated to the Commission and, save Section 5 (The bail-in tool) of Chapter IV (Resolution tools) which has an implementation deadline of 1 January 2016, the said measures shall apply from 1 January 2015.

As recorded in the initial recitals, the BRRD is firmly embedded in the belief that the financial crisis was of systemic dimension in the sense that it affected the access to funding of a large proportion of credit institutions. Therefore, in order to avoid failure, with consequences for the overall economy, such a crisis necessitates measures aiming to secure access to funding under equivalent conditions for all credit institutions that are otherwise solvent.

As a minimum harmonising directive,  the BRRD sets a threshold which national legislation must meet. However, the Member States are permitted to adopt or create rules that are additional to those laid down in the BRRD or in the technical standards adopted under it.

As neatly summarised by HM Treasury’s Consultation – which ends today – some aspects of the BRRD include:

  • A requirement for all deposit-takers and significant investment firms to have in place recovery plans for the institution or the group it is part of, designed to ensure that firms have credible plans in place to recover their financial position following a stress; and that the authorities could manage their failure in an orderly way.
  • The establishment of resolution authorities, with responsibility for planning for and managing the failure of banks and investment firms, and with the necessary tools to manage the failure of banks. This includes a bail-in tool, which allows the resolution authority to write down or cancel debt in a failing firm, and convert it in to equity.
  • A requirement to ensure that 8% of a bank’s liabilities are used to absorb losses and recapitalise a failing bank before public funds can be used to absorb losses.
  • Co-operation between the authorities in different Member States in order to effectively plan for and manage the failure of firms which operate across borders.
  • Protection for depositors – deposits covered by Deposit Guarantee Schemes (such as the FSCS) are excluded from bail-in and will also be preferred liabilities. The introduction of depositor preference will ensure that these deposits, and the deposits of natural persons and SMEs, will be senior to other unsecured liabilities of the bank in the event of insolvency.
  • A framework for cooperating with third countries on resolution planning.
  • The establishment of resolution financing arrangements which will help ensure that the resolution tools can be used effectively. The Directive allows the UK to use the existing bank levy as the resolution financing arrangement.

The BRRD establishes a framework for the recovery and resolution of credit institutions and investment firms across the EU. Moreover, the policy objectives behind this legislation are to (1) maintain financial stability and confidence in the banking sector (2) minimise the loss to society from banking crises and (3) reduce the moral hazard and strengthen the EU internal market. Credit institutions, investment firms with a minimum capital of EUR 730,000, certain financial institutions, financial holding companies, mixed financial holding companies and mixed-activity holding companies fall within the ambit of the BRRD.

HM Treasury’s consultation (highlighted above) poses a total of 30 questions and does not attempt to cover all aspects of transposition and elicits views on key aspects of transposition, particularly in areas where a policy choice remains in implementation.

As regards the above consultation, other important documents include:

Other Consultations

The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) have their own consultations on the BRRD:


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