The EBA Draft RTS Contractual Recognition of Stay Powers: An Overview
The European Banking Authority (EBA) recently published a draft regulatory technical standard (RTS) on the contractual recognition of stay powers in financial contracts under the Bank Recovery and Resolution Directive (BRRD).
The BRRD was adopted in 2014 as a response to the financial crisis of 2008, with the aim of ensuring that banks and other financial institutions can be resolved in an orderly and predictable manner, without triggering systemic risk or taxpayer bailouts. One of the key tools under the BRRD is the power to impose a temporary stay on the exercise of certain contractual rights by counterparties of a failing institution, in order to give the resolution authority time to take action to restore the institution`s viability or to wind it down in an orderly manner.
The effectiveness of this tool depends on the ability of the resolution authority to enforce the stay on counterparties that are located in other jurisdictions or that have not agreed to the terms of the resolution plan. To address this issue, the BRRD requires that financial contracts contain a contractual recognition of the stay powers, which means that the counterparties agree to be bound by the stay in accordance with the laws of the jurisdiction where the institution is located.
The EBA`s draft RTS sets out the detailed requirements for the contractual recognition of stay powers, with the aim of ensuring a consistent and harmonized approach across the EU. The main provisions of the draft RTS include:
– Scope: The RTS covers all financial contracts that are subject to the BRRD, including derivatives, securities financing transactions, and other contracts that involve the transfer of financial instruments or cash.
– Content: The RTS specifies the mandatory and optional clauses that must be included in the contractual recognition of stay powers, such as the application of the stay to all relevant transactions, the acknowledgment of the resolution authority`s powers, and the waiver of certain contractual rights.
– Timing: The RTS requires that the contractual recognition of stay powers be included in new financial contracts that are entered into after the entry into force of the BRRD, and that existing contracts be amended by agreement or by a novation process to include the clauses.
– Formalities: The RTS sets out the requirements for the form, language, and signature of the contractual recognition of stay powers, as well as the notification of the counterparties and the resolution authority.
The draft RTS is open for consultation until 6 September 2021, and is expected to be finalized by the end of the year. Once approved, it will become binding on all financial institutions subject to the BRRD and their counterparties. Compliance with the RTS will require significant efforts by the industry, in terms of contract review, negotiation, and amendment, as well as operational and IT changes to ensure the timely and accurate enforcement of the stay powers.
In conclusion, the EBA`s draft RTS on the contractual recognition of stay powers is a crucial step in strengthening the effectiveness of the BRRD`s resolution tools, and in enhancing the resilience and stability of the EU banking system. The compliance challenges should not be underestimated, but the benefits of a harmonized and enforceable regime for the recognition of stay powers are likely to outweigh the costs in the long run. Copy editors experienced in SEO can play a key role in facilitating the communication and understanding of the RTS to the industry and the public, and in ensuring that the relevant keywords and phrases are used in the article for optimal visibility and search engine ranking.