As result of the financial crisis, the EU carried out a significant reform of the regulatory framework for financial services to increase the resilience of financial institutions. This reform was largely based on the FSB standards on resolution regimes of financial institutions. Among its measures, in may 2014, the reform package included the adoption of a Directive on Restructuring and Resolution of Entities (BRRD) with the objective of solving problems of lack of solidity and unfeasibility of credit institutions and investment service companies.
In November 2016, the European Commission (EC) published a package of proposals for the reform of the BRRD that incorporated the international standards of total loss absorption capacity and recapitalization, with the aim of improving operational execution, strengthening competencies in internal recapitalization and avoiding legal uncertainty.
BRRD II – Directive 2019/879 (BRRD)
In this context, in June 2019 the European Parliament (EP) and Council published Directive (EU) 2019/879, amending the BRRD, in relation to the following areas: scope, definitions and authorities; preparation; regulation; and resolution of cross-border group.
Executive Summary
The EP and Council published the Directive (EU) 2019/879 amending the Directive 2014/59 /EU (BRRD), including amendments regarding several aspects covered in the BRRD.
Scope
The BRRD II lays down rules and procedures relating to the recovery and resolution of institutions that are established in the Union; financial institutions that are established in the Union when the financial institution is a subsidiary of a credit institution or investment firm; financial holding companies, mixed financial holding companies and mixed-activity holding companies that are established in the Union; parent financial holding companies in a Member State, Union parent financial holding companies, parent mixed financial holding companies in a Member State, Union parent mixed financial holding companies; and branches of institutions that are established outside the Union in accordance with the specific conditions laid down in this Directive.
Main content
This document includes the modifications led by the Directive (EU) 2019/879 or BRRD II:
- New definitions. New definitions are introduced, among which stand out, those of subordinate admissible instruments, resolution entity and resolution group.
- Restructuring and resolution planning. The resolution authorities (RA) at the group level will assess the resolvability of each resolution group. In addition, it is established that when entities do not meet the combined mattress requirements, the RA will have the power to ban an entity from distributing M-IMD.
- Resolvability. The evaluation of the obstacle to resolvability and the proposals for measures are established together with the application schedule proposed by the parent company in the EU to the RA at the group level.
- Objectives and conditions. The RA may take a resolution measure when a resolution group adjusts to the resolution conditions, also the conditions under which the payment or delivery obligations of the company can be suspended are established.
- Resolution tools. The limits of the RA on short term liabilities and group entities are established, as well as the criteria under which the RA must meet the minimum requirement of equity and eligible liabilities.
- Depreciation and conversion of capital instruments and eligible liabilities. Changes are made to the obligation and the provisions that regulate the depreciation or conversion of the relevant eligible capital instruments and liabilities. In addition, modifications are made regarding the responsible authorities for verification and the procedure of such controls.
- Resolution authorities. The obligation to include clauses by which the parties recognize that any financial contract may be subject to the exercise of the powers of the RA to suspend or restrict certain rights and obligations is introduced.
- Resolution of cross-border group. Modifications are introduced on the college of European Resolution Authorities stating that it will perform the functions and perform the tasks with respect to the entities and to the extent that these tasks are appropriate.
Download the technical note by clicking here (document available in spanish).