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ISDA Launches BRRD Bail-in Protocol

ISDA Launches BRRD Bail-in Protocol

ISDA Launches BRRD Bail-in Protocol

19.12.2016 NL law

The International Swaps and Derivatives Organisation (ISDA) has launched a new protocol in connection with implementation of the Bank Recovery and Resolution Directive (BRRD).

Article 55 of the BRRD obliges in-scope entities to include a contractual term in agreements creating any relevant liability governed by the law of a third country to ensure their creditors agree to recognize any bail-in of those liabilities. The ISDA 2016 Bail-in Article 55 BRRD Protocol, published in July (the Protocol), will allow Dutch entities to meet the requirements of Article 55 of the BRRD.

The BRRD came into force on 2 July 2014 and was required to be implemented in EU member states by 1 January 2015. The bail-in tool was required to be implemented from 1 January 2016. The BRRD provides EU authorities with a variety of tools to deal with failing banks in Europe, including the ability to bail-in certain liabilities. Regulatory technical standards on Article 55 were published in the Official Journal of the EU on 8 July and came into effect on 28 July.

The Protocol offers market participants an efficient way to amend the terms of certain ISDA Master Agreements and other master agreements, framework agreements and give-up and execution agreements (as further described in the Protocol) (ISDA Agreements) to reflect the requirements of Article 55 of the BRRD as implemented in a number of EU jurisdictions, including the Netherlands.

Article 55 of the BRRD requires in-scope entities to include a contractual term in agreements creating any relevant liability governed by a third country (i.e. non-EU or non-EEA) law to ensure the creditor recognizes that the liability may be subject to the exercise of write-down and conversion powers (bail-in) under the BRRD and agrees to be bound by any such bail-in, provided that such liability is not an excluded liability or an excluded deposit. The Protocol aims to permit in-scope Dutch, French, German, Irish, Italian, Luxembourg, Spanish and UK entities to comply with this requirement in relation to their ISDA Agreements.

Consequently, the impact of the Protocol language is to include an acknowledgement and acceptance on the part of parties to an ISDA Agreement of the possibility that the liabilities arising under such agreement may be subject to bail-in by the relevant resolution authority. The Protocol further includes an acknowledgement and acceptance by the parties to an ISDA Agreement that they will be bound by the exercise of any bail-in power by the relevant resolution authority in respect of all transactions (or all transactions relating to one or more netting sets, as applicable) under such agreement.

Market participants can sign up to the Protocol by means of execution of an adherence letter which can be found on the Protocol Management section of the ISDA website: http://www2.isda.org/functional-areas/protocol-management/open-protocols/. The answers to a number of frequently asked questions  in relation to the Protocol can also be found on the ISDA website: http://www2.isda.org/functional-areas/protocol-management/faq/28.

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