SRB publishes approach for notifying impracticability to include bail-in recognition clauses in contracts

Updated guidance has been published on 25 October 2021, visit this page for more information.

The SRB has published today its policy on how banks can notify the authorities when bail-in recognition clauses cannot be added to contracts under third-country law. This explains how the SRB will apply, in practice, the rules set out in Article 55(2) BRRD and further detailed in the forthcoming delegated and implementing regulations based on the applicable Regulatory and Implementing Technical Standards.

Banks are required to include bail-in recognition clauses in relevant contracts under third country law to ensure that the liabilities under these contracts can be bailed in (written down or converted) in the event of resolution. However, banks may determine that it is impracticable to include a bail-in recognition clause in a particular contract. In that case, they need to notify their resolution authority. The resolution authority then assesses the notification and may require the inclusion of the clause.

The SRB has identified (based on Article 55(7) BRRD) four preliminary categories of liabilities, for which the impracticability notification and assessment are simplified. These are:

• Liabilities resulting from trade finance operations, under internationally agreed frameworks and protocols;
• Liabilities resulting from project finance activities, under official standardised terms;
• Liabilities to FMI service providers, where the services are provided on standard terms not susceptible to bilateral negotiation;
• Minor operating liabilities, arising from (non-critical) business operations, where the terms of the contract are set by the provider and not bilaterally negotiated.

It is banks’ responsibility to make themselves resolvable. This includes incorporating bail-in recognition clauses in all relevant liabilities that are out of scope of the impracticability regime. Liabilities that do not contain such clauses (for reasons of impracticability or otherwise) will not count towards minimum requirements for own funds and eligible liabilities (MREL).