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Proposed EU framework for bank recovery and resolution

 

The proposed framework draws heavily on the Special Resolution Regime set out in the UK's Banking Act 2009, which in turn has borrowed from the US resolution model provided for in the Federal Deposit Insurance Act. Allen & Overy has today submitted a response to that consultation. The response includes discussion of the wider issues surrounding possible statutory proposals for bail-in.

We support the Commission's efforts, which we consider to be ambitious, to establish an effective regime to deal with the failure of cross-border financial institutions and we endorse the high degree of transparency and dialogue the Commission has had with stakeholders. Our response does highlight a number of key concerns with the proposals, each underpinned by several key principles on which any such regime should be founded, including that it should:

  • have predictable outcomes;
  • not interfere with contractual and property rights except only to the minimum extent necessary;
  • not disturb the bankruptcy ladder of priorities or pari passu treatment of creditors within each step of that ladder;
  • be transparent, with appropriate checks and balances for the authorities' actions; and
  • be procedurally fair, with appropriate options for recourse.

Concerns exist around the way in which groups (particularly cross-border groups) will be supervised and resolved, the scope of any 'safeguards' to protect collateral arrangements and set-off and netting arrangements, and interaction with the regulators and regimes of other (non-EEA) jurisdictions. We are pleased that the Commission has sought to encourage debate on the legally complex issues surrounding bail-in and we welcome the Commission's proposal for a full impact study in this area.

Allen & Overy's response to the European Commission's consultation is available to read here.

 

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