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Poland: Concerns regarding the Polish implementation of BRRD

On 9 October 2016 Poland finally implemented Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms (BRRD). However, numerous concerns exist regarding the provisions of the Act on the Bank Guarantee Fund, Deposit Guarantee Schemes and Mandatory Recovery dated 10 June 2016 (J. L. 2016, item 996) (the Resolution Act) implementing BRRD. In particular, market participants are concerned whether the Resolution Act accurately implements BRRD provisions regarding the contractual recognition of bail-in. 

Contractual recognition of bail-in in BRRD 

Under Article 55 of BRRD, EU banks and certain investment firms are required to ensure that agreements creating liabilities for such institutions include provisions:

  • recognising write-down and conversion powers under legislation implementing BRRD; and
  • accepting any reduction in the principal or outstanding amount due or their conversion or cancellation resulting from the exercise of those powers.

Requirements regarding the contractual recognition of bail-in set out in Article 55 of BRRD apply only to liabilities: (i) governed by the law of a third country, ie non-EU law; and (ii) which do not qualify as certain excluded liabilities, such as deposits covered by deposit guarantee schemes.

Concerns regarding contractual recognition of bail-in in the Resolution Act

The provisions of BRRD on the requirements for the contractual recognition of bail-in have been implemented in Article 222 of the Resolution Act. However, the Polish implementation does not specify that Article 222 applies only to liabilities governed by the laws of a third country. Consequently, its wording may suggest that all liabilities, other than certain excluded liabilities, will include provisions regarding the contractual recognition of bail-in. This view has already been opposed by certain market participants on a number of grounds, including the wording of BRRD, which unequivocally indicates that the restrictions apply only to liabilities governed by the laws of third countries. 

However, on 10 November 2016 the Polish regulator released a letter in which it adopts the literal interpretation of Art. 222 of the Resolution Act. This approach indicates that the array of liabilities to which requirements regarding contractual recognition of bail-in apply has been substantially broadened in the Resolution Act when compared to the restrictions set out by BRRD. As a result, Polish financial institutions would be subject to significantly more stringent regulations than their European counterparts. 

Further information

This case summary is part of the Allen & Overy Legal & Regulatory Risk Note, a quarterly publication.  For more information please contact Karen Birch karen.birch@allenovery.com, or tel +44 20 3088 3710. 

Legal and Regulatory Risk Note
Europe

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