ISDA has prepared this list of frequently asked questions to assist in your consideration of the ISDA 2017 Bail-in Article 55 BRRD Protocol (Austrian/Belgian/Danish/Swedish entity-in-resolution version) (the “Protocol”).
The Protocol offers market participants an efficient way to amend the terms of certain ISDA Master Agreements and certain other master agreements, framework agreements and give-up and execution agreements as further described in the Protocol (together, “Other Agreements”) to reflect the requirements of Article 55 of the EU Bank Recovery and Resolution Directive (“BRRD”) and the related Article 55 RTS (as defined below) as implemented in the relevant jurisdiction. 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, if the implementation of Article 55 of the BRRD in the relevant jurisdiction extends to liabilities governed by non-EEA law, non-EEA) law whereby the creditor recognises 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 Austrian, Belgian, Danish and Swedish entities to comply with this requirement in relation to their ISDA Master Agreements and Other Agreements.
Consequently, the impact of the Protocol language is to include an acknowledgement and acceptance on the part of parties to an ISDA Master Agreement or Other 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 Master Agreement or Other 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.
ISDA has not diligenced the compatibility of the wording in the Attachment to the Protocol with non-ISDA sponsored agreements. To the extent that Adhering Parties wish to use the Protocol to amend Other Agreements, they should consequently carry out their own due diligence on such agreements to ensure compatibility. Pursuant to Article 55 of the BRRD, contractual recognition of bail-in wording must be included in all in-scope liabilities governed by a third country law. ISDA has not obtained legal advice in respect of whether the Protocol wording is effective and enforceable in all third country jurisdictions. Market participants are, consequently, advised to obtain legal advice in respect of the governing law of each relevant liability to ensure that the Protocol wording is effective and enforceable in such jurisdictions.
THESE FREQUENTLY ASKED QUESTIONS DO NOT PURPORT TO BE AND SHOULD NOT BE CONSIDERED A GUIDE TO OR AN EXPLANATION OF ALL RELEVANT ISSUES OR CONSIDERATIONS IN CONNECTION WITH THE PROTOCOL. PARTIES SHOULD CONSULT WITH THEIR LEGAL ADVISERS AND ANY OTHER ADVISER THEY DEEM APPROPRIATE PRIOR TO USING OR ADHERING TO THE PROTOCOL. ISDA ASSUMES NO RESPONSIBILITY FOR ANY USE TO WHICH ANY OF ITS DOCUMENTATION OR OTHER DOCUMENTATION MAY BE PUT.
These FAQs address questions under the following general headings:
- What does the Protocol do?
- What agreements does the Protocol cover?
- How to sign up to the Protocol.
- Specific questions on amendment language.
1. What does the Protocol do?
The Protocol offers market participants an efficient way to amend the terms of certain ISDA Master Agreements and Other Agreements (as defined above) as further described in the Protocol to reflect the requirements of Article 55 of the BRRD and the related Article 55 RTS (as defined below) as implemented in the relevant jurisdiction. We note that liabilities created under “master or framework agreements” governing multiple liabilities are specifically contemplated in the Article 55 RTS. The impact of the Protocol language is that the parties to an ISDA Master Agreement or Other Agreement:
- provide an acknowledgement and acceptance of the possibility that certain liabilities arising under such agreement may be subject to the exercise of bail-in (as defined above) by the relevant resolution authority; and
- agree 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.
2. What agreements does the Protocol cover?
The Protocol is limited to ISDA Master Agreements and Other Agreements. It amends any existing ISDA Master Agreements and Other Agreements, unless (i) the parties agree bilaterally that the Protocol does not apply, or (ii) the parties have already entered into alternative written arrangements that document the substance of the issues covered in the Attachment to the Protocol. The Protocol will not apply if (i) the relevant resolution authority determines that in-scope liabilities may be subject to bail-in pursuant to the law of the third country governing such liabilities or a binding agreement concluded with such third country and the relevant implementing legislation has been amended to reflect such determination; and/or (ii) the relevant implementing legislation has been repealed or amended in such a way as to remove the requirement for contractual recognition of bail-in.
Future ISDA Master Agreements and Other Agreements will not be amended unless the parties agree bilaterally to make them subject to the terms of the Protocol. To do so, parties should consider including language that incorporates the Protocol by reference. Sample language is provided for ISDA Master Agreements in Section 4 below.
Where ISDA Master Agreements or Other Agreements are secured, guaranteed or otherwise supported by a third party and consent, approval, agreement, authorization or other action by such third party is required for amendments to be made to such third-party agreements, such third-party agreements are not Covered Protocol Agreements unless such consent, approval, agreement, authorization or other action has been obtained.
ISDA has not diligenced the compatibility of the wording in the Attachment to the Protocol with non-ISDA sponsored agreements. To the extent that Adhering Parties wish to use the protocol to amend Other Agreements, they should consequently carry out their own due diligence on such agreements to ensure compatibility.
3. How to sign up to the Protocol
Is there a closing date for adherence to the Protocol?
There is currently no cut-off date for adherence, but ISDA reserves the right to designate a cut-off date for adherence to the Protocol by giving 30 days’ notice on this site.
How do I submit my Adherence Letter?
Each entity executing an Adherence Letter will access the Protocol Management section of the ISDA website at www.isda.org to enter information online that is required to generate its form of Adherence Letter. Either by directly downloading the populated Adherence Letter from the Protocol Management system or upon receipt via e-mail of the populated Adherence Letter, the entity must print, sign and upload the signed Adherence Letter as a PDF (portable document format) attachment into the Protocol Management system. Once the signed Adherence Letter has been approved and accepted by ISDA, the Protocol adherent will receive an e-mail confirmation of the adherent’s adherence to the Protocol.
ISDA keeps the executed copy of the Adherence Letter for its files and does not share the executed copy with anyone else. Please do not send your original Adherence Letter(s) by mail to ISDA.
Can entities that are not ISDA members sign up to the Protocol?
Yes. The Protocol is open to any entity. ISDA members and non-ISDA members may adhere to the Protocol in the same way.
What is a conformed copy?
A conformed copy of the Adherence Letter means that the name of the authorized signatory (for example, Patricia Smith) is typed rather than having Patricia Smith’s actual signature on the letter. ISDA only posts on its website the conformed copy of all Adherence Letters. A conformed copy of each Adherence Letter containing, in place of each signature, the printed or typewritten name of each signatory will be published by ISDA so that it may be viewed by all participants.
Who is an authorized signatory?
An authorized signatory to the Adherence Letter is an individual who has the legal authority to bind the adhering institution.
Can I change the text of the Adherence Letter?
No. The Adherence Letter must be in the same format as the form of letter published in the Protocol and generated by the Protocol Management webpage.
Are there any costs to adhere to the Protocol?
Yes. Each party adhering to the Protocol must submit a one-time fee of USD$500 to ISDA at or before the submission of its Adherence Letter.
Each individual legal entity is considered a separate Adhering Party for this purpose and would need to pay the adherence fee, except that an Investment/Asset Manager/Agent that adheres on behalf of one or more underlying funds or principals for whom it has entered into a Protocol Covered Agreement, using a single Adherence Letter, would only pay a single adherence fee for that Adherence Letter.
Adhering Parties should review the documents to be amended (i.e. the Protocol Covered Agreements) to identify the entity that signed the documents, and the capacity in which such entity signed the documents, to determine which entity submits the Adherence Letter. For example, if a parent company/agent has signed the agreement on behalf of all entities within the group, then only the parent company/agent needs to adhere. However, if each group entity has its own agreement in place which it has itself executed as principal, then each such entity would need to adhere.
Can I revoke my participation in the Protocol?
Once an Adherence Letter has been accepted by ISDA, an Adhering Party is bound by all amendments with other parties that have already adhered to the Protocol or, subject to the discussion below, that adhere before a designation of the Annual Revocation Date.
An Adhering Party may, at any time during the period from October 1 to October 31 of a calendar year, deliver to ISDA a notice specifying the Annual Revocation Date as its cut-off date in respect of amendments with future Adhering Parties. The effect of such a letter will be to withdraw adherence for future Adhering Parties as of December 31 in that calendar year. Although amendments already made will not be revoked, any subsequent adherence by new Adhering Parties after the designated Annual Revocation Date will not bind the party that has submitted a Revocation Notice.
You can, however, bilaterally agree to amend your ISDA Master Agreement or Other Agreement with your counterparty (the other Adhering Party), and any such subsequent amendments will supersede those made by the Protocol to the extent that they are inconsistent.
Am I required to adhere to the Protocol?
No. Adherence to the Protocol is voluntary.
When will the Protocol become effective?
The Protocol will become effective between any two Adhering Parties on the Implementation Date, i.e. the date of online delivery to ISDA, as agent, of an Adherence Letter by the later of such two Adhering Parties to adhere.
Will the Protocol apply to all of my ISDA Master Agreements and Other Agreements if I adhere or just certain of them? Can I specify which agreements the Protocol applies to?
If you adhere, the Protocol will apply to all ISDA Master Agreements and Other Agreements between you and any other Adhering Party that are entered into on or prior to the Implementation Date provided that such agreements are governed by the law of a non-EU member state (or, if the implementation of Article 55 of the BRRD in the relevant jurisdiction extends to liabilities governed by non-EEA law, such agreements are governed by non-EEA law).
Parties may subject any ISDA Master Agreements or Other Agreements entered into subsequent to the Implementation Date to the Protocol by using language that incorporates the Protocol by reference. For example, Adhering Parties could use the following language to reflect that their ISDA Master Agreement is subject to the Protocol:
"The terms of the ISDA 2017 Bail-in Article 55 BRRD Protocol (Austrian/Belgian/Danish/Swedish entity-in-resolution version) are incorporated into and form part of this Agreement, and this Agreement shall be deemed a Covered ISDA Master Agreement for purposes thereof. In the event of any inconsistencies between this Agreement and the Protocol, the Protocol will prevail."
Can I adhere to only part of the Protocol?
No. Adhering Parties must adhere to the Protocol in its entirety.
SPECIAL CONSIDERATIONS FOR INVESTMENT/ASSET MANAGERS
What if I am an investment or asset manager, and not all of my discretionary management agreements permit me to amend my client’s agreements?
If you are an investment or asset manager and act on behalf of multiple funds (each referred to here as a “client”), you may sign the Adherence Letter using one of the options below.
If you have authority to adhere on behalf of all of your clients but do not wish to identify them on the Adherence Letter, you may do so by selecting “[Investment/Asset Manager] acting on behalf of each fund, account and/or other principal” from the dropdown under “Adherence Type” and naming the Investment/Asset Manager/Agent. Standard language “acting on behalf of each fund, account and/or other principal listed in each Protocol Covered Agreement (or other agreement which deems a Protocol Covered Agreement to have been created) entered into between it (as Agent) and another Adhering Party or provided by or received by it (as Agent) from or to another Adhering Party” will be provided for you.
If you do not have authority from all your clients (or do have authority from all your clients and wish to identify them), you can adhere on behalf of those clients whose permission you have by selecting “[Investment/Asset Manager] acting on behalf of each fund, account and/or other principal it represents” and naming the Investment/Asset Manager/Agent. Standard language “acting on behalf of each fund, account and/or other principal (a) identified to each relevant Adhering Party, or (b) listed in the appendix to this Adherence Letter in relation to each Protocol Covered Agreement (or other agreement which deems a Protocol Covered Agreement to have been created) entered into between it (as Agent) on behalf of such fund, account or other principal to or from another Adhering Party” will be provided for you. You must then list the fund name(s) by either naming each in the field provided (“Name of Fund”) or selecting “Add more than 10 funds” and downloading a list of these funds.
The appendix/attachment to your Adherence Letter can either name the clients, or identify them with a unique identifier which will be known and recognized by all other Adhering Parties with which the relevant clients have entered into transactions. The appendix/attachment to your letter will be posted on the ISDA website with your Adherence Letter listing the clients or, if you have more than ten clients, we will add a link to a document listing these clients. You will be responsible for identifying the relevant clients on whose behalf you are adhering.
If you are using the second method above, any Protocol Covered Agreements which you enter into on behalf of clients that are not listed in your Adherence Letter(s) or appendix/attachment thereto will not be covered by the Protocol. If you wish to implement the changes contained in the Protocol in those Protocol Covered Agreements, then you and the relevant counterparty would need to enter into a bilateral agreement to amend those Protocol Covered Agreements to include those changes.
If (a) you do not have authority from any of your clients or (b) you have authority from some clients only but you are not able to disclose such clients whether by name or a unique identifier, you cannot adhere to the Protocol on behalf of any such clients. In this case, you will need to enter into a bilateral amendment agreement with each relevant counterparty listing the clients whose Protocol Covered Agreement(s) with that counterparty will be amended by incorporating the amendments made by the Protocol.
If you wish to adhere on behalf of clients, you must ensure that you have the authority to do so from all clients on whose behalf you enter into transactions covered by the Protocol.
If you add a client to an umbrella master agreement after the date you adhere to the Protocol on behalf of your clients (whether that client was an existing client on, or a client acquired after, the Implementation Date) that client will be added to that umbrella master agreement as amended by the Protocol, unless otherwise agreed.
If I am an investment or asset manager, can I simultaneously adhere for myself, as principal, and on behalf of my clients, as agent?
No. You must submit one adherence letter for yourself, as principal, and a second adherence letter on behalf of your clients, as agent, in the latter case, in accordance with the above options.
4. Specific questions on amendment language
What determines the contents of the term required under Article 55 of the BRRD? What should an Article 55 provision say?
Article 55(3) of the BRRD mandates the EBA to develop draft regulatory technical standards (“RTS”) in order to further determine, amongst other things, the contents of the term required under Article 55 (the “Article 55 RTS”). The Article 55 RTS, therefore, set out the detail in respect of the contents of the contractual term required. The Article 55 RTS have been published in the Official Journal of the EU and are directly applicable in Member States from 28 July 2016.
Do I have to agree to the termination and valuation of derivatives liabilities by the relevant resolution authority pursuant to Article 55 of the BRRD?
To address the concern that netting arrangements relating to derivatives liabilities could potentially be disrupted by bail-in, Article 49 of the BRRD provides that only the net close-out amount can be bailed in. Consequently, upon resolution, resolution authorities are empowered to value, terminate and close out “derivative contracts”. Article 49 of the BRRD and the related Article 49 RTS provide the detail in respect of the process for valuation of derivatives contracts when resolution authorities apply bail-in to derivatives liabilities.
The Article 55 RTS do not specifically require an acknowledgement and acceptance by the creditor counterparty that derivatives liabilities may be terminated and valued by the relevant resolution authority upon a bail-in. However, in practice, the BRRD provides that termination and other rights will be stayed for a short period of time and/or be permanently overridden (to the extent that such rights relate to the resolution or are directly linked to the resolution) provided that the contractual payment and delivery obligations and the provision of collateral continue to be performed. Any event of default that may otherwise have been triggered under, for example, an ISDA Master Agreement upon the use of a resolution tool is, therefore, likely to be suspended and/or overridden as a result of the application of the BRRD (as implemented in the relevant jurisdiction). Consequently, only the relevant resolution authority is likely to be able to terminate and value derivatives liabilities upon a bail-in.
Whilst the right of the relevant resolution authority to terminate and value derivatives liabilities in the context of a resolution is not specifically acknowledged in the Protocol, the creditor counterparty is required to agree pursuant to the Protocol (as mandated by the Article 55 RTS) that the terms of the relevant agreement may be varied as necessary to give effect to the exercise by the relevant resolution authority of its write-down and conversion powers. Such wide ranging variation powers would include the power to vary the relevant agreement to provide that the relevant resolution authority could terminate and value derivatives liabilities.
When will the Article 55 requirement apply?
The Article 55 requirement will, broadly speaking, apply to relevant “liabilities” which are:
(a) Governed by a third country law (i.e. non-EU law) (or, if the implementation of Article 55 of the BRRD in the relevant jurisdiction extends to liabilities governed by non-EEA law, non-EEA law).
(b) Entered into or issued by certain in-scope entities: Namely, EU credit institutions (i.e. banks or building societies); certain EU investment firms; EU financial institutions that are subsidiaries of credit institutions, certain investment firms or certain holding companies; or EU financial holding companies, mixed financial holding companies, mixed-activity holding companies, parent financial holding companies or parent mixed financial holding companies (all as defined in the BRRD). Implementation of the BRRD scope requirements may vary in different jurisdictions.
Note that, unlike other provisions of the BRRD, Article 55 will not apply to EU branches of third country credit institutions or investment firms.
The BRRD will be incorporated into the EEA financial services agreement so that it applies to Norway, Iceland and Liechtenstein (from the date of such incorporation, references to “EU” in this paragraph (b) above can be construed as references to “EEA”).Note that certain member states have implemented the BRRD on the basis that it applies within the EEA and not applied a transitional provision to apply their rules only in the context of the EU.
(c) Entered into or issued after the relevant implementation date: The relevant implementation date is the date on which the provisions relating to the bail-in tool are implemented in the jurisdiction in which the relevant entity is incorporated. However, the requirement can also apply to existing master and framework agreements (see further below).
Member states are required to implement Article 55 of the BRRD into their national law by 1 January 2016 at the latest.
The Article 55 RTS provide that the requirement will apply to liabilities issued or entered into after the date of application of the relevant provisions of the BRRD which are:
(a) liabilities created after that date regardless of whether they are created under relevant agreements entered into before that date, including under master or framework agreements between the contracting parties governing multiple liabilities;
(b) liabilities created before or after that date under relevant agreements entered into before that date and which are subject to material amendment;
(c) liabilities under debt instruments issued after that date; and
(d) liabilities under debt instruments issued before or after that date under relevant agreements entered into before that date and which are subject to a material amendment.
“Material amendment” has been defined as an amendment to a relevant agreement which is “an amendment, including an automatic amendment, made after [the relevant date] and affecting the substantive rights and obligations of a party to a relevant agreement; amendments which do not affect the substantive rights and obligations of a party to a relevant agreement include a change to the contact details of a signatory or the addressee for the service of documents, typographical changes to correct drafting errors or automatic adjustments of interest rates”.
Which are not excluded liabilities or excluded deposits: The list of excluded liabilities is set out in Article 44(2) of the BRRD and includes “secured liabilities”.
Secured liabilities are defined in the BRRD as “liabilities secured by a charge, pledge or lien or collateral arrangements including liabilities arising from repurchase transactions and other title transfer collateral arrangements” and are out of scope (although not in respect of any “excess” over the value of the security).
However, the Article 55 RTS provide that “a secured liability shall not be considered as an excluded liability where, at the time at which it is created, it is: (a) not fully secured; or (b) fully secured but governed by contractual terms that do not oblige the debtor to maintain the liability fully collateralised on a continuous basis in compliance with regulatory requirements of Union law or of a third country law achieving effects that can be deemed equivalent to Union law”. “Regulatory requirements” is not defined.
The term “liability” is not defined in the BRRD but may be defined in the relevant member state implementing rules. The above description of application is based on Article 55 of the BRRD and the Article 55 RTS. The national implementing rules in each relevant jurisdiction will also be relevant.
Why does the Protocol only cover Austrian, Belgian, Danish and Swedish in-scope entities-in-resolution?
As mandated by the Article 55 RTS, the Protocol has been drafted to provide a description of the write-down and conversion powers of the relevant resolution authority in accordance with the national law transposing Section 5 of Chapter IV of Title IV of the BRRD, or where applicable, under Regulation (EU) No 806/2014 of the European Parliament and of the Council (the “SRM Regulation”). The national laws covered by the Protocol include those in respect of which final implementing rules were available at the time the Protocol was drafted and the four countries (Austria, Belgium, Denmark and Sweden) were highlighted by members of the ISDA working group as priorities after the launch of the first protocol for Dutch, French, German, Irish, Italian, Luxembourg, Spanish and UK entities in July 2016.
What if EU resolution regimes implementing the BRRD (other than the Austrian, Belgian, Danish or Swedish regime) also require the contractual recognition of bail-in?
The ISDA 2016 Bail-in Art 55 BRRD Protocol (Dutch/French/German/Irish/Italian/Luxembourg/Spanish/UK entity-resolution version) was launched in July 2016 to allow market participants to amend the terms of certain ISDA Master Agreements and Other Agreements (as defined above) to reflect the requirements of Article 55 of the BRRD as implemented in those jurisdictions. Click here to access.
To the extent that the implementing rules in any other member state jurisdiction(s) require parties to contractually recognise bail-in, then in-scope entities will not be able to comply with such requirements by signing the Protocol or the ISDA 2016 Bail-in Art 55 BRRD Protocol (Dutch/French/German/Irish/Italian/Luxembourg/Spanish/UK entity-resolution version) and will instead be required to comply with these rules in some other way.
How does this Protocol relate to the ISDA 2016 Bail-in Art 55 BRRD Protocol (Dutch/French/German/Irish/Italian/Luxembourg/Spanish/UK entity-resolution version)?
Both this Protocol and the ISDA 2016 Bail-in Art 55BRRD Protocol (Dutch/French/German/Irish/Italian/Luxembourg/Spanish/UK entity-resolution version) are drafted to enable counterparties to comply with their obligations under the relevant EU member state’s implementation of Article 55 of the BRRD and, in particular, includes the contents of the term required as mandated by the Article 55 RTS.
Why are only liabilities governed by a non-EU/EEA law relevant?
Article 55(1) of the BRRD only applies to liabilities governed by a “third country law” (i.e. non-EU law, or, if the implementation of Article 55 of the BRRD in the relevant jurisdiction extends to liabilities governed by non-EEA law, non-EEA law).
I am a third country entity facing a European counterparty, why am I being asked to adhere?
Article 55 of the BRRD (as implemented in the relevant jurisdiction) requires all in-scope entities to include a contractual term by which the creditor or party to the agreement creating certain types of liability recognises that such a liability may be subject to bail-in and agrees to be bound by such bail-in. In-scope entities are, thus, required by law to include such a term in relevant liabilities. Your European counterparty may be an in-scope entity. Please consult your legal advisor prior to using or adhering to the Protocol.
The relevant liability is secured/collateralised, do I still need to consider signing the Protocol?
Yes, you should consider signing the Protocol. Article 55(1) of the BRRD does not apply to certain excluded liabilities (including, “secured liabilities”), however, as a result of the Article 55 RTS, the scope of the “secured liabilities” exclusion in the context of Article 55 of the BRRD is unclear. You should take legal advice before seeking to rely on any exclusions.
Should I consider signing the Protocol even if I am not subject to the relevant national implementing rules?
After taking your own legal advice, you may consider signing the Protocol to enable your counterparty to comply with its obligations under Article 55 as implemented in the relevant jurisdiction (to the extent applicable), notwithstanding that you are not subject to the relevant implementing rules in Austria, Belgium, Denmark or Sweden.
Should I consider signing the Protocol even though I think it is unlikely that derivatives liabilities will, in practice, be bailed-in?
Yes, you should consider signing the Protocol. The Article 55 requirement (as implemented in the relevant jurisdiction) will apply to all relevant liabilities even where, in practice, the occurrence of bail-in may be considered to be impracticable or remote. Whether bail-in is likely to occur or whether the general exclusion under Article 44(3) of the BRRD (as implemented in the relevant jurisdiction) is likely to be used is not relevant when considering whether a contractual recognition of bail-in provision should be included in a derivatives or other contract. If a liability is potentially bail-in-able (and there are no applicable exclusions), then such a provision must be included.
How does this Protocol relate to the ISDA 2015 Universal Resolution Stay Protocol, the ISDA 2014 Resolution Stay Protocol and the ISDA Resolution Stay Jurisdictional Modular Protocol? Do the ISDA 2015 Universal Resolution Stay Protocol, the ISDA 2014 Resolution Stay Protocol and/or the ISDA Resolution Stay Jurisdictional Modular Protocol satisfy the Article 55 requirement?
This Protocol is distinct from the ISDA 2015 Universal Resolution Stay Protocol, the ISDA 2014 Resolution Stay Protocol (together, the “Resolution Stay Protocols”) and the ISDA Resolution Stay Jurisdictional Modular Protocol (the “JMP”).
This Protocol is drafted to enable counterparties to comply with their obligations under the relevant EU member state’s implementation of Article 55 of the BRRD and, in particular, includes the contents of the term required as mandated by the Article 55 RTS.
By contrast, the Resolution Stay Protocols and the JMP have not been drafted with the intention of complying with the Article 55 requirement and do not include the necessary contents of the term required as mandated by the Article 55 RTS (indeed the ISDA 2014 Resolution Stay Protocol was finalised before the first draft Article 55 RTS were published). The Resolution Stay Protocols were drafted in response to a request from regulatory authorities from Germany, Japan, Switzerland, the UK and the United States of America (the “Home Authorities”) to revise standard ISDA Master Agreement and securities financing transaction documentation so that in the event that a systemically important financial institution enters proceedings under a special resolution regime, all of its counterparties would be subject to stays and overrides of certain termination rights under such special resolution regime, notwithstanding the governing law of the agreements. The JMP was drafted to achieve the same aim as the Resolution Stay Protocols but was in response to specific contractual stay rules published in certain FSB jurisdictions as opposed to a request from regulatory authorities.
Article 55 of the BRRD is required to be transposed into each EU member state’s law and the requirement will, consequently, apply to in-scope entities in each EU member state (and, once incorporated into the EEA financial services agreement, the EEA). The Resolution Stay Protocols only apply in respect of special resolution regimes in certain EU member states (for example, the UK, France and Germany) and may apply in respect of certain other “Protocol-eligible Jurisdictions” (for example, Italy and the Netherlands) as well as covering special resolution regimes in certain non-EU jurisdictions. The JMP only applies in respect of those FSB jurisdictions that have published specific contractual stay rules in respect of which a specific JMP module has been published. The required jurisdictional scope is, therefore, not the same.
The entities required to sign up to the Resolution Stay Protocols are more limited (only 18 of the world’s largest dealers in OTC derivatives (the “G-18”), G-SIBs and certain other banks are likely to be required to adhere). The scope of entities subject to the contractual stay rules is much wider but, in the case of both the Resolution Stay Protocols and the JMP, scope does not match that of the Article 55 requirement.
Finally, the Article 55 requirement was required to be implemented in EU member state jurisdictions by 1 January 2016. The Resolution Stay Protocols were required by the Home Authorities to be in place at a much earlier time (with the ISDA 2014 Resolution Stay Protocol being published in November 2014) and the JMP keys off the timing set out in the relevant contractual stay rules.
Am I opting in to BRRD if I sign this Protocol?
BRRD provides a framework for bank recovery and resolution that will be implemented by each individual EU member state through its own resolution regime. So, you are not opting in to BRRD; rather, you are opting in to an EU member state’s implementation of Article 55 of the BRRD to the extent it applies to your counterparty.
Can I use ISDA Amend for this Protocol?
ISDA Amend is not available for use in respect of this Protocol.
What are the legal opinion requirements in Article 55(1) of the BRRD?
Under Article 55 of the BRRD, member states are required to ensure that resolution authorities have the discretion to ask for a legal opinion relating to the legal enforceability and effectiveness of contractual recognition terms included in liabilities governed by the law of a third country.However, in respect of Sweden and a number of other EU jurisdictions, there is currently no legal opinion requirement for derivatives liabilities.