Response to eBA consults on technical standards on impracticability of contractual recognition of bail-in
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EAPB appreciates the EBA position that difficulties to include the contractual term required under Article 55(1) of Directive 2014/59/EU solely due to willingness of counterparties shall not be relevant for the determination of impracticability. However, if unwillingness is stemming from the fact that most market participants are able to rely on standardized terms or protocols, and that institutions are reluctant to accept bilateral terms that differ from those standardized terms or protocols, it could be very costly and time consuming for institutions established in a jurisdiction in which no standardized terms or protocols exists to include the contractual terms that are required under Article 55(1). This would place smaller institutions and institutions in smaller member states at a significant disadvantage. To preserve the level playing field, some relief should be provided for institutions in member states where standard agreements are not covered by standard Article 55 provisions.
Q1. Are there any third country authorities, other than resolution authorities, that might impose instructions not to include the contractual bail-in recognition term?
N/AQ2. Can you provide concrete examples of instruments, such as letters of guarantee, governed by the law of a third country which are not used in the context of trade finance and which would be subject to conditions of impracticability?
N/AQ3. Do you agree that the categories of liabilities in the above table do not meet the definition of impracticability for the purpose of Article 55(6)a)?
N/AQ4. Do you consider that there is any condition of impracticability that has not been captured in the analysis?
N/AQ5. Do you agree with EBA’s approach for developing the draft ITS?
N/AQ6. Do you consider reasonable 3 months for entry into force of the ITS, as allowing enough time to set-up the proper and adequate capabilities to notify with this ITS?
N/AQ7. Do you agree with EBA’s proposed conditions of impracticability?
EAPB would like to raise our concern regarding agreements concluded in accordance with and governed by internationally standardized terms or protocols, where the associations responsible for publishing these standardized terms or protocols do not cover all relevant jurisdictions. For example, ISDA has published protocols with standardized terms that market participants can use to include bail-in provisions in ISDA Master Agreements. ISDA, however, often does not publish protocols that are relevant for smaller member states, which means that institutions established in these member states have to renegotiate all their ISDA Master Agreements. It is time consuming and costly to renegotiate all ISDA Master Agreements and it is challenging, particularly for smaller institutions, to convince counterparties to accept terms that differ from the standardized protocols and the terms of the standard agreements.EAPB appreciates the EBA position that difficulties to include the contractual term required under Article 55(1) of Directive 2014/59/EU solely due to willingness of counterparties shall not be relevant for the determination of impracticability. However, if unwillingness is stemming from the fact that most market participants are able to rely on standardized terms or protocols, and that institutions are reluctant to accept bilateral terms that differ from those standardized terms or protocols, it could be very costly and time consuming for institutions established in a jurisdiction in which no standardized terms or protocols exists to include the contractual terms that are required under Article 55(1). This would place smaller institutions and institutions in smaller member states at a significant disadvantage. To preserve the level playing field, some relief should be provided for institutions in member states where standard agreements are not covered by standard Article 55 provisions.