Firms would also be required to ensure that, where their subsidiary credit institutions, investment firms and financial institutions deal with such products in accordance with the law of a third country, subsidiaries, irrespective of their location, also obtain the consent of their counterparties to the stay. In September 2014, the Financial Stability Board published a consultation paper entitled „Cross-border recognition of resolution measures“, in which it invited Member States to establish a legal framework for cross-border recognition and presented proposals for such frameworks. Although such legal frameworks are pending, the FSB has proposed contractual recognition as an interim solution, citing the development of isDA suspension protocols (see below) as an example of how this might work. However, written clauses and legal advice would be useful for UK financial institutions. Indeed, they are responsible for ensuring that their own and their subsidiaries can ensure and demonstrate compliance with the obligation to recognize the suspension. The PRA`s general sanctioning and supervisory powers apply, which include the possibility of issuing public censorship and imposing fines, as well as the suspension or condition of the authorisation of UK financial institutions to carry out regulated activities. The BRRD provides that resolution authorities should have a wide range of powers to suspend or otherwise suspend the rights of counterparties faced by entities under resolution in certain financial contracts. In summary, the relevant provisions of the BRRD are as follows: The UK`s suspension recognition requirement requires that certain LEGAL EU resolution measures take effect in an „enforceable“ manner. This requirement is intended to address the problem that resolution measures, as they result from legal powers, are not legally effective in contracts governed by third-country law. Therefore, the obligation to recognise suspensions is intended to ensure that financial agreements governed by the law of a third country can be subject to resolution measures in the same way as contracts governed by the law of a Member State of the Union. The rules prohibit companies within their scope from entering into new liabilities or substantially modifying existing obligations under certain financial arrangements, unless the counterparty has agreed in an enforceable manner to be subject to similar restrictions (or „residences“) in the event of early termination and to close those that would apply following the winding-up of a UK business.

or the depreciation or conversion of the regulatory capital of a UK company at the time of non-viability, if the financial arrangement is governed by the laws of a part of the UK. The recognition of contractual suspensions by the counterparty must have the effect of exercising contractual suspensions by the bank against a UK financial institution or some of its subsidiaries as if the financial agreement were governed by the law of an EU Member State. The requirement for recognition of the suspension simply presupposes that this is carried out in an „enforceable“ manner – strictly speaking, it does not necessarily have to be a written contractual clause. Similarly, legal opinions confirming applicability are not technically required. In our May briefing, we described the PRA`s proposed rule requiring contractual recognition of settlement retention in the UNITED Kingdom (the „Proposed Rule“). The FINAL RULE OF THE PRA (the „Final Rule“) is now set out in Policy Statement PS25/15, which also includes comments on the pre-consultation on the proposed rule. The final rule reflects the PRA`s intention to implement the FSB`s principles regarding the contractual recognition of residences. The 2015 Protocol also provides that new rules could be added in other jurisdictions represented in the FSB, provided that they meet certain conditions primarily for creditor protection, including the fact that a stay cannot exceed two working days and that set-off agreements and rights of set-off (subject to suspension) must be maintained. These rules are part of the coordinated efforts of financial stability board (FSB) member authorities to improve cross-border recognition of stays in liquidation by requiring companies to adopt contractual solutions in the absence of legal recognition regimes.

This consultation paper proposes a new rule for the PRA Regulation that requires contractual acceptance of suspensions of resolution in the UNITED Kingdom in certain financial contracts governed by the law of a jurisdiction outside the European Economic Area (EEA) (a „third country“). Although the requirement for recognition of suspension is not a requirement of the BRRD (and therefore has not been introduced by all EU Member States), it is part of the coordinated efforts of the Bank and other regulatory and resolution authorities in France, Germany, Japan, Switzerland and the United States. This coordination stems from a mandate from the Financial Stability Board7 and, therefore, requirements for the recognition of suspensions should be introduced in all G20 countries (although it remains to be seen whether the scope and form of the requirement will be identical in each G20 country). There are four types of contractual residence: a permanent suspension of default rights (the general suspension); and three temporary stays each for termination rights (temporary stay), payment, delivery and ancillary disposition obligations (payment and delivery stay) and security (guarantee stay). These suspensions can be used together to support the powers granted to the Bank of England (the Bank) as the UK`s resolution authority to facilitate the orderly resolution of UK financial institutions. The requirement to recognise the suspension only applies to financial arrangements under third-country law that contain rights that could be the subject of one of the contractual residences if the contract were instead subject to the law of an EU Member State. It does not apply to contracts that do not contain rights against which one of the contractual stays can be exercised. For these purposes, `UK financial institution` means a bank, construction company or investment firm registered in the United Kingdom and authorised by the PRA and(where applicable) its parent financial holding company registered in the United Kingdom or its parent mixed financial holding company. A subsidiary of a UK financial institution must also comply with the suspension recognition requirement if it is a bank, investment firm or other form of financial institution (e.B. an intermediary financial holding company, a money broker, a payment service provider or an issuer of electronic money, in particular), irrespective of the legal system of that subsidiary.

The PRA is of the opinion that this broad application is necessary to ensure the effectiveness of contractual stays throughout the Group. The obligation to recognise suspension applies to „financial agreements“ that have been concluded or substantially amended from the relevant date of entry into force (see below). A „material change“ is not defined, but does not include automatic changes to the terms of the agreement (e.B. renewal or renewal) or administrative changes (e.B notification or payment details). However, the PRA has the power to require a UK financial institution to take further action to enforce the suspension recognition requirement if it deems it necessary to remove barriers to resolution. The United Kingdom has implemented the resolution suspensions through amendments to the SRR and amendments to the Financial Collateral Arrangements (No.2) Regulations 2003, which stipulate that these provisions do not prevent the Bank of England from restricting the performance of a financial collateral arrangement or the effect of a closing netting clause or securities guarantee in the exercise of its powers under the SRR. Although under the Banking (Protection of Partial Transfers of Ownership) Act 2009, a partial transfer of ownership instrument concluded under a resolution may not transfer any part of the agreements covered by a closing netting or a financial guarantee agreement by transfer of securities, guarantees, netting agreements and financial collateral arrangements were lifted prior to a termination freeze under such a partial agreement. Protected ownership transfer, deleted..

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