Public funding of failing banks in the European Union (LBF vol. 19) 2020/4.3.1.2:4.3.1.2 The secondary law sources

Public funding of failing banks in the European Union (LBF vol. 19) 2020/4.3.1.2

4.3.1.2 The secondary law sources

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The secondary law sources of the resolution framework consist of the BRRD and the SRMR. Both the BRRD and the SRMR have been established by adopting the Lamfalussy approach.1 This approach provides for financial regulation to be passed at multiple levels.

Level 1 instruments

At ‘Level 1’, framework legislation setting out the core principles and defining implementing powers is adopted by co-decision of the European Parliament and the Council after a full and inclusive consultation process following a proposal from the Commission. The BRRD and the SRMR together form the Level 1 framework legislation. The substantial and procedural rules for resolution can be found in the BRRD and the SRMR. The BRRD is a directive adopted by the European Parliament and the Council following a proposal from the Commission. The BRRD had to be implemented by the Member States by 31 December 2014, albeit that the provisions in relation to the bail-in tool had to be implemented by 1 January 2016.2 All Member States have transposed the BRRD in their jurisdiction.3 The BRRD provides for minimum harmonization only. This allows Member States to adopt additional measures at national level, as long as the measures are compatible with the principles and objectives set out in the BRRD.4

The SRMR is a regulation adopted by the European Parliament and the Council following a proposal from the Commission. The SRMR directly applies in the Member States as of 1 January 2016 (albeit that a part already applied as of 19 August 2014, e.g. in relation to the set-up of the SRB).5 A specific feature of the SRMR is that it establishes uniform rules for the resolution of banks and banking groups that are established in the participating Member States of the SSM only. Those uniform rules are applied by the SRB together with the Council and the Commission and the national resolution authorities within the framework of the SRM established by the SRMR.6 It is not possible for Member States to adopt more stringent rules than are included in the SRMR for the resolution of banks and banking groups that are in scope of the SRMR. The SRMR fully harmonizes the range of available tools for resolution.

An interesting question, is whether Member States can still apply national resolution or bail-out measures in relation to banks and banking groups outside the resolution framework. For example, the Dutch government opted not to revoke national resolution provisions when bringing its national legislation in line with the SRM and implementing the BRRD. On the basis of the Dutch Intervention Act (as laid down in Part 6 of the Dutch Financial Supervision Act), the Dutch Minister of Finance still has the capacity to nationalize financial institutions, including banks.7

Level 2 instruments

Both the BRRD and the SRMR delegate to the Commission the power to adopt delegated acts in accordance with Article 290 TFEU.8 In addition, the BRRD delegates to the Commission the power to adopt implementing acts.9 Under the SRMR this power is delegated to the Council in order to specify the application of the methodology for the calculation of individual contributions to the SRF, as well as the technical modalities for computing the flat contribution and the risk-adjusted contribution.10 Where the level 2 measures require the expertise of supervisory experts, the BRRD and SRM determine that these measures are regulatory technical standards, based on drafts developed by the European Supervisory Authorities. The regulatory technical standards (RTS) are adopted by the Commission by means of a delegated act. The implementing technical standards (ITS) are adopted by means of an implementing act.

At the time of writing this dissertation, the Commission had adopted three delegated acts on the basis of the SRMR, all in relation to the SRF. In addition, the Commission had adopted twelve delegated acts – of which eight in the form of RTS – relating to various topics on the basis of the BRRD. Moreover, the Commission had adopted five implementing acts on the basis of the BRRD. These all relate to the way in which information is provided or disclosed in the framework of the BRRD. The Council had adopted an implementing regulation.11

The SRMR explicitly states that the SRB, the Council and the Commission are subject to binding regulatory and implementing technical standards developed by EBA and adopted by the Commission within the scope of the BRRD.12

Level 3 instruments

The EBA has an important role to contribute to consistent and convergent implementation of the resolution framework by securing more effective cooperation between national resolution authorities and the convergence of resolution practices. This is ‘Level 3’ of the process.

The EBA publishes guidelines and recommendations in relation to the BRRD and SRMR. For certain topics, the BRRD provides for the obligation of the EBA to publish guidelines (e.g. in relation to recovery planning, powers to address or remove impediments to resolvability and conditions for group financial support). In areas not covered by regulatory or implementing technical standards, EBA is able to issue guidelines and recommendations on the application of Union law under its own initiative.13 The SRMR explicitly states that the SRB, the Council and the Commission are subject to guidelines and recommendations issued by the ECB within the scope of the BRRD.14

The EBA can also carry out non-binding mediation between the competent authorities and/or resolution authorities of the Member States, on request of a competent or resolution authority.15 On request of a competent or resolution authority, the EBA can also go a step further by setting a time limit (the conciliation phase) for conciliation between the relevant authorities in respect of certain decisions that have to be adopted.16 If the relevant authorities fail to reach an agreement within the conciliation phase, the EBA may take a decision requiring the relevant authorities to take specific action or to refrain from action in order to settle the matter, with binding effects for the relevant authorities concerned, in order to ensure compliance with EU law. Where a relevant authority does not comply with the decision of the EBA, and thereby fails to ensure that a bank complies with requirements directly applicable to it by the BRRD, the EBA may adopt an individual decision addressed to a bank requiring the necessary action to comply with its obligations under the BRRD, including the cessation of any practice. 17 The SRMR provides that the SRB shall also be subject to any decisions of EBA taken in its coordination function.18

In addition, the EBA acts as a central hub for information on crisis prevention, management and resolution. The BRRD and the SRMR provide for the obligation for Member States, competent authorities, resolution authorities and the SRB to notify the EBA of certain events (e.g. the designation of resolution authorities by the Member States, if a bank is deemed not to be resolvable, the minimum requirement for own funds and eligible liabilities, etc.). Pursuant to the BRRD, the competent and resolution authorities also have the general obligation to provide the EBA with all the information necessary to carry out its duties assigned to it by the EBA Regulation.19 The EBA maintains a list of notifications of resolution cases on its website.20 The EBA also maintains central databases of penalties reported to it by competent authorities and resolution authorities that are imposed for violations of the (national provisions transposing the) BRRD. The databases are only accessible to resolution authorities and competent authorities, respectively.21

Level 4 instruments

‘Level 4’ is where the Commission enforces the timely and correct transposition of the EU legislation into national law.22

The Commission has the responsibility to review the implementation of the BRRD by 1 June 2018 and to assess in particular the need for any amendments with regard to minimising divergences at national level and the functioning and efficiency of the role conferred on the EBA in the BRRD, including carrying out of mediation.23 The Commission also has the responsibility to review the application of the SRMR by 31 December 2018, with a special emphasis on monitoring the potential impact on the smooth functioning of the internal market.24 The Commission has published this review in April 2019.25 Where appropriate, the Commission will prepare legislative proposals to amend the BRRD and the SRMR.26 In its review, it however considered this to be premature at this stage.27

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