5.1 Sale preparation

Resolution authorities should lay down in the resolution plans or in any supporting documentation how they can smoothly execute the sale process referred to in paragraph 50.a in a way as transparent as possible.

In order to ensure the feasibility/credibility of the SoB as a resolution tool, the resolution authority should, with the support of institutions, pre-define a list of criteria that potential acquirers may be expected to meet based on the features of the transfer perimeter and given the existing market players’ characteristics as well as external factors (such as regulatory considerations regarding market concentration, need for licenses and authorization; and any market entry barriers). Resolution authorities should be able to leverage on the information available to supervisors and in recovery plans.

Although the sale strategy will depend on the definition of the transfer perimeter (institution- and situation-specific), resolution authorities should develop a sale process taking into consideration at least the following elements:

• - The timeline of the sale process: a timetable with milestones and deliverables;
• - The definition of operational sub-processes with a clear allocation of tasks amongst the different teams and experts covering the resolution authorities, institutions, competent authorities and all relevant actors in line with paragraphs 56 and 57;
• - The composition and roles of teams and bodies;
• - The documentation supporting the sale framework and marketing process (including, but not limited to term sheets; NDA and other legal documents; templates available to bidders; bid assessment sheets; criteria list; procurement documents and mandates for external consultants; and templates for media communication);
• - Confidential communication channel(s), communication plan(s) and information, data and reports.

While defining a timeline in line with Article 10(7), points (d) and (j), of Directive 2014/59/EU, resolution authorities should consider the different milestones relevant to transfers and in particular the resolution planning reference date¹⁴ , the valuation date¹⁵ , the resolution date¹⁶ and the transfer date(s).

¹⁴ In accordance with Article 5 Commission Implementing Regulation (EU) 2018/1624 of 23 October 2018 laying down implementing technical standards with regard to procedures and standard forms and templates for the provision of information for the purposes of resolution plans for credit institutions and investment firms pursuant to Directive 2014/59/EU of the European Parliament and of the Council, and repealing Commission Implementing Regulation (EU) 2016/1066 (OJ L 277, 7.11.2018, p. 1 – 6).

¹⁵ As reflected in the EBA handbook on valuation for purposes of resolution (EBA valuation handbook).

¹⁶ As defined under Article 1(j) Commission delegated regulation 2018/345.

Resolution authorities should identify the approvals or consents that would not fall under the exemptions referred to in Article 63(2) of Directive 2014/59/EU and ensure that the sale process addresses them. Those may include the approval from the European Commission regarding the concentration of a European dimension in line with the Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (EU Merger Control rules -EUMR-)¹⁷ . Resolution authorities should consider interactions with the market authorities and any other authorities expected to intervene in the sale process. Said interactions with other authorities should occur timely and should not render the sale timeline inappropriate with regards to resolvability.

¹⁷ Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regulation) (OJ L 024 , 29/01/2004 P. 0001 - 0022).

For cross border groups, cross border transfer perimeter or for cross border transactions, resolution authorities should discuss as relevant their sale framework with other resolution authorities and competent authorities in order to agree on the allocation of tasks, the information exchange and the timeline, to update the sale framework on a regular basis and to ensure the existence of confidential communication lines. Discussions may be held for instance in resolution colleges where they exist, or in Crisis Management Groups (CMGs) where they exist (for G-SIIs), or else, on an ad hoc and less formal basis.

Resolution authorities should ensure that their sale process is applicable under at least two scenarios: the sale ensuing a marketing process under Article 39 of Directive 2014/59/EU (which may be qualified as ‘Strategic SoB’) and the sale without marketing process as provided by Article 39(3) of Directive 2014/59/EU (which may be qualified as ‘Accelerated SoB’).

The resolution authority should be prepared to perform, as soon as possible and no later than the declaration of fail or likely to fail (FOLTF), the assessment of the marketing process feasibility in line with EBA guidelines on the effectiveness of the sale of business tool¹⁸ .

¹⁸ EBA Guidelines on factual circumstances amounting to a material threat to financial stability and on the elements related to the effectiveness of the sale of business tool under Article 39(4) of Directive 2014/59/EU (EBA/GL/2015/04).

The sale process should provide for a smooth execution over the resolution weekend of an Accelerated SoB. To do so, the resolution authority should be able to update (by, for instance, the performance of market monitoring activities; existing access to up-to-date relevant market data or existing processes to require expert assistance in the matter), in line with the market conditions and the transfer perimeter at the date of FOLTF, the list of criteria for potential acquirers to meet and pre-defined list of potential acquirers based on paragraph 19 of these guidelines. The resolution authority should assess as early as possible the potential implications of an Accelerated SoB with regards to State-Aid rules and ensure an execution of the accelerated sale that minimises these implications¹⁹ .

¹⁹ In line with EBA Final Q&A2015_2339.

For a Strategic SoB, resolution authorities should be able to update the list of criteria for potential acquirers to meet based on section 4.1. and paragraph 19 of these guidelines. The sale process should provide for a smooth execution of a strategic SoB ensuring an open, transparent and non-discriminatory marketing process (marketing requirements), aiming at maximising the price of the sale and identifying any potential conflicts of interest. Said criteria should include a variety of indicators relating to the financial, legal and operational strength of the potential acquirers which should be in relation to the transfer perimeter and not designed to advantage the potential purchasers identified ex-ante. The resolution authority may request plans laying down the integration process of the transfer perimeter by the potential purchaser and highlighting the required capabilities.

Resolution authorities should prepare for the request of external assistance (including consultants, legal advisers or auditors) within the sale process or for the delegation of the marketing process. The responsibility falling to the resolution authority should not be delegated, and the resolution authority should have established a process to select and appoint external consultants based on pre-defined criteria under a defined mandate, control them and review their input, ensure absence of conflict of interest and respect of confidentiality. The mandate should clearly define, amongst others, the objectives and deliverables, the expected expertise and resources, the timeline or the fees.

5.1.2 Internal segregation

The resolvability assessment as referred to in section C in the Annex of Directive 2014/59/EU is to be built on the assessment of the institution’s legal and corporate structures (point (2) of said Section C in the Annex of Directive 2014/59/EU), the complexity of this structure and the difficulty in aligning business lines to group entities (point (16) of the Section C in the Annex of Directive 2014/59/EU), and the compatibility of this structure with the chosen resolution tool(s) (point (21) of the Section C in the Annex of Directive 2014/59/EU). Therefore, resolution authorities should consider how to best prepare for the AST given that many of the transfer perimeter components might not be within one legal entity or one business line, and should, when necessary and without prejudice to powers under article 17 of Directive 2014/59/EU, promote the separation of portfolios by:

• a. Requesting institutions to have playbooks (see para. 75) laying down how they could segregate distressed assets²⁰ in one business line or one legal entity when the AST is considered in the resolution strategy and when portfolios eligible to the AST are scattered around the group;
• b. Assessing how recovery options under point (14) of Section A in the Annex of of Directive 2014/59/EU could support the separation of distressed assets from the rest of the group.

²⁰ Distressed assets are to be understood, for these guidelines, as impaired or under-performing assets as mentioned in recital 59 of Directive 2014/59/EU.

When requested to demonstrate how they can segregate distressed assets, institutions should highlight how their actions will:

• - Facilitate any diagnostic exercise as referred to in EBA guidelines on tests, reviews or exercises that may lead to support measures²¹ as most of the distressed assets would be centralised in one dedicated business unit;
• - Allow a proper identification of contractual barriers, legal requirements attached to the distressed assets and other sorts of transfer impediments;
• - Provide for an easier valuation of the distressed assets (and consequently of the non-distressed business lines supporting the choice of the complementary resolution tool);
• - Create a high level of expertise within the business unit for dealing with distressed assets;
• - Lead to the development of a dedicated data set covering the collateral and right issues related to the distressed assets;
• - Highlight the specific services required for these items and start implementing the arrangements to manage them;
• - Lead to segregate the needed resources (including financial or staff) which could then be more easily transferred at the point of resolution, notably with help of servicing arrangements.

²¹ EBA Guidelines on the types of tests, reviews or exercises that may lead to support measures under Article 32(4), point (d)(iii) of the Bank Recovery and Resolution Directive (EBA/GL/2014/09).

When relevant, institutions should also demonstrate their capabilities to create legal entities in line with paragraph 48 of these guidelines.