5.3 Execution of side processes

The sale of the transfer perimeter will require additional actions in addition to the preparation of the sale process and/or will trigger side effects, that should be managed and prepared for in order to ensure a smooth transfer by both the institution and the resolution authority.

Specific aspects relevant to the transfer execution for the institution

Institutions should develop internal processes and preparatory measures in order to make the transfer execution credible and feasible. Said processes should encompass governance arrangements including a clear indication of responsibilities, reporting lines and roles of committees, as well as the definition of procedural and validation steps, the communication set-up and the description of the relevant MIS commanding the processes and the additional information needed from third parties. Said processes should be compiled in dedicated playbooks upon request of resolution authorities and subject to dry-runs to ensure that the processes are operational. The elements laid down hereafter should be integrated into the list of processes to be covered.

[Balance sheet adjustment] The transfer will be combined with the application of write down and conversion of capital instruments (WDCCI) and might be combined with bail-in. The SoB requires the business to be marketable. Institutions should develop procedures to implement accounting adjustments and namely to recognise the losses in a timely fashion before the transfer in order not to pass them to the continuing entity.

Should institutions subject to resolution be continued, they should be able to support the production of a post-resolution balance sheet accounting for the de-recognition of the transfer perimeter and for its proceeds in the pre-agreed accounting standards. Such balance sheets are not requested to be updated permanently in the pre-resolution phase, but institutions should demonstrate they are rapidly able to provide the resolution authorities with post-resolution balance sheets corresponding to the transfer perimeter identified by the resolution authorities with the assistance of the institutions.

[Legal review] Institutions should perform a legal review of the contracts mapped to the transfer perimeter and supporting the assessment referred to in paragraph 40. A legal review of the contracts should highlight:

• - Contract clauses posing challenges to the transfer that the resolution authority might or not be able to amend under Article 64of Directive 2014/59/EU and that legally impose an obligation (including specific communication to clients or authorities; approval; or registration requirements) in case of transfer or in order to be transferred;
• - Existing multiple pledges (when a client pledged the same collateral for different contracts);
• - Applicable specific national regulation such as covered bond regulation, which could impose certain conditions for the transfer (see section 34.3 of these guidelines);
• - The existing litigations and the contractual provisions that could give rise to litigations in or after resolution.

[Transfer perimeter implementation] Institutions should develop a process in order to implement the transfer perimeter definition methodology defined by the resolution authority, identify and implement its administrative and legal obligations (such as, for instance, registration).

[Identification of tax implications] The institution should identify and estimate all the tax implications of the transfer and inform accordingly the resolution authority. Share or asset transfer may give rise to taxation issues.

[Service continuity] Institutions should include in their transfer playbooks transition plans laying down, amongst other arrangements, processes in order to produce transitional service agreements (TSAs) or service-level agreements (SLAs) upon request as per paragraph 22 of the EBA resolvability guidelines, to implement FMI service continuity arrangements and the transition arrangements to be applied to the legacy entity in line with resolution authorities’ expectations.

[Business plan] Institutions should draw up and submit business plans or the likes if required by resolution authorities in a timely fashion. In a case of SoB share deal, the marketing of the transfer perimeter is likely to necessitate a business plan in addition to a wide range of data. The expectations as regards the content of said business plan should be defined with the resolution authority.

Specific aspects relevant to the transfer execution for the authority

Resolution authorities should define processes in order to implement the transfer smoothly in resolution and particularly:

• - the modalities and decision-making process to use powers under Articles 63 and 64 of Directive 2014/59/EU;
• - the performance of adjustments on the transfer perimeter, especially following the final valuation report, to ensure possible transfers back to the institution in resolution;
• - any other country specific obligations.