Title III- Details and circumstances with respect to specific measures

In relation to the requirement to revise any intragroup financing agreements or review the absence thereof, and to draw up service agreements (whether intra-group or with third parties) to cover the provision of critical functions or services pursuant to point (a) of Article 17(5) of Directive 2014/59/EU, the following specifications apply:

• (a) Resolution authorities should consider requiring the institution to revise existing group financing agreements or to review the absence thereof if they conclude in their assessment of the existing group financing agreements that the provision of support or its form (or the absence of this type of agreement) make it substantively more difficult for resolution authorities to achieve the resolution objectives by applying resolution tools. In particular they should be consistent with the resolution strategy considered and take into account the allocation of liabilities expected to contribute to loss absorption and recapitalisation in the group and the distribution of losses within the group considered in the relevant resolution strategy.
• (b) Resolution authorities should consider requiring the institution to draw up written service level agreements or transitional support arrangements and other appropriate measures to secure the continuity of the functions or services provided by legal entities within the group, including non-regulated affiliates, and by third parties. This measure may be applied in cases where
• - no written service agreements exist,
• - the level of documentation of service agreements is insufficient or
• - it is not ensured that they cannot be terminated by the counterparty due to resolution action being taken by the resolution authority.
• (c) Resolution authorities should consider applying this measure to allow material legal entities to be operationally independent where necessary to support a resolution strategy envisaging a break up or restructuring of the group or institution, including the use of a (partial) transfer tool.
• (d) If applying this measure, resolution authorities should ensure that these intragroup financing agreements and service agreements are accessible and enforceable within a short timeframe. If the relevant resolution strategy envisages the use of a (partial) transfer tool, resolution authorities should consider requiring agreements to be transferable to entities resulting from resolution action or to recognise the legal effects of statutory transfers.

In relation to the requirement to limit maximum individual and aggregate exposures pursuant to point (b) of Article 17(5) of Directive 2014/59/EU, the following specifications apply:

• (a) Where necessary to support a resolution strategy involving a separation of legal entities within the group, resolution authorities should consider requiring the institution to tighten intra-group exposure limits to contain internal financial interconnectedness between group entities (or subgroups) that are to be resolved separately under the resolution strategy, if this intra-group exposure impairs the institution’s resolvability. The same may apply in relation to a ring-fenced entity, if pursuant to legislative requirements or supervisory decisions a separation of certain activities into this type of entity is required, if this is necessary to ensure the credibility and feasibility of the use of resolution tools to the ring-fenced entity or the remaining parts within the group.
• (b) Resolution authorities should consider requiring institutions to limit exposures to special purpose entities connected to the institution by significant undrawn commitments, material guarantees or letters of comfort that are not consolidated in the balance sheet of the institution and are not within the scope of resolution powers.

In relation to the measure of imposing specific or regular information requirements relevant for resolution purposes pursuant to point (c) of Article 17(5) of Directive 2014/59/EU, the following specifications apply:

• (a) Resolution authorities should consider imposing information requirements if they assess that these requirements enable them to apply the resolution tools envisaged under the resolution strategy more effectively, or to draw up an effective resolution plan.
• (b) Resolution authorities should consider requiring institutions to produce information used to inform the management about the situation of the institution (management information), including financial statements and information on capital and subordinated debt, available for each legal entity relevant for the implementation of the resolution strategy, in particular if it is envisaged as a point of entry under an MPE approach, and to be able to produce legal entity specific information for all entities the failure of which is likely to negatively affect financial stability in any jurisdiction upon request.
• (c) If an institution has complicated intra-group operational services arrangements, resolution authorities should consider requiring the information necessary to fully clarify the structure of these arrangements.
• (d) If applying this measure, resolution authorities should ensure that institutions are in the position to produce up-to-date information required within the timeframe necessary under the resolution strategy, and the institution's information systems should provide all data needed to develop and implement the resolution strategy, and to support a credible valuation before and during resolution including those required by Articles 36 and 74. Institutions should in particular ensure the availability of information required by the resolution authorities to identify:
• - the critical functions,
• - the creditors or types of creditors most likely to absorb losses during resolution,
• - the creditors of liabilities of particular relevance for critical functions or the implementation of the resolution strategy such as covered and non-covered deposits by SMEs and natural persons (i.e. single customer view), and
• - positions, services and functions essential for the risk management of the group which have to be maintained to ensure the continuation of critical functions.

In relation to the requirement to divest specific assets pursuant to point (d) of Article 17(5) of Directive 2014/59/EU, the following specifications apply:

• (a) Resolution authorities should consider requiring institutions to divest assets prior to resolution if the resolution strategy requires the sale of these assets and if this sale in resolution would have significant adverse effects on the use or implementation of resolution tools or make it significantly more difficult. If this measure is applied, assets to be divested should be those, the sale of which in the timeframe provided for under the resolution strategy is likely to result in pressure on prices for assets, destruction of value and additional uncertainty and vulnerability of financial markets and other institutions, if these effects can cause significant adverse consequences for the financial systems.
• (b) In addition, resolution authorities should consider applying this measure if the existing asset structure of the institution is likely to have adverse effects on the feasibility or credibility of the resolution strategy. Where the resolution strategy relies on a liquidation of assets to generate liquidity for the continuance of critical functions, resolution authorities should consider requiring institutions to divest assets, which are likely to be illiquid under stressed conditions or at the point of resolution, to increase the proportion of assets which are expected to be more liquid instead. This measure should also be considered in relation to assets which significantly impair the feasibility of the valuation required under Article 36 of Directive 2014/59/EU. Resolution authorities should also consider the risk that assets or funding may be trapped in third countries.
• (c) When applying this measure, resolution authorities should consider the impact of the divestment on the market for the assets concerned, also as a result of divestments required from further institutions.

In relation to the requirement to limit or cease specific existing or proposed activities pursuant to point (e) of Article 17(5) of Directive 2014/59/EU the following specifications apply:

• (a) Resolution authorities should consider requiring the institution to limit complex practices related to how trading or hedging operations are marketed, booked, funded and risk-managed, and to their location within the group, if these practices undermine the feasibility or credibility of the resolution strategy.
• (b) Resolution authorities should consider requiring institutions to limit activities in third countries that have an insufficient resolution regime if it is judged that the inability of these jurisdictions to maintain continuity of the firm’s activities in their jurisdiction during a resolution may subsequently undermine the ability of a resolution authority to maintain the continuity of critical functions in a Member State.
• (c) Resolution authorities should consider whether to require institutions to limit services provided to other institutions or other participants in financial markets if, based on an overall evaluation of the institution’s functions, the authority assesses that the services could not be continued in resolution and their discontinuance could threaten the stability of the recipients of these services.
• (d) Where pursuant to legislative requirements or supervisory decisions a separation of specific activities into a special entity is required, which would be prevented from performing certain other activities, resolution authorities should consider preventing this entity from performing certain additional activities if this is necessary to ensure the credibility and feasibility of the use of resolution tools to each part of the group following the separation.

In relation to measures that restrict or prevent the development or sale of new business lines or products pursuant to point (f) of Article 17(5) of Directive 2014/59/EU, the following specifications apply:

• (a) Resolution authorities should consider applying restrictions to products that are structured in a way that impairs the use of resolution tools, or with the purpose of circumventing their application.
• (b) Authorities should consider restricting or preventing the development or sale of products governed by third country law or instruments issued from entities in a foreign jurisdiction, for example a third country branch or special purpose entity, if the third country law does not give effect to the use of resolution powers envisaged by the resolution strategy or does not make them effectively enforceable, or if the sale of these products is likely to have significant adverse effects on the use or implementation of resolution powers. Under these conditions, authorities should also consider restricting sales to investors in foreign jurisdictions, where the holding of products by these investors potentially results in legal action against the resolution authority.
• (c) Authorities should consider requiring institutions to restrict the development or sale of products if, as a result of the complexity of these products, the assessment of obligations of the institution by the resolution authority is impaired or the valuation pursuant to Article 36 of Directive 2014/59/EU is significantly impeded.

In relation to the requirement to change the legal or operational structure of an institution so as to reduce complexity in order to ensure that critical functions may be legally and economically separated from other functions through the application of the resolution tools pursuant to point (g) of Article 17(5) of Directive 2014/59/EU, the following specifications apply:

• (a) Application of this measure should be considered if the resolution authority assesses the legal and operational structure of the institution or group as being too complex or too interconnected to be able to maintain continuity of access to critical functions in a resolution, or to be broken up under a resolution strategy implying a break-up of the group or a wind-down or transfer of certain assets and liabilities.
• (b) If necessary for the effective implementation of an MPE strategy and to ensure that certain sub-groups or entities are separable, resolution authorities should consider requiring groups to organise legal entities following regional blocks or core business lines, in particular if critical functions are attributable to certain business lines while other business lines do not encompass critical functions. This should in particular apply to centralised hedging and risk management, trading and liquidity management, and collateral management, liquidity management or other key treasury and finance functions, unless these functions can be replaced by market transactions with outside parties. In accordance with the resolution strategy, resolution authorities should prevent extensive cross-entity booking and hedging practices, and ensure that entities that are to be resolved separately have sufficient stand-alone booking and risk management. Resolution authorities should consider requiring institutions to put in place effective standalone governance, control and management arrangements in each subgroup or entity.
• (c) Where pursuant to legislative requirements or supervisory decisions a structural separation of certain activities is required, resolution authorities should consider requiring a separation of additional activities if necessary to ensure the credibility and feasibility of the use of resolution tools in each part of the group following the separation.
• (d) Resolution authorities should ensure that subsidiaries which are material to the continuity of critical functions are located in EU or third country jurisdictions that do not pose impediments to resolution.
• (e) If the resolution strategy provides for a break-up of the institution or group or a change of ownership by sale or transfer, resolution authorities should consider requiring the institution to organise critical functions and access to infrastructure or shared services that are necessary for the continuation of critical functions in a way that facilitates their continuity. If necessary to make a resolution strategy credible and feasible, resolution authorities should consider requiring institutions to change their operational structure to reduce or prevent the dependency of material entities or core business lines in each subgroup on key infrastructure, IT, personnel or other critical shared services from different subgroups. This should include management information systems. It should be ensured that adequate governance and control arrangements are in place and the necessary financial resources are available so that internal and external service providers can continue to provide their services.
• (f) Where required to ensure the provision of critical shared services following resolution, resolution authorities should consider requiring institutions to move these services into separate operational subsidiaries. If applying this measure, resolution authorities should consider requiring these operational subsidiaries
• - to limit their activities to the provision of these services and to apply appropriate restrictions regarding risks and activities,
• - to be adequately capitalised to meet their operational costs for an appropriate timeframe,
• - to meet the requirements applicable to an outsourcing of the functions concerned and
• - to provide their services under intra-group contract service level agreements that are robust under resolution.

The terms of these agreements, the governance arrangements of these subsidiaries and their ownership structure should be appropriate to ensure the continuance of the services following resolution.

• (g) Resolution authorities should consider requiring institutions to take precautions to meet, in a resolution situation, the specific requirements of any financial markets infrastructure (FMI) in which they participate, including access to clearing, payment and settlement services for all subgroups and material entities of the subgroup during resolution and, if applicable, for a recipient to whom critical functions have been transferred. Where necessary, resolution authorities should consider requiring institutions to make reasonable efforts to re-negotiate contracts with FMIs accordingly, subject to safeguards to protect the sound risk management and safe and orderly operations of the FMI.
• (h) Resolution authorities should consider requiring institutions to prevent critical dependencies of the institution, group or any subgroup on the provision of services under contracts not under the jurisdiction of EU Member States that permit termination upon the resolution of group entities. A dependency should be deemed critical when it affects critical functions of the institution.
• (i) If an SPE strategy includes a winding down of business lines with non-critical functions, resolution authorities should consider requiring institutions to ensure the separability of these business lines, within or outside the existing structure, including the saleability of certain operations in case the resolution strategy requires their sale. If necessary to ensure separability, resolution authorities should consider requiring institutions to change their structure in third countries from branches to subsidiaries, or to internally segregate all or certain functions and business lines in these branches to prepare a carve-out of these functions and facilitate the transfer to a separate entity.
• (j) If necessary for the effective implementation of an SPE strategy, the funding of subsidiaries by the top company of the group should be adequately subordinated, not be subject to set-off and/or provide for appropriate arrangements for losses to be transferred to the legal entity to which resolution tools would be applied from other group companies, in a way that allows the relevant operating group entities to remain viable. The funding should be structured so that the group or the part of the groups that perform critical functions is not broken up following a write-down and conversion of a considerable portion of the instruments that are subject to write-down and conversion powers. Where the resolution strategy depends on a re-allocation of capital and liquidity within the group, capital and liquidity should be located in jurisdictions where this re-allocation is allowed under local regulatory limits.
• (k) Where necessary to ensure the separability of critical functions from other functions resolution authorities should consider requiring the establishment of a holding company not performing any critical functions under the circumstances set out in point 14(b) below. The considerations under point 14(c) apply accordingly.
• (l) Resolution authorities should consider requiring institutions to take reasonable precautions to ensure availability of, to retain or to substitute key staff where this is necessary to implement the preferred resolution strategy, also with a view to the replacement of the management body and senior management of the institution under resolution required by Article 34(1)(c) of Directive 2014/59/EU.
• (m) Resolution authorities should consider requiring institutions to ensure the continuity of management information systems. Resolution authorities should consider requiring that the institution’s information systems and data availability ensure that authorities are able to obtain the data needed to implement the resolution strategy and carry out valuations before and during resolution. In particular, resolution authorities should consider requiring institutions to ensure the operability of the use of the write-down and conversion powers at the point of resolution by making the identification of liabilities, stays on payments and the technical implementation of the write-down and conversion feasible.
• (n) Resolution authorities should consider requiring institutions to reduce the complexity and size of their trading book if this is necessary to apply the resolution tools, in particular the bail-in tool with regard to large portfolios of derivatives and other financial contracts, to a lack of transparent and accessible structure or the complexity or volatility of measurement and valuation of the products and portfolios in the trading book and their internal interconnectedness.

In relation to the requirement to a parent undertaking to set up a parent financial holding company in a Member State or a Union parent financial holding company pursuant to point (h) of Article 17(5) of Directive 2014/59/EU, the following specifications apply:

• (a) Resolution authorities should consider applying this measure if they assess that it is not feasible or credible to resolve the EU part of a non-EU regulated bank due to the fact that there is no parent company subject to EU jurisdiction. In particular, resolution authorities should consider requiring setting up an EU intermediate financial holding company if the issuance of debt at this level is necessary to provide for an adequate amount and proper allocation of liabilities expected to contribute to loss absorption and recapitalisation, to facilitate the absorption of losses at the level of operating subsidiaries and to ensure the fungibility of liabilities expected to contribute to loss absorption and recapitalisation within the EU part of the group.
• (b) In addition, this measure may be applied where feasibility or credibility require the application of resolution tools at holding company level rather than to operating entities, in particular with regard to potential exclusions from the bail-in power. Resolution authorities should consider applying this measure together with restrictions on the operational activities of the financial holding company, if the operational activities at its level substantively impede the feasibility or credibility of the implementation of the resolution strategy. In particular, resolution authorities should consider setting appropriate limitations to prevent this financial holding company from performing critical functions or services to other group entities on which critical services performed by these entities depend. Where necessary, the parent holding company’s balance should contain only equity and liabilities expected to contribute to loss absorption and recapitalisation.
• (c) Where there is significant branch activity in the EU performing critical functions the continuance of which is not adequately provided for in the respective third country entity’s resolution plan, or from which results a significant risk of contagion, which is not adequately reflected in the third country entity’s resolution plan, resolution authorities should consider requiring to set up a subsidiary or capturing this under the financial holding company required pursuant to point (a).

In relation to the requirement to a parent undertaking, or a company referred to in Article 1(c) and (d) to issue the debt instruments or loans referred to in Article 45 of Directive 2014/59/EU pursuant to point Article 17(5)(i) of Directive 2014/59/EU, the following specifications apply:

• (a) Dependent on the preferred resolution strategy, resolution authorities should consider requiring an institution at the appropriate level to issue a sufficient amount of liabilities expected to contribute to loss absorption and recapitalisation, taking into account potential losses in entities captured by the resolution strategy without sufficient liabilities expected to contribute to loss absorption and recapitalisation on their own, and where applicable, further entities belonging to the same group. Where the resolution strategy relies on the fungibility of liabilities expected to contribute to loss absorption and recapitalisation, resolution authorities should take into account local regulatory limits and existing group support agreements.
• (b) For an SPE strategy, liabilities contributing to loss absorption should be sufficient to absorb losses across the entire group and, in accordance with the resolution strategy, to ensure the integrity and operability of those parts of the group where critical functions are performed. In the absence of sufficient liabilities expected to contribute to loss absorption and recapitalisation at subsidiary level and if necessary to implement an SPE resolution strategy, resolution authorities should consider requiring the parent or holding company to provide funding to subsidiaries in subordinated form to facilitate the upstreaming of losses from the subsidiary, thereby avoiding entry into resolution of the subsidiary. A set-off between a subsidiary’s claims against the parent and the parent’s claims against the subsidiary should not be available.
• (c) For an MPE strategy, liabilities contributing to loss absorption should be sufficient at each point of entry to absorb losses across those entities included in the MPE resolution unit.

In relation to the requirement to take other steps to meet the minimum requirement for own funds and eligible liabilities under Article 45 of Directive 2014/59/EU, including in particular to attempt to renegotiate any eligible liability and additional Tier 1 or Tier 2 instruments it has issued with a view to ensuring that any decision of the resolution authority to write down or convert that liability or instrument would be effected under the law of the jurisdiction governing that instrument pursuant to point (j) of Article 17(5) of Directive 2014/59/EU, the following specifications apply:

Resolution authorities should assess the risk of exclusion of liabilities from contributing to loss absorption or recapitalisation taking into account, and with a view to the resolution strategy, inter alia, (i) maturity; (ii) subordination ranking; (iii) types of holders and transferability; (iv) the risk that the liabilities would be exempted from absorbing losses in resolution; and (v) other legal obstacles such as the absence of recognition of resolution tools under third country law or the existence of set-off rights, each under the relevant law of the jurisdiction governing that liability or instrument.

In relation to the requirement that, where an institution is the subsidiary of a mixed-activity holding company, the mixed-activity holding company set up a separate financial holding company to control the institution pursuant to point (k) of Article 17(5) of Directive 2014/59/EU, the following specifications apply:

Resolution authorities should consider requiring a mixed-activity holding company, if this significantly enhances the feasibility and credibility of resolving the banking or investment activities separately, taking into account the risk of contagion between different segments of the financial sector and the wider economy. Resolution authorities should consider the advantages for feasibility and credibility of the resolution strategy specified under paragraph 14.