This final report presents guidelines on transferability within the context of the resolvability assessment, a key element of resolution planning. It aims to assess the feasibility and credibility of transfer strategies by defining the transfer perimeter and addressing the necessary conditions to facilitate this transfer. The guidelines apply to both institutions and resolution authorities, complementing existing…
- Title: Final report on Guidelines on transferability
- Author: European Banking Authority (EBA)
- Date: September 27, 2022
- Type: Guide
- Pages provided: first 39 pages out of 47
- Scope: Guidelines for financial institutions and resolution authorities on assessing transferability in bank resolution strategies, covering transfer tools (sale of business, bridge institution, asset separation tool) according to Directive 2014/59/EU.
- Target population: Financial institutions, banking groups, resolution authorities in the European Union.
- Application period: from January 1, 2024 (effective date of the guidelines).
- Themes: definition of transfer perimeter, transferability obstacles, operational and organizational aspects, management of interconnections, operational continuity, cross-border aspects, management information systems (MIS), preparation for transfer tool implementation.
The document presents the final EBA guidelines on transferability, a key element in assessing the resolvability of financial institutions within resolution strategies involving transfer tools other than bail-in. These guidelines complement the EBA resolvability guidelines (EBA/GL/2022/01) by specifying requirements related to defining the transfer perimeter, managing interconnections, legal and operational obstacles, as well as operational readiness for implementing transfer tools (sale of business, bridge institution, asset separation tool).
The importance of the subject lies in the need to ensure the credibility and feasibility of transfer strategies to guarantee the continuity of critical functions and limit systemic impact in case of an institution’s failure. The European regulatory framework requires resolution authorities and institutions to rigorously assess and prepare these transfers.
The main findings are:
- Transferability requires a clear and dynamic definition of the transfer perimeter, integrating a first layer related to resolution objectives and a second layer including inseparable interconnections.
- Transferability obstacles, notably cross-border ones, must be identified and mitigated.
- Operational readiness, including sale planning, legal, financial and operational separation, as well as information systems continuity, is essential.
- Institutions must develop internal capabilities (playbooks, MIS, processes) to support rapid and reliable transfer implementation.
- Cooperation between resolution authorities and institutions is indispensable.
The conclusions emphasize the mandatory application of these guidelines from January 1, 2024, with an adaptation period. They recommend a proportionate approach according to the size and complexity of institutions, and particular attention to cross-border groups.
Key recommendations are:
- Methodically define the transfer perimeter considering objectives, interconnections, and obstacles.
- Prepare a transparent, structured sale process adaptable to different scenarios (accelerated or strategic sale).
- Establish legal, financial, and operational arrangements to ensure smooth separation.
- Develop management information systems enabling granular identification and rapid updating of transferred elements.
- Integrate these requirements into resolution plans and internal procedures immediately.
Thus, these guidelines strengthen the resilience of the European banking system by improving the capacity to effectively implement transfer strategies in crisis situations (p. 3-38).
- These guidelines were developed to complement the EBA resolvability guidelines of January 2022, focusing on transferability, a key subject not yet finalized.
- They respond to the regulatory obligation under Article 16 of Regulation (EU) No 1093/2010 and Directive 2014/59/EU, aiming to improve the preparedness of institutions and authorities for implementing transfer tools in resolution.
- Transferability is defined as all elements facilitating the transfer of an entity, business line, or a portfolio of assets, rights and/or liabilities to a purchaser, bridge institution, or asset management company.
- The document aims to harmonize practices within the EU, notably for cross-border groups, by specifying the methodology to define the transfer perimeter, identify and manage obstacles, prepare operational aspects and information systems.
- The guidelines apply to institutions subject to resolution planning, except those under simplified obligations, with the possibility for authorities to adapt their application.
- They set an effective date of January 1, 2024, allowing an adaptation period for stakeholders.
- Limits: do not cover the definition of bridge institutions and asset management companies, nor the processes to establish these entities.
- Stakes: ensure the credibility and feasibility of transfer strategies to guarantee continuity of critical functions and limit systemic risks (p. 5-12).
Definition of the transfer perimeter:
- The transfer perimeter is defined by resolution authorities, with active participation of institutions which must identify transferable elements and obstacles (p. 13-14).
- It includes a first layer corresponding to assets, rights and liabilities essential to achieve resolution objectives and comply with regulatory obligations (primary layer).
- A second layer integrates legal, financial, operational and commercial interconnections that cannot be separated without significant costs or delays (secondary layer) (p. 13-21).
- Authorities must allow division of the perimeter into units to adapt to different scenarios and facilitate implementation (p. 14).
Specific transfer tools:
- Sale of business (SoB): analysis of execution risks, market interest, possible perimeter simplification, market absorption capacity, and dynamic adjustments according to activity evolution (p. 14-16).
- Bridge institution (BI): perimeter definition according to objective and exit strategy, risk profile assessment, capital/liquidity adequacy, and possibility of share transfer (p. 15-16).
- Asset separation tool (AST): identification of eligible assets, consistency with the asset management company’s business model, maximization of liquidation proceeds, and long-term value assessment (p. 16-17).
Management of interconnections:
- Detailed identification of financial interconnections (guarantees, intra-group commitments, financing agreements), legal (contractual relationships, tax obligations, specific clauses), operational (expertise, personnel) and commercial (synergies, clientele) (p. 17-21).
- Analysis of separability conflicts and proposal of solutions to minimize risks and costs (p. 18-20).
Cross-border aspects:
- Identification of elements subject to national or third-country laws limiting transferability (p. 20-21).
- Dialogue with foreign authorities for recognition of transfer powers and establishment of agreements or specific clauses (p. 20-21).
Operational preparation of the transfer:
- Implementation of a transparent sale process, with schedule, task distribution, documentation, confidential communication, and consideration of regulatory constraints (p. 22-25).
- Internal segregation of portfolios, notably for distressed assets, with dedicated playbooks and use of recovery options (p. 25-26).
- Legal arrangements to facilitate separation, contract management, continuity of essential services, access to market infrastructures (FMIs) (p. 26-28).
- Development of internal processes (playbooks) to manage transfer execution, including governance, reporting, accounting adjustments, legal review, tax implications identification, business plans (p. 28-30).
Management information systems (MIS):
- Capacity to provide granular, up-to-date and reliable information on the transfer perimeter, interconnections, risks and legal aspects (p. 29-31).
- Support for operational continuity of transferred and residual entities, with flexibility for post-transfer adjustments (p. 30-31).
Support and compliance:
- Obligation for authorities and institutions to comply with the guidelines from January 1, 2024 (p. 10-12).
- Mandatory notification by authorities of their compliance to the EBA (p. 10).
- Proportionate application according to size, complexity and resolution strategy (p. 6-7).
Public consultation and feedback:
- Only one response received, highlighting the need for alignment with local rules, limiting institution involvement on cross-border aspects, and proportionality in requirements (p. 36-38).
- The EBA incorporated this feedback by strengthening flexibility and consistency with existing practices (p. 36-38).
- Established facts:
- Transferability is a key element of resolvability, requiring thorough preparation by institutions and authorities.
- The definition of the transfer perimeter must be dynamic, integrating resolution objectives and critical interconnections.
- Legal, operational and cross-border obstacles must be identified and mitigated.
- Operational preparation, including sale planning and entity separation, is essential to ensure feasibility.
- Information systems must allow precise and rapid management of transfer-related data.
- Assumptions:
- Institutions are able to propose alternative perimeters and identify obstacles.
- Resolution authorities have means to coordinate processes, notably cross-border ones.
- The market can absorb transferred perimeters according to capacity and appetite analyses.
- Interpretations:
- A harmonized and detailed approach improves the credibility of transfer strategies.
- Cooperation between authorities and institutions is indispensable to overcome obstacles.
- Flexibility and proportionality are necessary to adapt requirements to institution diversity.
- Uncertainties:
- Market conditions and legal frameworks evolution may impact transferability.
- Recognition of transfer powers by third-country authorities remains uncertain.
- The real market capacity to absorb certain complex perimeters is difficult to predict with certainty (p. 3-38).
- The guidelines must be fully integrated into internal procedures of institutions and resolution authorities before January 1, 2024.
- Institutions must develop robust internal capabilities, notably playbooks, adapted information systems and transfer management processes.
- Authorities must define clear methodologies for defining the transfer perimeter, managing interconnections and operational preparation.
- Particular attention must be paid to cross-border aspects, with enhanced dialogue between national and foreign authorities.
- Flexibility and proportionality must be applied, notably for institutions under simplified obligations or with resolution strategies varying over time.
- Authorities must notify their compliance to the EBA before March 9, 2023, and ensure regular monitoring.
- Cooperation between authorities, institutions and third parties is essential to ensure feasibility and credibility of transfer strategies.
- These measures aim to strengthen the resilience of the European banking system, reduce systemic risks and ensure effective implementation of transfer tools in crisis situations (p. 3-38).
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