Should English law contracts include an Article 55 BRRD Bail-In Recognition Clause?
Following Brexit, there is a, we think unlikely, possibility that English law governed contracts to which an EU financial institution is a party may be required to contain clauses (BIRCs) recognising the EU regulatory bail-in powers, as required by Article 55 BRRD. BIRCs do not currently need to be included in contracts governed by laws of EU states as the bail-in powers would apply by virtue of the governing law. Therefore, BIRCs are not currently required in contracts governed by English law.
The UK implemented the bail-in stabilisation powers set out in BRRD via primary legislation under the Financial Services (Banking Reform) Act 2013. The Article 55 requirement for BIRCs is contained in the PRA Rulebook. The BRRD implements proposals of the Financial Stability Board which it would be reasonable to expect the UK to maintain following Brexit. The Article 55 requirement does not apply where the resolution authorities of the remaining Member States determine that the relevant liabilities can be subject to write down and conversion powers by the resolution authority of the United Kingdom pursuant to English law. Accordingly, assuming that the United Kingdom maintains legislation in place substantially identical to that required by the BRRD and that the other Member States acknowledge its equivalence to BRRD, it is unlikely that BIRCs will be required to be included in English law contracts.
However, there is no harm in including BIRCS in contracts governed by English law to which EU financial institutions are party to cover the eventuality of either of these assumptions being incorrect.