The Council of Ministers has approved the Draft Law (APL) for Restructuring and Resolution of Credit Institutions and Investment Services Companies that adapts to Spain one of the pillars of the Banking Union and whose objective is to preserve the stability of the financial sector. In it, the processes of resolution of entities in their preventive phase, the mechanisms of early action and the definitive resolution are designed, as well as the framework of action of the competent authorities. This complies with Directive 2014/59 / EU and Regulation 806/2014 creating the Single Resolution Mechanism (MUR) in which Spain is integrated.
The norm approved today is preceded by Law 9/2012, which has already advanced many of the aspects of what was at the time the draft directive and which remain in the APL. It also addresses the following questions:
- Develops the legal framework for the planning phase of entity resolution. It includes the periodic preparation of restructuring plans, resolution and the analysis of the authorities on their ease to be resolved in an orderly manner.
- Designs a new loss absorption scheme by creditors (dance in) which may imply that all creditors have to contribute to the cleanup of an entity and not only subordinates, as until now. This new harmonized system at European level will enter into force in 2016. The designed scheme has two important consequences: it protects depositors more effectively and allows, if in the future the resolution of an entity is necessary, the cost of the same be less than until now.
- It constitutes a National Resolution Fund financed by the industry that, from 2016, must be integrated into the Single European Fund.
- It articulates the collaboration mechanisms between the Spanish authorities and the MUR.
The APL foresees the need for all entities to have, as a preventive measure, a restructuring plan and a resolution plan. The restructuring plan will be proposed by the entity to the supervisor (Bank of Spain or European Central Bank and CNMV) for approval. It will contain the set of measures that could be adopted in case the entity has difficulties but is viable. The resolution plan will be approved by the preventive resolution authority and will contain the set of measures that the resolution authority will apply in the event that the entity is not viable and, in order to protect the public interest, must be resolved.
For its part, the early action procedure will be applied to an entity when it cannot comply with the solvency regulations, but is in a position to do so by its own means. It will be the competent supervisor who will initiate said procedure and adopt the early action measures contemplated in the APL. Among these measures are the intervention of the entity, provisional replacement of its administrators, restructuring of its debt, imposition of changes in the commercial strategy or in the legal structure of the entity, etc. The FROB will be informed at all times of the adoption of these measures.
In addition to the early action procedure, the APL includes the resolution procedure. This will be applied when an entity is unfeasible or it is foreseeable that it will be in the future and that for reasons of public interest and financial stability it is necessary to avoid bankruptcy. The competent supervisor, after consulting the preventive resolution authority and the FROB, can assess whether an entity is in a situation of non-viability.
The FROB, as the executive resolution authority, may carry out this evaluation in certain cases. Finally, and after carrying out the aforementioned actions, the FROB will be the one to analyze whether the other circumstances that must occur to initiate the resolution procedure occur; that is, that there is no private solution and that there is a public interest in the beginning of such a process. Once the conditions for resolution are in place, the FROB will agree to open the resolution process and, with the exception of assessed exceptions, will proceed to replace the administrative body.
From then on, the FROB will activate, as it deems best, the resolution instruments. Among them the so-called internal recapitalization or dance-in, through which it is intended to minimize the impact of the resolution on taxpayers, ensuring an adequate distribution of costs between shareholders and creditors. The great novelty of this instrument is that it allows losses to be imposed on all creditors and not only up to the level of subordinates, as the current Law 9/2012 does today. It will be operational from 2016.
The loss absorption cycle will be as follows:
1. First, shareholders and creditors would assume losses of up to 8% of the entity's total liabilities.
2. If this is not enough, the Resolution Fund could assume losses for a maximum amount of 5% of the entity's total liabilities.
3. If this were not enough, the internal recapitalization of the rest of the creditors will continue, ultimately affecting the deposits and excluding the deposits covered by the Deposit Guarantee Fund.
The need to impose losses on shareholders and creditors is compatible with special protection for deposits:
-Deposits of less than 100,000 euros maintain the direct guarantee of the Deposit Guarantee Fund.
-Deposits will also have preferential treatment in the hierarchy of creditors. Thus, all deposits of individuals or SMEs will have recognized preference as creditors, only subject to the level of protection granted to deposits of less than 100,000 euros.
The rest of the instruments were already included in Law 9/2012. The APL simply complements and perfects its regulation, in accordance with the European directive. Specifically, the sale of the entity's business: the entity or part of it is transmitted to a private subject to protect essential services; the creation of a bridge entity that transfers the salvageable part of the entity in resolution; and the creation of an asset management company, to which the toxic assets of the resolution entity are transferred.
Another novelty of the APL is the creation of a National Resolution Fund financed by contributions from credit institutions and investment services companies. It will be managed by the FROB and its financial resources must reach at least 1% of the guaranteed deposits of all entities. The FROB will have the resources of this fund to finance the resolution measures. The contribution of each entity will be determined taking into account the proportion that the entity's total liabilities, excluding its own resources and the amount of guaranteed deposits, represent over the aggregate total of the entities. Additionally, the contributions will be adjusted to the risk profile of each entity.
In any case, it should be noted that, as of January 1, 2016, once the European SRM is fully operational, the national resolution funds of the member countries of the euro area will be integrated into a Single Resolution Fund. The mutualization of the use of this single fund will be carried out progressively over a period of 8 years, according to the following calendar: First year, 40%; second year, 20%; the following six years, remaining 40%, in equal percentages.
The design of the institutional architecture foresees that the FROB maintains the legal regime provided by current Law 9/2012. However, the APL introduces slight changes in the composition of the governing committee: it includes a representative of the CNMV, and the figure of the president is created as the maximum representative of the FROB, in charge of its ordinary direction and management. His term of office will be five years and cannot be extended and the causes of dismissal will be assessed.
The APL sets up a system in which the preventive resolution authorities (Banco de España and CNMV) and the executive resolution authority (FROB) are distinguished, specialized according to the functions to be performed. Through operationally independent bodies, the Bank of Spain for credit institutions and the CNMV for investment service companies are configured as the preventive resolution authority, responsible for the preventive phase or planning of the resolution. Therefore, they are in charge of approving the resolution plans and making the appropriate decisions on the assessment of the entities' resolvability.
For its part, the FROB is the executive resolution authority, responsible for the executive phase (launch of a resolution and execution of resolution plans). You may determine the infeasibility of an entity, which triggers its resolution, after notifying the competent supervisor. In addition, it will be the authority responsible for the use of all resolution instruments. The meetings of the Mechanism Board would be attended by a representative of the FROB as a voting member and a representative of the Bank of Spain as an observer.
However, the previous institutional architecture, on a national scale, will be substantially modified after the definitive implementation of the MUR. From that moment, the European MUR will be the Spanish preventive and executive resolution authority for all significant entities (90 of the total of the Spanish banking sector). Therefore, from that moment on, the Spanish scheme for the distribution of powers between the Bank of Spain, the CNMV and the FROB will be operationally limited to small banking entities and investment services companies.
The APL includes among its final provisions a modification of the legal regime of the Deposit Guarantee Fund. This modification is a consequence of the transposition of Directive 2014/49 / EU, regarding deposit guarantee systems, which harmonized the operation of these funds at European level. Specifically, a minimum objective level is established by law that the resources of the Deposit Guarantee Fund must achieve, which will be 0.8% of the deposits covered.
