The Council of Ministers has approved the Draft Law (APL) on 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 final 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 has as background the Law 9/2012 that already advanced many of the aspects of what at the time was the draft directive and that remain in the APL. This also addresses the following issues:
- It develops the legal framework of the planning phase of the resolution of entities. It includes the periodic elaboration of restructuring, resolution plans and the analysis of the authorities about their facility to be resolved in an orderly manner.
- Design a new loss absorption scheme by creditors (dance in) which may imply that all creditors have to contribute to the consolidation of an entity and not only the subordinates, as until now. This new harmonized regime 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 which, as of 2016, must be integrated into the Single European Fund.
- It articulates the mechanisms of collaboration between the Spanish authorities and the MUR.
The APL foresees the need for all entities to have, in a preventive manner, 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 taken if 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 unfeasible 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 solvency regulations, but is willing 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, and so on. The FROB will be informed at all times of the adoption of these measures.
In addition to the early action procedure, the APL contemplates the resolution procedure. This will apply when an entity is unfeasible or 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 an unfeasible situation.
The FROB, as the executive resolution authority, may carry out this evaluation in certain cases. Finally, and after carrying out the aforementioned actions, it will be the FROB who analyzes whether the rest of the circumstances that must be present to initiate the resolution procedure occur; that is, that there is no solution of a private nature and that there is a public interest at the beginning of such a process. Once the conditions for the resolution are met, the FROB will agree to open the resolution process and, with exceptions, will proceed to replace the administration body.
From that moment, the FROB will activate, as it considers best, the resolution instruments. Among them the so-called internal recapitalization or bail-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 the imposition of losses to all creditors and not only to the level of subordinates, as is done today by Law 9/2012. It will be operational from 2016.
The loss absorption cycle will be as follows:
1. First, shareholders and creditors would assume losses 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 is not enough, internal recapitalization will continue on the other creditors, ultimately affecting deposits and excluding 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 natural persons or SMEs will have recognized preference as creditors, only subordinated 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 thereof 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 entity in resolution 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 according to the proportion that the total liabilities of the entity, excluding 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 MUR is fully operational, the national resolution funds of the euro zone member countries 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, in accordance with the following calendar: First year, 40%; second year, 20%; the following six years, 40% remaining, in equal percentages.
The design of the institutional architecture foresees that the FROB maintains the legal regime provided by the current Law 9/2012. However, the APL introduces slight developments 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 management and ordinary management. His term of office shall be five years, which cannot be extended and the causes of termination shall be assessed.
The APL configures a system in which the preventive resolution authorities (Bank of Spain 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 resolution planning. They are in charge, therefore, of approving the resolution plans and taking the appropriate decisions on the evaluation of the resolubility of the entities.
For its part, the FROB is the executive resolution authority, responsible for the executive phase (launch of a resolution and execution of resolution plans). It may determine the unfeasibility of an entity, which triggers its resolution, prior notice to 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 member with vote and a representative of the Bank of Spain as an observer.
However, the previous institutional architecture, of national scale, will be substantially modified from the final implementation of the MUR. From that moment on, the European MUR will be the Spanish preventive and executive resolution authority for all significant entities (90 of the total Spanish banking sector). Therefore, from that moment, the Spanish scheme of distribution of competences between Banco de España, CNMV and 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, relating to 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 reach, which will be 0.8% of the covered deposits.
