Memo #
30950

Rescheduled for December 8 - Joint ICI Global/SIFMA AMG Call on Proposed BRRD Expanded Moratorium Powers
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[30950]

November 14, 2017 TO: Derivatives Markets Advisory Committee
ICI Global Regulated Funds Committee
Money Market Funds Advisory Committee RE: Rescheduled for December 8 - Joint ICI Global/SIFMA AMG Call on Proposed BRRD Expanded Moratorium Powers

 

On December 8th, at 10 am ET, ICI Global will hold a joint conference call with SIFMA AMG to discuss our opposition to expansion of special resolution moratoria in the EU under the EU Bank Recovery and Resolution Directive (“BRRD”). Please note that this call has been rescheduled from November 16th. The purpose of this call is to provide background on the proposed expanded moratorium powers under the BRRD and update members on the current status of the proposal. We will be joined on the call by outside counsel, John McGrath, of Sidley Austin LLP, and Steve Keen, of Perkins Coie. If you would like to participate in this call, the dial-in information is:

USA Toll Free: 1. 877.300.9106
UK Toll Free: 0808 238 9063
UK Toll: 020 3147 4901
Global Toll: 1. 412.902.6606
Additional International Numbers: https://services.choruscall.com/ccforms/passcodeconf.html
Passcode: 906 1296

Please find below a brief summary of the proposed expansion of the BRRD moratorium powers and the current status of the proposal. As you will see from the summary, ICI Global and SIFMA AMG have been working on this issue jointly for some time. Currently, we have an opportunity to educate EU decision-makers on the negative consequences of this proposal for regulated funds and other asset managers’ clients. For this reason, ICI Global has developed an extensive plan for outreach across the member state policy makers, members of the European Parliament and other authorities. In order to execute this plan, SIFMA AMG will cover some of these meetings. Key to our success will be member firms’ direct participation in these meetings, as well as participation in development of the analysis supporting our position.

If you or your colleagues would like to become involved in this effort, please join ICI’s Resolution Stay Working Group by contacting Jennifer Odom at jodom@ici.org. This working group also may serve as a forum to discuss US resolution stay issues in the future. ICI Global is coordinating closely with SIFMA AMG on the BRRD initiative – we understand that SIFMA AMG also has a Special Resolution Working Group. If you are a member of both organizations, we encourage you to join both working groups.

Background and Current Status of Proposed Expansion of BRRD

  • In November 2016, the European Commission released its proposed expansion of the BRRD moratorium, which would move from a two-day stay upon commencement of resolution proceedings to a stay of up to twelve days, adding pre-resolution stays of five working days on payments and deliveries at the early intervention stage and a further five working day stay in which to prepare for resolution and valuation.[1]
  • SIFMA AMG and ICI Global jointly submitted a letter in June 2017 in which we outlined a number of concerns with the proposed expansion,[2] including:
    • Diminution of collateral protection that could dissuade investment managers and funds from engaging in reverse repurchase agreements, securities loans, and derivative contracts with in-scope EU banks as a response to increased credit risks.
    • Reduction (potentially elimination) of any discount in the cost of collateralized funding and increase the overcollateralization margins for these transactions, reducing the volume of such transactions and the efficiency of the financial markets.
    • Inconsistency with laws applicable to pension funds, regulated investment funds, private funds and other investors. Examples include:
      • Ambiguities around whether depositaries will continue to perform
      • UCITS liquidity requirements
      • Investment maturity requirements/restrictions for UCITS and US money market funds
      • Counterparty credit restrictions for US investment companies
  • Sell side associations have also submitted several letters in opposition to the expansion.[3]
  • To date, EU Member states have been unable to agree on a path forward, resulting in a series of evolving proposals and counterproposals to reach a compromise. A recent proposal recommended a pre-resolution moratorium not to exceed five days, which would be in addition to the existing two-day stay. The European Central Bank recently issued an opinion outlining its views on the appropriate use and length of moratorium tools.[4] Among other things, the ECB states its view that a moratorium should last a maximum total of five working days.
  • We expect the European Parliament, Council and Commission will continue to work on a compromise leading up to a trialogue negotiation, and are expected approximately mid-2018 to finalize the standard.

 

Sarah A. Bessin
Associate General Counsel
 

endnotes

[1] See BRRD II Proposal.

[2] Available at https://www.ici.org/pdf/30761a.pdf.

[3] See, e.g., Oct 2017 Letter from AFME/EBA; Sept 2017 ISDA Paper.

[4] See opinion.