The impact of Brexit on “bail-inable” liabilities under English law

Abstract

Over three years have passed since 29 March 2017, the date when the United Kingdom (UK) triggered Article 50 of the Treaty on European Union (TEU). This date has become well-known, for paving the way to multiple legal issues, which mostly depend on the finalisation of an agreement setting the conditions for the future relations between the European Union (EU) and the UK. Despite recent political declarations, the Brexit outcome is now clear, and a transitional period has just begun. As a result, for the resolution of credit institutions established in the EU, the bail-in of liabilities previously established under English law could become problematic. To date, the EU framework for the resolution of credit institutions (namely, the Bank Recovery and Resolution Directive – BRRD) lacks a provision for the direct recognition of liabilities governed under third-country law. However, through its Article 55, the BRRD leaves to the EU Member State (MS) the duty to require entities to include “resolution-proof” clauses or, alternatively, to conclude a binding agreement with the relevant third country. This leaves a legislative gap concerning this direct recognition. By analysing the current EU legal framework for the bail-in of liabilities established with contracts governed by third-country law, with a view to identify its weaknesses, this paper aims at addressing possible practical solutions. The purpose is to ease the resolution process for the relevant administrative authority of the EU MS in charge of the resolution procedure, without the need of an immediate intervention of the legislator. Indeed, a solution for such gap in the BRRD might be disentangled outside the Brexit withdrawal agreement, or with specific arrangements between the EU/EU MS and the UK administrative authorities.