BRRD provides resolution authorities with possibilities to intervene before an institution becomes subject to ordinary insolvency proceedings under national insolvency law. The conditions under which early intervention or recovery and resolution actions provided by BRRD may be triggered could overlap with conditions for insolvency proceedings in many member states. It is essential, that market participants can clearly distinct between the different cliff edges and the different measures.
According to Paragraph 1 of Article 27 BRRD early intervention measure may be applied where an institution infringes or, is likely in the near future to infringe the requirements for its authorisation. Institutions are not measured against their ability to meet their liabilities, as it would be the case under insolvency law, but against their regulatory requirements for authorisation. Infringements against the requirements for authorisation could lead to the withdrawal of the authorisation and the withdrawal on of an authorisation is very likely to cause a financial institution to become technically insolvent. It has to be ensured, that neither the early intervention measure nor the recovery and resolution measures would lead inevitably into insolvency since in most member states the initiation of insolvency proceedings is not in the discretion of resolution authorities. The guidelines have to provide for enough possibilities for resolution authorities to act and to achieve a favourable solution before insolvency or resolution proceedings have to be initiated. Therefore, the guidelines have to allow early intervention measures as early as necessary and appropriate.
A wide range of financial institutions is subject to BRRD. The guidelines have to allow an appropriate approach under Article 27 BRRD for all those institutions. A higher level of detail in the guidelines would be impractical and could cause unintended repercussions.
The IMA agrees in principle with the approach to trigger early intervention measures based on the outcome of SREP, but supervisors will have to ensure a responsible and appropriate use of the tools provided by ESMA’s guidelines for common procedures and methodologies for the SREP. The SREP is designed with a strong focus on deposit-taking credit institutions. EBA’s draft guidelines for common procedures and methodologies for the SREP are not taking the provisions of MiFID and MiFIR into account. It is undeniable that asset managers, especially when they are of a grade of significance making them subject to BRRD have to provide a sound capital basis. However, the risk arising from a struggling asset manager is significantly different to the risk arising from a failing bank. At the same time, the reasons for difficulties are fundamentally different. Resolution authorities have to be able to take those differences into consideration when taking their decision on early intervention measures or choosing a specific early intervention measure. According to Article 27 Paragraph I BRRD infringements of the provisions under MiFID and MiFIR, can trigger early intervention measures. Where asset managers are subject to BRRD the resolution authorities should base their decision on early intervention measures mainly on those operational requirements.
The proposed approach is a good starting point for defining triggers for early intervention measures with regard to banks. Where asset managers are subject to BRRD the guidelines will have to allow resolution authorities to adapt the key indicators to investment firms. The IMA would, therefore, propose to amend paragraph 21 of the draft guidelines accordingly. Not all areas stipulated in Article 27 Paragraph 1 are decisive for all institutions potentially covered by BRRD and the list of indicators which have to be monitored as a minimum may not be the most important for all institutions.
The IMA agrees with the approach taken in the guidelines. The list of significant events can only be an example and should be established and kept up to date by national competent authorities.