Delegated regulation 2016/1401 - Supplement to Directive 2014/59/EU establishing a framework for the recovery and resolution of credit institutions and investment firms with regard to regulatory technical standards for methodologies and principles on the valuation of liabilities arising from derivatives - Main contents
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Commission Delegated Regulation (EU) 2016/1401 of 23 May 2016 supplementing Directive 2014/59/EU of the European Parliament and of the Council establishing a framework for the recovery and resolution of credit institutions and investment firms with regard to regulatory technical standards for methodologies and principles on the valuation of liabilities arising from derivatives| Legal instrument | delegated regulation |
|---|---|
| Number legal act | Delegated regulation 2016/1401 |
| CELEX number i | 32016R1401 |
| Document | 23-05-2016; Date of adoption |
|---|---|
| Publication in Official Journal | 23-08-2016; OJ L 228 p. 7-15 |
| Effect | 12-09-2016; Entry into force Date pub. +20 See Art 9 |
| End of validity | 31-12-9999 |
23.8.2016 |
EN |
Official Journal of the European Union |
L 228/7 |
COMMISSION DELEGATED REGULATION (EU) 2016/1401
of 23 May 2016
supplementing Directive 2014/59/EU of the European Parliament and of the Council establishing a framework for the recovery and resolution of credit institutions and investment firms with regard to regulatory technical standards for methodologies and principles on the valuation of liabilities arising from derivatives
(Text with EEA relevance)
THE EUROPEAN COMMISSION,
Having regard to the Treaty on the Functioning of the European Union,
Having regard to Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms and amending Council Directive 82/891/EEC, and Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC, 2011/35/EU, 2012/30/EU and 2013/36/EU, and Regulations (EU) No 1093/2010 and (EU) No 648/2012, of the European Parliament and of the Council (1), and in particular Article 49(5) thereof,
Whereas:
(1) |
Directive 2014/59/EU entrusts resolution authorities with the power to write down and convert liabilities of an institution under resolution. |
(2) |
Derivative contracts may represent a significant share of the liability structure of certain credit institutions. However, the valuation of such contracts is a complex process given that their value is linked to the value of underlying instruments, assets or entities, which evolves over time and only crystallises at maturity or upon close-out. |
(3) |
Past experience illustrates that the complexity of valuing derivative liabilities upon failure of one of the counterparties may make the valuation process time-consuming, involve enormous costs and give rise to litigation. |
(4) |
Furthermore, practice illustrates that derivative contracts may contain different methodologies to determine the amount due between counterparties upon close-out, some of them leaving the determination of the close-out amount or the close-out date, or both, entirely to the non-defaulting counterparty. |
(5) |
Accordingly, in order to avoid moral hazard and ensure the efficiency of the resolution actions, resolution authorities should adopt and implement appropriate methodologies to value liabilities arising from derivative contracts within a timeframe compatible with the swiftness of the resolution process and based on objective and, where practicable, readily available information. It is important that the valuation methodology sets out some procedural provisions on communication of close-out decisions by the resolution authority as well as on how to obtain replacement trades from the closed-out counterparties. |
(6) |
Derivative contracts subject to a netting agreement give rise to a single close-out amount in the event of a contractual early termination. Article 49 of Directive 2014/59/EU provides that the value of such contracts is determined on a net basis in accordance with the terms of the agreement. The resolution authority or independent valuer should therefore respect netting sets defined in the netting arrangements without being able to choose certain contracts and exempt others. |
(7) |
Pursuant to Article 49 of Directive 2014/59/EU, the value of derivative contracts is determined by the resolution authority or independent valuer as part of the valuation process carried out under Article 36 of that Directive. With respect to derivative liabilities, the valuation process should aim to determine a prompt and ex ante valuation for bail-in purposes, and at the same time allow the resolution authority adequate flexibility for ex post adjustment of claim amounts. |
(8) |
The assessment of whether to bail-in or to exclude derivative... |
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