Background
The Bank Recovery and Resolution Directive (BRRD) establishes a comprehensive framework for authorities to deal with failing banks at the national level. It also includes provisions for cooperation arrangements to address cross-border bank failures. The BRRD is fully in line with the Financial Stability Board's (FSB) recommendations and establishes another pillar of the European Banking Union, together with the Single Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM). Whilst the former provides for an integrated bank oversight mechanism, the latter sets out the institutional and funding architecture for applying uniform recovery and resolution rules within the Union.
Scope and Responsibilities of the Resolution Authority and Resolution Committee in Malta
Following from the above, the Resolution Authority in Malta was established, within the Malta Financial Services Authority, on the 17 July 2015. The Board of Governors of the MFSA will now also act as the Resolution Authority, which is the authority appointed for the purposes of Article 3 of the BRRD.
Furthermore, the Resolution Authority has appointed a Resolution Committee which shall have all the powers assigned to the Resolution Authority under the BRRD. The composition, powers and functions of the Resolution Committee are governed by the provisions set out in the First Schedule to the Malta Financial Services Authority Act. In this respect, and in order to achieve its statutory responsibilities in a transparent and credible manner, the Resolution Authority and the Resolution Committee shall be operationally independent and shall act independently of each other and of the Supervisory Council. The Resolution Committee will have resolution and other executive powers in order to carry out its functions. The three members forming the Resolution Committee are Mr Emanuel Ellul, Mr Paul Spiteri and Mr Alfred Sladden.
In line with international standards, the Resolution Committee will have the following four distinct objectives:
- to safeguard the continuity of essential banking operations;
- to protect depositors, client assets and public funds;
- to minimise risks to financial stability; and
- to avoid any unnecessary destruction of value.
The Resolution Committee will have a harmonised minimum set of resolution tools which will include the power: to sell or merge the business with another bank, to set up a temporary bridge bank, to separate good assets from bad ones and to convert to shares or write down the debt of failing banks (bail–in) as well as to replace senior management.
The amendments to the Act also created a Resolution Unit which, when established, shall carry out the functions assigned to it under the Act, and as may be assigned to it by the Resolution Committee, from time to time. The main duties of the Resolution Unit will be to:
- assess whether an institution is failing or is likely to fail, after consulting the Authority;
- draw up resolution plans, after consulting the Competent Authority, on how to deal with financial stress or failure of institutions, including at group level;
- carry out resolvability assessment of institutions;
- cooperate, liaise and exchange information, as necessary, with the Units respectively responsible for supervision of credit institutions and investment firms within the Authority.
The legal framework to put into effect the BRRD, also involved the transposition of the BRRD into Maltese Law through the enactment of a Legal Notice issued under the MFSA Act. The proposed regulations transposing the BRRD ensure close and effective collaboration and exchange of information between the Resolution Committee and the Competent Authority. The experience, information and specific knowledge gained about individual institutions by the competent authority when performing its supervisory duties is also relevant to the Resolution Unit.
The Competent Authority is responsible for analysing the recovery plans which are to be drawn up and submitted by the institutions, and has to closely liaise with the Resolution Unit to ensure that what is being stated by the institution is achievable. Where the recovery plan is not adequate, both the Competent Authority and the Resolution Unit may recommend changes.
The Resolution Unit will be entrusted with the preparation and the execution of resolution plans at national level and will consult with the Competent Authority on this issue. Such plans are prepared ex-ante and would be based on information provided by the institution in normal times and applied in times of crises with the aim of facilitating the effective use of resolution powers to protect systemically important functions, without severe disruption to the financial system or exposing taxpayers to undue burden. The resolution plan should explain how the institution will be resolved while protecting critical functions and financial stability.
The Resolution Unit will also be required to identify and mitigate weaknesses to resolvability by adopting specific measures. These include: reducing the complexity in the institutions' structure; limiting individual and aggregate exposures; limiting or prohibiting activities, products and business areas; and imposing requirements to issue additional convertible capital instruments.
Finally, the enactment of this legislation and the setting up of the requisite structures will now allow the authorities to deal with a banking crisis at an early stage and should a situation deteriorate further, would have the necessary tools to resolve a failing institution in an orderly manner thus ensuring long term financial and economic stability and reducing the potential public costs of a possible future crises.
The Setting Up Of The Resolution Authority
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