site.btaAmendments to Recovery and Resolution of Credit Institutions and Investment Firms Act Pass Committee Stage

The parliamentary Budget and Finance Committee on Thursday approved on second reading a Government-proposed Bill to Amend and Supplement the Recovery and Resolution of Credit Institutions and Investment Firms Act.

The reasons to the draft legislation say that part of the revisions meet the requirements of EU Regulation (EU) 2022/2036 of the European Parliament and of the Council of 19 October 2022 as regards the prudential treatment of global systemically important institutions with a multiple-point-of-entry resolution strategy and methods for the indirect subscription of instruments eligible for meeting the minimum requirement for own funds and eligible liabilities. The requirements in questions should have been transposed into national legislation by November 15, 2023. On July 25, 2024, Bulgaria received a letter of formal notice from the European Commission on starting an infringement procedure against Bulgaria for failing to inform the Commission in due time of the measures taken for the implementation of the regulation.

The reasons point out further that as regards institutions and companies which, according to the resolution plan, are to be wound up under bankruptcy proceedings or in respect of which write-down and conversion powers will need to be exercised for capital instruments and eligible liabilities, Directive (EU) 2024/1174 introduces a new legal term: "liquidation entity", symmetrical to the pre-existent legal term "resolution entity". Clarity about the essence of a liquidation entity is crucial for the correct application of the deduction mechanism and for calculating the minimum requirement for own funds and eligible liabilities (MREL). Under definite circumstances, the resolution authority may determine the MREL for a particular liquidation entity on an individual basis exceeding the amount sufficient to absorb losses. The new rules laid down in Directive (EU) 2024/1174 regarding institutions and corporations where the resolution plan envisages liquidation under insolvency proceedings are transposed by revisions to the provisions of the Recovery and Resolution of Credit Institutions and Investment Firms Act, including by the addition of a legal definition of "liquidation entity".

The movers of the bill point out that the Final Provisions propose amendments to the Bank Insolvency Act addressing the need to take action for implementing a judgment of the European Court of Human Rights (ECtHR) in the Case of International Bank for Commerce and Development AD and Others v. Bulgaria (Application no. 7031/05) and a Roadmap for the Implementation of the Judgments Rendered by the ECtHR against Bulgaria, adopted by a Council of Ministers decision of 2021, as well as the need to repeal certain extrinsic and unensured powers of the minister of finance in bank insolvency proceedings.