Regulation (EU) 2022/2036 (the ‘daisy chain’ regulation which introduces targeted adjustments to improve the resolvability of banks) has been published in the Official Journal.

Part of the European Commission’s October 2021 Banking Package, the new Regulation will amend the Capital Requirements Regulation (CRR) and make consequential changes to the Bank Recovery and Resolution Directive (BRRD). It will amend the current EU bank resolution framework by:

• incorporating a dedicated treatment for the indirect subscription of instruments eligible for internal minimum requirement for own funds and eligible liabilities (MREL);
• further aligning the treatment of global systemically important institution (G-SII) groups with a multiple-point-of-entry (MPE) resolution strategy with the treatment outlined in the Financial Stability Board’s international Total Loss-absorbing Capacity (TLAC) Term Sheet;
• clarifying the eligibility of instruments in the context of the internal TLAC.

The EU Council and European Parliament reached political agreement on the ‘daisy chain’ proposal in April 2022, following detailed negotiations on two key points: (a) a revised deduction regime to avoid double-counting of MREL elements at the level of intermediate entities, and (b) a transitional regime until end-2024 for MPE groups, subject to an assessment by EU resolution authorities.

In anticipation of the publication of the ‘daisy chain’ Regulation in the Official Journal, the Single Resolution Board published a related statement on changes to TLAC and MREL policy for MPE banks in September 2022.

Timing – CRR changes

• The amendments to the CRR relating to the indirect subscription of internal MREL eligible instruments within resolution groups will apply from 1 January 2024.
• The remaining provisions CRR-related provisions of the Regulation will apply from 14 November 2022.

Timing – BRRD changes

• The consequential changes to Articles 45d(4) and 45h(2) of the BRRD relating to the indirect subscription of internal MREL eligible instruments within resolution groups must be implemented by Member States by 15 November 2023.
• The other amendments to the BRRD will apply from 14 November 2022.