With MiFID2, PRIIPS and the Benchmark Regulation all having entered into effect this year, we now alert you to another highly relevant development for capital market practitioners: senior non-preferred debt instruments by Dutch banks and investment firms.
On 27 December 2017, a directive amending Directive 2014/59/EU (on the recovery and resolution of credit institutions and investment firms) (the Amending Directive) was published in the EU Official Journal; the text of the Amending Directive can be found here.
The Amending Directive creates a new rank of debt instruments - referred to as “senior non-preferred” - to be redeemed immediately after senior unsecured liabilities and before subordinated liabilities (such as Tier 1 and Tier 2 capital instruments). The Amending Directive will need to be implemented into national laws by 29 December 2018.
The Amending Directive’s aim is to create a level playing field for European banks and investment firms, which are required to issue sufficient bail-innable liabilities in accordance with global (TLAC) and European (MREL) requirements. Some EU countries (such as Germany, France and others) had already made their own laws allowing banks and investment firms the option to issue such debt instruments.
Dutch legislative proposal
The Netherlands has not yet introduced similar laws providing for senior non-preferred debt. However, on 05 December 2017, the Dutch Ministry of Finance published a consultation on a legislative proposal for the ranking of senior non-preferred debt instruments to be issued by Dutch banks and investment firms.
The text of the draft legislative proposal can be found here and the explanatory memorandum can be found here (in Dutch only).
Essentially, the draft legislative proposal proposes to insert a new article in the Dutch Bankruptcy Act reading as follows:
- Immediately after the claims unsecured claims and before the claims referred to in article 277, paragraph 2, of Book 3 of the Dutch Civil Code, claims resulting from debt instruments within the meaning of article 2(1)(48)(ii) of Directive 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 (OJEU 2014, L 173), which meet the criteria set out in article 108(2) of that Directive, will be recovered from the insolvent estate.
- The claims resulting from debt instruments, within the meaning of paragraph 1, rank equally among themselves.
- This article shall apply by analogy in respect of a bankrupt entity which, at the time of issuing the debt instruments, was an entity withing the meaning of article 3A:2, paragraphs (b) to (f) (inclusive) of the Dutch Financial Supervision Act (Wet op het financieel toezicht).
Comments on the Dutch legislative proposal
Simmons & Simmons has submitted its reaction on the legislative proposal (which can be found here (in Dutch only)). In essence, we are of the view that:
- The legislative proposal creating senior non-preferred debt instruments for Dutch banks and investment firms is to be welcomed, as this helps Dutch banks and investment firms to operate on a level playing field with other EU institutions who have long had similar legislative facilities in place.
- The Amending Directive provides for transitional provisions, which have not been included yet in the Dutch legislative proposal. We suggest to include transitional provisions in the Dutch legislative proposal as well, so that any debt instruments issued by Dutch banks and investment firms that meet the relevant characteristics may benefit from the Dutch act implementing the Amending Directive already now (as do banks and investment firms from other EU jurisdictions that already have laws in place).
- The proper place for the proposed Dutch law provisions is not in the Dutch Bankruptcy Act dealing with the insolvency of banks, but the Dutch Financial Supervision Act, as this already deals with regulatory capital and bial-in provisions regarding Dutch banks and investment firms, or in a new section of the Dutch Bankruptcy Act reflecting the fact that "senior non-preferred" debt instruments may be issued by all entities that fall within the scope of BRRD.
- The text of the Dutch legislative proposal now refers only to the new category of senior non-preferred instruments ranking ahead of instruments that are subordinated on the basis of Dutch law contractual provisions. There are other bases for subordination (eg law, unilateral act, judicial decisions, foreign law governed contractual provisions) that should be factored in as well.
- A Dutch law reference will need to be corrected.
If you have any questions or would like to share your own views on the legislative proposal, please let us know.
This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.