Brexit would in­crease res­o­lu­tion risks for Euro­pean cov­ered bonds

Financial Mirror (Cyprus) - - FRONT PAGE -

Bank res­o­lu­tion mea­sures could be chal­lenged in post-Brexit EU: The United King­dom’s exit from the Euro­pean Union would in­crease the res­o­lu­tion risks for non-UK Euro­pean cov­ered bonds gov­erned by English law, said Moody’s In­vestors Ser­vice.

The rat­ing agency says Brexit would raise the prospect that res­o­lu­tion mea­sures for Euro­pean cov­ered bonds may be chal­lenged. Un­less the UK and the EU en­ter into new ar­range­ments for re­cip­ro­cal recog­ni­tion, Brexit will place the UK out­side the EU’s BRRD frame­work for au­to­matic cross-border recog­ni­tion of res­o­lu­tion mea­sures. As such, UK courts may not recog­nise res­o­lu­tion mea­sures taken in the post-Brexit EU, where the mea­sures ap­ply to cov­ered bonds gov­erned by English law. Many Euro­pean cov­ered bond pro­grammes with no UK as­sets still have a UK di­men­sion, with bonds and swaps gov­erned by English law.

“A lack of le­gal cer­tainty un­der­mines res­o­lu­tion and that is credit neg­a­tive for cov­ered bonds. The risk that the courts might not recog­nise res­o­lu­tion mea­sures could pre­vent res­o­lu­tion from work­ing ef­fi­ciently to ben­e­fit cov­ered bonds as in­tended by the BRRD,” said John Ho­gan, an An­a­lyst at Moody’s.

“Res­o­lu­tion re­lies on le­gal cer­tainty and on res­o­lu­tion au­thor­i­ties’ abil­ity to act quickly and de­ci­sively and on the ba­sis that their de­ci­sion will be ef­fec­tive,” added Ho­gan.

Moody’s says a new recog­ni­tion frame­work would likely emerge but may of­fer less cer­tainty than the cur­rent sys­tem: “It is likely that some form of re­cip­ro­cal recog­ni­tion will even­tu­ally be im­ple­mented to make res­o­lu­tion mea­sures taken in EU mem­ber states ef­fec­tive in the UK post-Brexit,” said Jane Sold­era, a Se­nior Credit Of­fi­cer at Moody’s.

“How­ever, un­cer­tainty will per­sist un­til a new frame­work is im­ple­mented and, even when that hap­pens, the new frame­work may not of­fer the same level of cer­tainty as the cur­rent sys­tem,” said Sold­era.

Newspapers in English

Newspapers from Cyprus

© PressReader. All rights reserved.