Clarification regarding referral to Council on Legislation about changes to regulations for managing financial firms in crisis

News 18 helmikuuta 2021

On 11 February 2021, the Swedish Government decided on a proposal referred to the Council on Legislation for consideration, concerning revisions to the regulations for managing financial firms in crisis. The Swedish National Debt Office is hereby making some clarifications in regard to what the proposed regulatory changes entail.

The referral to the Council on Legislation contains proposals for how parts of the so-called EU banking package are to be transposed into Swedish law. Specifically, the referral pertains to parts of the banking package that concern resolution and the Minimum Requirement for Own Funds and Eligible Liabilities (MREL). The changes are proposed to enter into force on 1 July 2021.

See the proposal referred to the Council on Legislation for consideration (lagrådsremiss) on the Government’s website (only available in Swedish)

Although changes to the legislative proposal – ultimately presented as a bill to be adopted in the Swedish parliament (Riksdag) – may still occur, the Debt Office has chosen to clarify at this juncture how certain regulatory changes will affect the agency’s work in the near future. If the legislative proposal changes, the Debt Office may revise the clarification below.

The referral states that the Debt Office’s decisions on MREL requirements in accordance with the new regulations shall apply as of 1 January 2024. To enable a linear build-up to the requirements that are to be met in 2024, the Debt Office must also determine intermediate target levels that will apply until then. Until decisions in accordance with the new regulations have been made, the MREL requirements that have been set under the current regulations will apply.

As a result of these proposals in the referral, the Debt Office intends to make new decisions on MREL requirements in accordance with the regular cycle for resolution planning, i.e. in December 2021. For Swedish banks that are subsidiaries of foreign groups, the time of decision may deviate from this.

Once the decisions under the new regulations have been made, all resolvability principles currently applied by the Debt Office will no longer be applicable, because the new regulations contain stipulations that essentially replace the function of these principles.

When the Debt Office makes new decisions, the previous requirements will be replaced by a target level, which will apply as of 1 January 2022, as well as a requirement that will apply as of 1 January 2024. The Debt Office intends to, in good time before December, revert with an updated memorandum on the application of MREL describing in further detail how these requirements will be determined. The target levels will be decided taking into account the banks’ current requirements and compliance, in order to enable a linear build-up until 1 January 2024.

Finally, the referral to the Council on Legislation states that certain parts of the new regulatory framework are to be imposed through rules at a lower level than laws. The Debt Office will therefore during the spring present a referral for consideration with proposals for regulations, so that these can come into force as the same time as the new legislative proposal.