The ISDA 2015 Universal Resolution Stay Protocol (Universal Stay Protocol), developed by ISDA in close coordination with the Financial Stability Board (FSB) and a number of national resolution authorities, addresses a major impediment to the resolvability of global financial institutions. By ensuring counterparties to an entity in resolution are on equal footing with respect to the exercise of default rights, regardless of the governing law of their agreements with that entity, the Universal Stay Protocol is a critical part of efforts to end ‘too big to fail’.
New moratoria powers under the Bank Recovery and Resolution Directive (BRRD) proposed by the European Commission (EC) could trigger opt-out rights for entities that have adhered to the Universal Stay Protocol, therefore jeopardizing its effectiveness for European Union (EU) financial institutions. This would contravene efforts of the FSB to develop effective cross-border resolution frameworks, and would be a step backwards in the implementation of resolution strategies for EU financial institutions with global operations. It would also likely result in an unlevel playing field, with counterparties to non-EU-law-governed agreements standing to benefit at the expense of counterparties to EU-law-governed agreements.
This paper elaborates on the issues that could arise if the proposed moratoria powers are enacted and opt-out rights are triggered under the Universal Stay Protocol.