French Monetary and Financial Code
In forceI. - The following commitments may not be written down or converted, regardless of the legal regime applicable to them:
1° Covered deposits defined in application of 2° of article L. 312-16 or covered by an equivalent system;
2° Guaranteed commitments, including guaranteed bonds, and commitments in the form of financial instruments used for hedging purposes which form an integral part of the hedging pool and which are guaranteed in a manner equivalent to the guaranteed bonds;
3° Any commitment resulting from the holding by a person subject to a resolution procedure of client assets or liquidities, including client assets or liquidities deposited by a UCITS mentioned in Article L. 214-2 or an FIA mentioned in Article L. 214-24 or any other equivalent body in a Member State, provided that the client is protected by the applicable insolvency legislation;
4° Any commitment resulting from a trust relationship between a person acting in a fiduciary capacity, subject to a resolution procedure, and its beneficiary, provided that the beneficiary is protected by the applicable insolvency or civil law;
5° Commitments with an initial maturity of less than seven days to credit institutions or investment firms or any firm which, if it operated in France, would be required to have the same authorisation, and which are not part of the same group as the person subject to resolution proceedings;
6° Commitments with a residual maturity of less than seven days to a central counterparty within the meaning of Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 or to a system referred to in I of Article L. 330-1, its manager or its participants and which result from participation in such a system ;
7° Any commitment to any of the following persons or services:
a) An employee, in relation to accrued salaries, retirement allowances or any other fixed remuneration, with the exception of the variable component of remuneration which is not regulated by a collective agreement and the variable component of the remuneration of significant risk-takers as defined in Article L. 511-71 ;
b) A commercial creditor, in connection with the supply to a person subject to a resolution procedure of goods or services essential to its operation;
c) Tax and social security authorities, provided that these commitments are considered as preferential claims;
d) The deposit guarantee and resolution fund under the deposit guarantee mechanism mentioned in 1° of II of Article L. 312-4 or equivalent systems.
The collège de résolution shall ensure that the assets covering the privileged resources are not affected in their entirety, remain separate and are sufficiently financed.
However, the exclusions mentioned in 1° to 7° do not prevent, where applicable, the reduction in value or the conversion of the part of a commitment guaranteed or covered by a surety, and which exceeds the value of the assets, pledge, lien or surety given as a guarantee. The same applies to the part of a deposit that exceeds the guarantee ceiling provided for in 2° of article L. 312-16 or any equivalent mechanism.
8° Commitments to persons mentioned in 3° to 6° of I of Article L. 613-34, who are part of the same resolution group without themselves being resolution entities, regardless of their maturity, except where these commitments rank below the commitments mentioned in 3° of I of Article L. 613-30-3. In cases where this exception applies, the resolution college shall assess whether, for the person concerned, the amount of the commitments required to meet the requirement referred to in IV of Article L. 613-44 is sufficient to implement the preferred resolution strategy.
II. - In exceptional circumstances, when an internal bail-in measure is implemented, certain eligible commitments may also be excluded in whole or in part from the write-down or conversion measures, in particular:
1° Where it is not possible to carry out the write-down or conversion within a reasonable period of time;
2° Where such exclusion is necessary and proportionate to ensure the continuity of the critical functions and fundamental activities of a person subject to a resolution procedure;
3° Where the exclusion is necessary and proportionate to avoid a widespread contagion likely to cause serious disruption to the functioning of the financial markets and beyond that to the national economy or that of another Member State of the European Union or that of the Union as a whole;
4° When the application of an internal bail-out measure to these commitments would cause such a destruction of value that the losses suffered by other creditors would be greater than those that would result from the exclusion of these commitments from the application of the internal bail-out measure.
In the event of the total or partial exclusion of a usable commitment or a category of usable commitments for an internal bail-in, the write-down or conversion rate applied to the other eligible commitments may be increased to take account of these exclusions, in compliance with the principle set out in Article L. 613-57.
These exclusions may be applied to exclude all or part of a commitment from the measures mentioned in I.
The resolution college shall assess whether commitments to persons referred to in I of Article L. 613-34 which are part of the same resolution group without themselves being resolution entities, and which are not excluded from write-down or conversion measures pursuant to 8° of I of Article L. 613-55-1, should be excluded in whole or in part pursuant to II of Article L. 613-55-1 in order to ensure the effective implementation of the resolution strategy.
III. - Where a commitment or a class of commitments usable for internal bail-in is excluded or partially excluded pursuant to II, and the losses that would have been borne by this commitment or these commitments have not been fully passed on to other creditors, the Fonds de garantie des dépôts et de résolution, under the resolution financing scheme, or any other equivalent scheme under the jurisdiction of another Member State, may provide a contribution to the person subject to a resolution procedure with a view to one or other of the following actions:
1° Covering losses that have not been absorbed by commitments that can be used for an internal bail-out and reducing the net asset value of the person in question to zero, pursuant to 1° of I of Article L. 613-55-3 ;
2° Acquire the equity securities mentioned in Chapter II of Title I of Book II, other ownership securities or other equity instruments of the entity in question, in order to recapitalise it pursuant to 2° of I of Article L. 613-55-3.
IV. - The Deposit Guarantee and Resolution Fund (Fonds de Garantie des Dépôts et de Résolution) or any equivalent mechanism may only intervene in application of III under the following conditions:
1° A contribution to the absorption of the losses of the person in question and to its recapitalisation has been made by the holders of equity securities mentioned in Chapter II of Title I of Book II, other ownership interests, additional Tier 1 capital instruments, Tier 2 capital instruments or other commitments which may be used for an internal bail-out by means of a write-down or conversion or by any other means ; the amount of this contribution may not be less than 8% of the total liabilities, including own funds, of the person in question, valued at the date of the resolution measure in accordance with the valuation provided for in Article L. 613-47 ;
2° The contribution of the Fonds de Garantie des Dépôts et de Résolution (Deposit Guarantee and Resolution Fund) in respect of the resolution or any equivalent scheme may not exceed 5% of the total liabilities, including own funds, of the person in question, assessed at the date of the resolution measure in accordance with the valuation provided for in Article L. 613-47.
V. - The contribution of the Fonds de Garantie des Dépôts et de Résolution (Deposit Guarantee and Resolution Fund) in respect of the resolution or any equivalent measure provided for in IV may be financed by :
1° The resources available to them pursuant to I and II of Article L. 312-7 or equivalent provisions of the legislation of another Member State;
2° Funds that they can mobilise over three years in the form of exceptional contributions provided for in I of article L. 312-7 or equivalent provisions of the legislation of another Member State;
3° Where the funds referred to in 1° and 2° are insufficient, the financial resources it mobilises in application of V of article L. 312-7 or which are mobilised under equivalent conditions by any other equivalent scheme in another Member State.
VI. - In exceptional circumstances, additional funding may be sought from other sources if the following conditions are met:
1° The 5% threshold defined in IV is reached;
2° All unsecured and non-preferential liabilities, other than eligible deposits as defined in article L. 312-4-1, have been fully converted or their value has been fully written down.
Where these conditions are met, a contribution may be made by way of derogation from IV by the Fonds de Garantie des Dépôts et de Résolution from its available resources, under the resolution financing scheme, or by any other equivalent scheme of another Member State.
VII. - The resolution college shall notify the European Commission of the draft decisions it intends to take pursuant to III. In the event that either the mobilisation of the deposit guarantee and resolution fund or the mobilisation of additional means of financing are envisaged pursuant to VI, the resolution college shall defer its decision pending the agreement of the Commission. Its decision shall take account of any conditions to which the Commission has made its agreement subject.
