Will Brexit mean that English-law contracts have to include a Bail-in Clause?
A Bail-In Clause requires counterparties to an agreement entered into with an EEA (the EEA consists of the EU, Iceland, Liechtenstein and Norway) financial institution to acknowledge that a Regulator’s rescue plan may involve the conversion or write-down of that institution’s liabilities. All EEA banks and major investment firms together with their branches, EEA parents and certain EEA subsidiaries must ensure that any agreement they enter into which is governed by non-EEA law includes a Bail-In Clause.
The requirement stems from Article 55 of the EU Bank Resolution and Recovery Directive. It affects all relevant agreements entered into after 1st January 2016.
Impact of Brexit
As the law currently stands, there is no legal requirement for English law contracts, such as facility agreements, to contain a Bail-In Clause because the UK is a member of the EU. Whether or not that remains the case depends on what form Brexit takes.
If the UK exits the EU but remains a member of the EEA, then there will be no need for English-law agreements to contain a Bail-In Clause. Even if the UK rejects EEA membership, Article 55 still provides that Bail-In wording need not be inserted if the relevant state (whose laws govern the contract in question) recognises the write-down and conversion powers of EU regulators.