The International Securities Lending Association (ISLA) and International Capital Market Association (ICMA) published an explanatory briefing on “The Impact of IRRD on Repurchase Transactions & Securities Lending Transactions”. EU Member States need to apply the new Insurance Recovery and Resolution Directive (IRRD) rules from January 2027.
The IRRD, modelled on similar principles to the earlier Bank RRD, provides a framework for the recovery and resolution of EU insurance companies and reinsurance companies and their holding companies, where they are failing or likely to fail. The IRRD resolution powers, which include suspending contracts and modifying obligations, could impact certain provisions vital for securities lending and repo transactions.
To mitigate this, IRRD mandates that member states incorporate specific legal safeguards to protect these linked contracts. Crucially, in a resolution situation, only these IRRD-specific safeguards apply, overriding existing protections for financial collateral arrangements. Tina Baker, head of Legal Services and ISLA Connects Lead at ISLA, said in a statement that the publication aims to outline a path forward to ensure firms stay ahead of the changes.
- The IRRD requires insurance companies to include bail-in and resolution stay recognition clauses in the GMSLA & the GMRA governed by non-EU law.
- Regulatory Technical Standards (RTS) to be developed by the European Insurance and Occupational Pensions Authority (EIOPA) and will specify the drafting of the resolution stay recognition clause for inclusion in all types of master agreements. EIOPA aims to finalize the drafting by the end of March 2026.