The EU Bank Resolution and Recovery Directive (“BRRD”) gives powers to EEA regulators to write down or convert into equity a failing institution’s liabilities. This power is effective in respect of liabilities under a document governed by EEA law, but is less certain in respect of contracts governed by so-called “third-country” law.

Article 55 of the BRRD supports the regulator’s bail-in powers in relation to liabilities under non-EEA law governed contracts by requiring in-scope financial institutions to include in such contracts a term recognising the regulator’s write-down and conversion powers (a “bail-in clause”).

“Liabilities” is a broad concept in this context. The obligations of an in-scope financial institution under loan and other finance documentation (for example, to advance funds, to meet indemnities, to turn over or share recoveries) bring the contract within Article 55. Bail-in clauses have therefore been developed by trade associations including the LMA, ICMA and ISDA for the purposes of compliance with Article 55.  


From the end of the Brexit implementation period (the “IP End Date”), the UK will be a “third country” for the purposes of the BRRD. The UK’s Special Resolution Regime will be distinct from the regime applicable in the EEA, and will contain its own standalone requirements for a UK bail-in clause. Contracts governed by the laws of neither the UK nor the EEA (for example, the laws of New York), to which both UK and EEA-regulated financial institutions are party will need to accommodate both regimes. 

The final stage of the UK’s departure from the EU will therefore result in some adjustments to the incidence and text of bail-in clauses in loan and other financing documentation, although as with all things Brexit-related, it is still not entirely clear what the precise parameters of these requirements will be. 

After the IP End Date – EEA bail-in clauses in English law contracts 

Some EEA institutions have already adopted a policy of including a bail-in clause in English law finance documentation. This is understandable, in anticipation of likely future requirements, although not strictly necessary at this point. Article 55 will only require EEA-regulated institutions to include bail-in clauses in English law governed contracts after the IP End Date. It does not apply retrospectively, absent the relevant contract being materially amended. 

Where Article 55 clauses are included in existing contracts, they should not need amending to account for the fact the IP End Date will have passed. As mentioned, the requirement is not retrospective but also, the recommended forms of bail-in clause published by, for example, the LMA, envisage the UK’s status as a third-country and refer to the UK’s post-Brexit resolution regime. In a scenario where a bail-in clause is included in an existing English law contract that does not capture the UK’s regime after the IP End Date, then the clause can be updated to align with the recommended form if and when the contract is materially amended. 

Article 55(1) provides an exception to the requirement for a bail-in clause, which applies if the relevant EEA regulator determines that its write-down and conversion powers would be legally recognised under the governing law of the contract. The UK has indicated that EEA-led resolutions will be included within the scope of the UK’s third country recognition framework. European regulators, however, have given no indication as to whether the EU will take the same action, such that A55(1) might be relied on to enable bail-in clauses to be dispensed with in English law contracts.

After the IP End Date – UK bail-in clauses in third country law contracts

The UK’s special resolution regime, currently compliant with the BRRD, will become a standalone regime after the IP End Date. The current regime will be adjusted to include a requirement for UK-regulated institutions to include bail-in clauses in contracts containing liabilities governed by the law of a third country, which will include the EEA countries.  

The UK bail-in clause will be slightly different to an Article 55 bail-in clause, as it will need to refer to the standalone UK regime. ICMA are currently working on a UK bail-in clause that will address this, although it is not yet finalised. The LMA’s recommended form of bail-in clause includes an optional provision which seeks to capture contractual recognition of bail-in requirements introduced in third countries, including the expected regime in the UK after the IP End Date. The LSTA have similarly published their own version, for inclusion in NY law governed credit agreements. 


The EU is currently considering reforms to the existing BRRD regime, which, among other things, are likely to affect the incidence of Article 55 clauses and require the introduction of “resolution stay” provisions in financial contracts governed by the laws of a third country.

The changes include amendments to Article 55 to address the scenario where it is impracticable for institutions to include bail-in clauses. For example, where it is illegal to do so under relevant third country law. BRRD II will also require in-scope institutions to include in contracts governed by third country law, a term by which the parties recognise that the contract may be subject to the exercise of stay powers. The EBA are currently consulting on this but it is anticipated that there would need to be drafting to incorporate contractual recognition of stay powers in non EEA-law governed contracts in a similar way to contractual recognition of bail-in under Article 55.


Requirements for bail-in clauses and resolution stay provisions in contracts governed by the law of a third country are becoming a hallmark of resolution regimes around the world. While not necessarily controversial, regulated institutions will need to make sure that relevant and up to date provisions are inserted in all applicable contracts. Brexit – and potentially BRRD II – will result in a further ripple of activity in this area to bring provisions for 2021 documentation up to date.