The CSSF’s approach to the execution of the write-down and conversion of capital instruments and bail-inable liabilities in resolution (EBA/GL/2023/01)

The document titled „The CSSFs approach to the execution of the write-down and conversion of capital instruments and bail-inable liabilities in resolution“ outlines the approach of the CSSF as the Luxembourg resolution authority (RA) to the operational steps necessary to execute the write-down and conversion of relevant capital instruments or the use of the bail-in tool. It is published in compliance with the Guidelines of the European Banking Authority (EBA) to resolution authorities on the publication of the write-down and conversion and bail-in exchange mechanic (EBA/GL/2023/01) and applies in accordance with the scope of application as set out in the Law of 18 December 2015 on the failure of credit institutions and certain investment firms.
The document provides a high-level description of the envisaged exchange mechanic as applied in Luxembourg, including the identification and description of the stakeholders involved in the process, the discontinuation or suspension of trading and delisting or removal of instruments from trading venues, the functioning of the potential interim instrument, the write-down and cancellation of relevant instruments, the description of the conversion process, the (re)listing and (re)admission to trading of instruments from trading venues, the approach to address potential differences between definitive and provisional ex-ante valuation, the drafting of the Business Reorganisation Plan by the institution, and the valuation.
The RA will instruct an independent valuer to prepare the valuation to assess whether the institution is FOLTF. The write-down and cancellation of relevant instruments will be carried out in a specific sequence, starting with CET1 instruments, followed by AT1 instruments, T2 instruments, subordinated debt, and the rest of bail-inable liabilities. The document also addresses the treatment of in-flight transactions and the restoration of instruments to trading venues after the write-down and conversion processes.
In case of potential differences between definitive and provisional ex-ante valuation, the RA may exercise its power to increase the value of the claims of creditors or owners of relevant capital instruments which have been written down under the bail-in tool. Additionally, the institution is required to draft a Business Reorganisation Plan within one month after the application of the bail-in tool, and the CSSF Resolution Board will assess the plan within one month from its submission. Valuation 3 is to be carried out to determine whether shareholders and creditors would have received better treatment under NIP. The document emphasizes that the actual execution of write-down and conversion processes might differ if the resolution objectives or the circumstances of the case so require, and it is subject to updates which will be published on the CSSF’s website.