Beyond the Search for Certainty: Addressing the Cross-Border Resolution Gap
Brooklyn Journal of Corporate
Beyond the Search for Certainty: Addressing the Cross-Border Resolution Gap
Irit Mevorach
Recommended Citation
Follow this and additional works at; https; //brooklynworks; brooklaw; edu/bjcfcl
-
Irit Mevorach*
This Article compares the development of cross-border solutions for
resolving and reorganizing commercial entities to those solutions available
for financial institutions. This Article argues that the resolution regime for
financial institutions needs to move forward from the existing international
best practices approach, embodied in the Financial Stability Board (FSB)
Key Attributes for Resolution Regimes, to a more formal legal framework
for cross-border resolution, similar to the United Nations Commission on
International Trade Law (UNCITRAL) Model Law for Cross-Border
Insolvency. In doing so, this Article identifies a gap in the international
infrastructure for resolutions. While UNCITRAL promulgated a model law
to provide for cross-border insolvencies in 1997, there has been reluctance
to take a similar path with regard to the resolution of international financial
institutions, even though the stakes are very high. This Article addresses
possible reasons for this reluctance, draws lessons from the commercial
sphere, and explores the relevance of the UNCITRAL Model Law
framework to financial institutions. This Article also analyzes the recent
FSB initiative on cross-border resolution and the recently promulgated
International Swaps and Derivatives Association (ISDA) Resolution Stay
Protocol that seek to promote certainty in the application of resolution
measures across borders. This Article argues that these primarily
contractbased initiatives are important contributions to the standardization and
improvement of the standards on the treatment of financial contracts in
insolvency and resolution. However, the initiatives are still incomplete.
Addressing the cross-border gap requires the recognition of goals beyond
* Associate Professor in Law, Faculty of Social Sciences, University of Nottingham.
The author was previously senior counsel at the World Bank and an expert member of the
FSB Resolution Legal Expert Group. She is also participating in UNCITRAL deliberations
on cross-border insolvency issues. The views expressed in this Article are solely her own
and do not represent the views of any of these organizations or groups. This Article benefited
from conversations with Monica Marcucci of the Bank of Italy and from insightful
comments on earlier drafts of this Article from Edward Janger, Riz Mokal, and Monica
Marcucci. The work leading up to this Article also benefited from many discussions with
Vijay Tata on international harmonization in insolvency and resolution and from
SQHKkQ+l)K/0* jK)L -l0QHK*)* l) )LQ 3/+HS "l0Ic NLaw, Justice and Development Weekc8 K0
F_GE l0S F_GD% )LQ 3/+HS "l0Ic NInsolvency and Creditor/Debtor Regimes Task Force
Meetingc8 K0 U/'Q2kQ+ F_GE l0S =T)/kQ+ F_GDc )LQ 3/+HS "l0I -l0QH* /0 )LQ NTreatment
of Financial Contracts in Insolvency8 l0S )LQ NResolution of Cross-Border Financial
Institutionsc8 lH/0M jK)L *h2-/*K(2 +Q2l+I* l)> NThe Treatment of Financial Contracts in
Bankruptcy and Bank Resolutionc8 LQHS l) "+//IHh0 Wlj 9TL//H K0 Vl+TL F_GCa
certainty, in the
institutions.
INTRODUCTION
design
of a cross-border framework for financial
The international legal architecture supporting cross-border insolvency1
and cross-border resolution2 is not complete. UNCITRAL in 1997
promulgated its Model Law on Cross-Border Insolvency (the Model Law),
a framework for global insolvency and restructuring of international
commercial enterprises.3 The Model Law does not, however, specifically
address the cross-border resolution of international financial institutions.
More recently, in 2011, an international standard for the resolution of
Significantly Important Financial Institutions (SIFIs)Pthe Key Attributes
of Effective Resolution Regimes for Financial Institutions (the Key
Attributes)Pwas promulgated by the FSB.4 This resolution standard5
identifies domestic best practices and includes specific principles
concerning the cross-border aspects of resolution regimes. However, it does
not set forth a detailed cross-border resolution framework with legislative
provisions that can be enacted uniformly across countries4 legal systems.
Since the 2007R2009 financial crisis, there have been urgent calls for
action, including by standard-setting institutions, to develop such a
framework, and key elements have been proposed by international
1. This Article uses the terms Ninsolvency8 and Nbankruptcy8 interchangeably to refer to a
broad range of insolvency solutions for commercial entities, including reorganization and
liquidation.
2. This Article uses the term Nresolution8 to refer to a broad range of resolution solutions and
activities for both bank and non-bank financial institutions in distress, including, reorganization
and liquidation. The Article also (...truncated)