Beyond the Search for Certainty: Addressing the Cross-Border Resolution Gap

Brooklyn Journal of Corporate, Financial & Commercial Law, Dec 2015

By Irit Mevorach, Published on 01/01/15

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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)


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Irit Mevorach. Beyond the Search for Certainty: Addressing the Cross-Border Resolution Gap, Brooklyn Journal of Corporate, Financial & Commercial Law, 2015, pp. 6, Volume 10, Issue 1,