Entire Section

  • RAR 3.4.1 RAR 3.4.1

    (1) The DFSA may exercise one or more Resolution Powers, in particular the Write Down or Conversion Power as set out in RAR rule 3.2.5 in order to apply the Bail-in Tool to an Authorised Firm.
    (2) The Bail-in Tool may be applied in respect of any capital instrument and liability of an Authorised Firm (Eligible Liability), provided that the liability is not excluded from the scope of the Bail-in Tool under (3) or (4).
    (3) The DFSA may not exercise the Write Down or Conversion Power in relation to the following liabilities (whether they are governed by DIFC law or by the law of another jurisdiction):
    (a) secured liabilities, but this exclusion does not prevent the write down of any liability in respect of net sum following close out of a Derivative in accordance with RAR Rule 3.4.5;
    (b) a Deposit of an Eligible Depositor;
    (c) any liability that arises by virtue of the holding of Client Assets, to the extent such Client Assets are protected under DIFC Law;
    (d) any liability that arises by virtue of a fiduciary relationship between the Authorised Firm (as fiduciary) and another person (as beneficiary) provided that such beneficiary's interests are protected under DIFC law;
    (e) unsecured liabilities to other financial institutions excluding entities that are part of the same Group, with an original maturity of less than seven days;
    (f) liabilities owed to payment systems, Central Counterparties, Securities Settlement Systems, Central Securities Depositories, or their operators or their participants and arising from the participation in any such system; or
    (g) a liability to any one of the following:
    (i) an employee, in relation to accrued salary, pension benefits or other fixed remuneration, except for the variable component of remuneration;
    (ii) a commercial or trade creditor arising from the provision to the Authorised Firm in Resolution of goods and services that are critical to the daily functioning of its operations, including information technology services, utilities and rental, servicing and upkeep of premises; or
    (iii) any tax and social security authority or scheme in the UAE.
    (4) In exceptional circumstances, where the Bail-in Tool is applied, the DFSA may exclude or partially exclude certain liabilities from the application of the Write Down or Conversion Power where:
    (a) it is not possible to bail-in that liability within a reasonable time despite the reasonable efforts of the DFSA;
    (b) the exclusion is strictly necessary and is proportionate to meet the Resolution Objectives;
    (c) the exclusion is strictly necessary and proportionate to avoid giving rise to widespread contagion, which will severely disrupt the functioning of financial markets, including financial market infrastructures, in a manner that could cause broader financial instability; or
    (d) the application of the Bail-in Tool to those liabilities will cause a destruction of value such that the losses borne by other creditors will be higher than if those liabilities were excluded from bail-in.
    (5) Where the DFSA decides to exclude or partially exclude an Eligible Liability or class of Eligible Liabilities under (4), the level of write down or conversion applied to other Eligible Liabilities may be increased to take account of such exclusions, provided that the level of write down or conversion applied to other Eligible Liabilities is consistent with the Resolution Objectives.
    (6) Where the DFSA decides to apply the Bail-In Tool, the DFSA shall in the written notice given under Article 84N of the Law set out the type and amount of liabilities owed by the Authorized Firm in Resolution that will be subject to the Bail-In Tool and whether they are:
    (a) cancelled (i.e. written down to zero);
    (b) modified (as far as their terms or the effects of the terms therein are concerned); or
    (c) caused to change their form by converting from a form or a class to a different one, replacing the existing instrument with one of another form or class or creating a new security.
    (7) A written notice under Article 84N of the Law relating to the application of the Bail-in Tool shall have effect according to its terms.

     

    Derived from DFSA RMI283/2020 (Made 16th December 2020). [VER1/04-21]

    • RAR 3.4.1 Guidance

      1. The DFSA may apply the Bail-in Tool if there is a reasonable prospect that applying the tool together with other relevant measures can, in addition to achieving the relevant Resolution Objectives, restore the Authorised Firm to financial soundness and long-term viability. The Bail-In Tool may also be applied in connection with the Sale of Business Tool.
      2. In exercising its discretion under RAR Rule 3.4.1(4), the DFSA will consider:
      a. the need not to apply any bail-in to a netting set before such netting is completed;
      b. the need to avoid disruption to AMIs, Regulated Exchanges, payment systems, Central Counterparties, Securities Settlement Systems and Central Securities Depositories;
      c. the principle that losses shall be borne first by shareholders and subsequently by creditors of the Authorised Firm in Resolution in order of preference in light of the Resolution Objectives;
      d. the level of LAC that will remain in the Authorised Firm in Resolution if the liability or class of liabilities were excluded; and
      e. the need to maintain adequate resources for Resolution financing.

       

      Derived from DFSA RMI283/2020 (Made 16th December 2020). [VER1/04-21]