Insights Blog

The ‘Daisy Chains’ Directive has been published in the Official Journal as Directive (EU) 2024/1174 following political agreement between the EU Council and European Parliament in December 2023.

Introduced as a stand-alone limb of the European Commission’s CMDI (crisis management and deposit insurance) package on 18 April 2023, the Daisy Chains Directive was fast-tracked through the legislative process and addresses issues specific to the treatment of internal MREL (minimum requirement for own funds and eligible liabilities) in bank resolution groups.  It amends the Bank Recovery and Resolution Directive (BRRD) and the Single Resolution Mechanism Regulation (SRM Regulation).

For background on the Directive, read our insights here: Daisy Chains Proposal: political agreement reached.

Under the Directive:

  • Resolution authorities will have the power to set internal MREL on a consolidated basis (subject to certain conditions).  In those cases, intermediate subsidiaries will not be obliged to deduct their individual holdings of internal MREL, thereby addressing a proportionality issue which concerned the Commission.
  • A specific MREL treatment has been introduced for entities in a banking group that are to be wound-up in accordance with insolvency laws (and therefore will not be subject to resolution action such as a conversion or write-down of MREL instruments) (known as Liquidation Entities).  Liquidation Entities will not be required to comply with an MREL requirement unless the resolution authority decides otherwise.  The own funds of Liquidation Entities issued to intermediate entities will not need to be deducted, save where they represent a material share of the own funds and eligible liabilities of the intermediate entity.

EU Member States must transpose the changes to the BRRD by 13 November 2024, and apply those changes from 14 November 2024.   The changes to the SRM Regulation will be directly effective: the changes giving resolution authorities the power to set internal MREL on a consolidated basis will apply from 13 May 2024, and the changes in respect of Liquidation Entities will apply from 14 November 2024.

For insights on the other three limbs of the Commission’s April 2023 CMDI package, read our earlier insights here: Bank Resolution: Commission CMDI proposal published.  As mentioned in our 22 April 2024 briefing (Financial Services: Key week in the European Parliament), plenary votes on the reports of the European Parliament’s Economic and Monetary Affairs Committee in respect of the other component parts of the CMDI package are scheduled for 24 April 2024 – discussions and trilogue negotiations with the EU Council will then post-date the European elections in June.