# Commission Delegated Regulation (EU) 2016/860 of 4 February 2016 specifying further the circumstances where exclusion from the application of write-down or conversion powers is necessary under Article 44(3) of Directive 2014/59/EU of the European Parliament and of the Council establishing a framework for the recovery and resolution of credit institutions and investment firms, Article 7: Exclusion on grounds of preservation of certain critical functions and core business lines under section 48B(12)(b) of the Banking Act 2009

Extent: E+W+S+N.I.

1. The resolution authority may exclude liabilities or a class of liabilities on the basis of it being necessary and proportionate to preserve certain critical functions where they consider that liability or class of liabilities to be linked to a critical function for whose continuity that liability or class of liabilities should not be bailed-in, where either of the following elements is satisfied:
(a) the bail-in of the liability or class of liabilities would undermine the function due to the availability of funding or to a dependence on counterparties, such as hedging counterparties, on infrastructure or on service providers to the institution, which may be prevented from or unwilling to continue transactions with the institution following a bail-in;
(b) the critical function in question is a service provided by the institution to third parties which depends on the uninterrupted performance of the liability.
2. The resolution authority may only exclude liabilities which are required for risk management (hedging) purposes in the context of critical functions where both of the following conditions are satisfied:
(a) the risk management (hedging) is recognised for prudential purposes and is essential for maintaining operations related to critical functions;
(b) it would be impossible for the institution to replace an unwound risk management measure on reasonable terms within the time required for maintaining the critical function.
3. The resolution authority may only exclude liabilities for the purposes of maintaining a funding relationship where both of the following conditions are satisfied:
(a) the resolution authority assesses that the funding is essential for maintaining a critical function;
(b) in view of Article 6 of this Regulation, it would be impossible for the institution to replace the funding within the time required for maintaining the critical function.
4. The resolution authority shall not exclude a liability or class of liabilities solely on the basis of any of the following:
(a) its maturity;
(b) the expectation of an increase in funding costs which does not jeopardise the continuity of the critical function;
(c) the expectation of a future potential profit.
5. The resolution authority may exclude liabilities or a class of liabilities on the basis of it being necessary and proportionate to preserve a core business line where the exclusion of that liability is critical to maintaining the ability of the institution under resolution to continue key operations, services and transactions, and to achieve the resolution objectives set out in section 4(3A) and (4) of the Act.

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Source: https://www.legislation.gov.uk/eur/2016/860/article/7 (the official version)
Page: https://openlegislation.uk/eu-regulation-2016-860/article-7
Contains public sector information licensed under the Open Government Licence v3.0. Source: legislation.gov.uk, The National Archives.