Slovak Republic: Crisis management

Daniel Futej	Cyril Hric

In November 2014, the Slovak Parliament passed Act 371/2014 on resolving crisis situations on the financial market and on amending certain acts (Act). The Act transposes Directive 2014/59/EU (which establishes a framework for the recovery and resolution of credit institutions and investment firms) of the European Parliament and of the Council (BRRD) into Slovak law. The objective of implementing the BRRD is to introduce the new framework of prevention and resolution of potential crisis situations on the financial market, which was created at the EU level in response to the financial crisis. The financial crisis demonstrated the extensive scope and range of risks on the financial market, where the complexity of interconnection means that the failure of one financial institution may cause a systemic crisis that has the potential to affect the entire financial system. The priority of the Act is to implement the effective crisis management system created by the BRRD.

According to the Act, the Resolution Council (Rada pre riešenie krízových situácií – the Council) was established on January 1 2015 as the national resolution authority in the Slovak Republic. The institutions that fall within the competence of the Council are credit institutions and investment companies with share capital of at least €730,000. The Council is part of the Single Resolution Mechanism (SRM), which comprises: (i) the Single Resolution Board, based in Brussels; (ii) the national resolution authorities of the euro area countries; (iii) the national resolution authorities of those other EU member states that have opted to participate in the SRM.

The main objective of the Council is to prevent the failure of institutions and groups in the financial sector and to ensure their effective resolution (if failure cannot be avoided), through the protection of financial stability and client assets. In this respect, the main tasks of the Council are: to draw up resolution plans for institutions incorporated in Slovakia and to contribute to the drafting of resolution plans for groups that have a subsidiary incorporated in Slovakia; to comment on recovery plans of those institutions or groups; to assess the resolvability of institutions; to set minimum requirements for own funds and eligible liabilities for individual institutions incorporated in Slovakia; to set the amount of financial contributions to the national resolution fund paid by individual institutions incorporated in Slovakia; to issue decisions under specific regulations in relation to institutions incorporated in Slovakia; and, to perform other activities relating to its participation in the SRM.

If National Bank Slovakia informs the Council that a particular institution is failing or is likely to fail in the near future, the Council will assess whether the conditions for resolution proceedings are met.

Resolution proceedings will then take place in the public interest, to the necessary extent and in a reasonable scope, if the objectives of the Act cannot be attained through insolvency or similar proceedings. The most weighty measure in resolution proceedings is the Council's power to intervene in the rights of shareholders and creditors. As a rule, the shareholders of the failing institution should bear losses first, and no creditor should incur greater losses in resolution proceedings than it would have incurred under insolvency proceedings according to the Bankruptcy Act. In practical terms, the exercise of some of the Council's powers may result in a relatively invasive disturbance of the rights of private parties, which in Slovak law may raise a host of issues regarding application.

Daniel Futej and Cyril Hric

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