ANDORRA Law and Practice Contributed by: Miguel Cases and Laura Nieto, Cases & Lacambra
individual and consolidated annual accounts in accordance with the international financial reporting standards adopted by the European Union (IFRS-EU). 8. Insolvency, Recovery and Resolution 8.1 Legal and Regulatory Framework Law 7/2021 establishes a framework for the recovery and resolution of Andorran banking entities and is extended to investment firms and other financial institutions (with the exclusion of insurance companies); it also regulates the legal status of the resolution authority, the AREB. This piece of law establishes that a banking entity is under a restructuring situation when it breaches or could breach the applicable liquid - ity and solvency regulations in the near future, but it is able to comply again with those regula - tions by its own means. In such a situation, the bank must give notice to the AFA in order for it to adopt ex officio measures such as a formal requirement for the bank’s management body to draft an action plan to redress the situation, the appointment of a special administrator, or the removal of one or more members of the man- agement body, among others. If the banking entity cannot redress its stressed situation, the AREB shall assess whether it has to initiate its resolution process, which shall be initiated if: • it is not financially viable; • it is reasonably unexpected that it could be redressed by measures from private stake - holders; and • there are reasons of public interest.
Law 7/2021 entitles the AREB to apply a set catalogue of resolution tools ( instruments de resolució ) and to intervene in a banking entity to ensure continuity in its critical financial and economic functions, while minimising the impact of the banking entity’s failure on the Andorran economy and national financial system, and minimising the total resolution costs for taxpay - ers. The resolution measures established by Law 7/2021 include the sale of business tool, the bridge institution tool, the asset separation tool and the bail-in tool (ie, including the exercise of write-down and conversion powers). The bail-in tool does not apply to claims insofar as they are secured, collateralised or otherwise guaranteed. Certain kinds of unsecured liability are excluded from the bail-in tool, as covered deposits. The most relevant provisions of Law 7/2021 are as follows: • the regulatory requirements cover: (a) the draw-up of recovery plans; and (b) the calculation of the minimum require - ment for own funds and eligible liabilities (MREL) ratio, as an additional and com - plementary requirement to capital, liquid - ity and leverage ratios; and • a separation of situations involving early tem - porary measures by the AFA from the resolu - tion phase by the AREB (to this extent, the resolution phase is divided into the preventa - tive phase and the execution phase). If the AFA detects any material deficiency in the recovery plans (preliminary phase) drawn up by the institutions, it may require the modification of the plan or the enforcement of the following measures (they are not numerus clausus):
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