Resolution

When making the assessment of resolvability, choosing the resolution tools and exercising the resolution powers, the resolution authority shall take into account the resolution objectives that are relevant to the financial institution they relate to.

Furthermore, when pursuing resolution objectives, the resolution authority shall keep resolution costs as low as possible and shall avoid the reduction in the value of the assets of the financial institution under resolution, unless such proceedings are necessary for achieving resolution objectives.

When applying the resolution tools and exercising the resolution powers, the resolution authority shall take into account all resolution objectives applicable to the financial institution and balance them as appropriate to the nature and circumstances of each case, with all resolution objectives being of equal significance.

Depending on the financial institution under resolution, the following are resolution objectives:

• to ensure the continuity of critical functions
• to avoid a significant adverse effect on the financial stability, in particular by preventing contagion of adverse effects to the financial system, in particular by preventing or mitigating contagion of financial distress to the central counterparty's clearing members, their clients or to the wider financial system, including other financial market infrastructures, and by maintaining market discipline and public confidence
• to avoid a significant adverse effect on the financial system in the European Union or one of its Member States, in particular by preventing or mitigating contagion of financial distress to the central counterparty's clearing members, their clients or to the wider financial system, including other financial market infrastructures, and by maintaining market discipline and public confidence
• to ensure the continuity of the links with other financial market infrastructures which, if disrupted, would have a material negative impact on financial stability in the European Union or in one or more of its Member States as well as the timely completion of payment, clearing, settlement and record-keeping functions
• to protect public funds by minimising reliance on extraordinary public financial support and the potential risk of losses for taxpayers
• to protect depositors with insured deposits and investors covered by investor compensation schemes
• to protect the funds and assets of clients, central depository participants, their clients and legal securities holders.

Pursuant to the provisions of the act governing the resolution of credit institutions and investment firms and transposing Directive 2014/59/EU[1] into the Croatian national law, the act governing the recovery and resolution of central counterparties and laying down the implementation of Regulation (EU) 2021/23[2] in the Croatian national law, and the act governing the capital market and regulating the resolution of central depositories, Hanfa publishes on its website a summary of relevant internal proceedings applied when carrying out resolution actions, with a special emphasis on the obligation to protect the confidentiality of information and exchange of such information among individual organisational units.

Due to an increased number of Hanfa’s obligations relating to the exercise of resolution powers pursuant to the above-mentioned regulations, and with a viewing to bringing them together, on 26 October 2022, Hanfa established its Resolution Office. Until then, resolutions tasks had fallen within the competence of Hanfa’s Judicial Proceedings Office (since 29 May 2015) and Regulatory Harmonisation and International Cooperation Division (since 1 November 2018). By establishing its Resolution Office, Hanfa ensured that the staff carrying out resolution activities only pursuant to the above-mentioned regulations is structurally and functionally separated from the staff conducting the supervision of investment firms, the central depository and the central counterparty (financial institutions), i.e. from the employees of the Capital Market Supervision Division and the Funds and Investment Firms Supervision Division. This way Hanfa has also fulfilled regulatory requirements to ensure the structural and functional independence between these organisational units and other functions performed by Hanfa pursuant to other regulations, and to make these organisational units subject to separate reporting lines, thus also ensuring operational and functional independence aimed at avoiding conflicts of interest between Hanfa’s resolution powers and supervisory functions.

Mutual cooperation and exchange of information among these organisational units has been regulated by Hanfa’s internal acts, governing, among other things, actions of these units when drawing up and updating resolution plans, specifying the minimum requirement for own funds and eligible liabilities, and determining that the financial institution is failing or is likely to fail.

As regards the exchange of information with other resolution authorities in the Republic of Croatia, Hanfa has concluded relevant agreements with the Ministry of Finance of the Republic of Croatia and the Croatian National Bank, regulating the exchange of information and documentation used in the exercise of resolution powers and application of resolution tools, and defining in more detail the mutual cooperation and exchange of information, taking account of the provisions of relevant regulations relating to resolution powers and the obligation to protect the confidentiality of information.

As regards the obligation to protect the confidentiality of information, it is important to note that, in accordance with the provisions of the above-mentioned regulations and other regulations governing the confidentiality of information, when performing tasks falling within their competence, irrespective of whether these tasks relate to resolution powers or supervisory functions, Hanfa’s employees are subject to confidentiality requirements, which relate to the period before, during and after the appointment or employment.