1. Resolution authorities 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. Resolution authorities 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.