Regulation (EU) No 575/2013 of the European Parliament and of the CouncilShow full title

Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (Text with EEA relevance)

[X1Section 1 U.K. Common Equity Tier 1 items and instruments

Article 26U.K. Common Equity Tier 1 items

1. Common Equity Tier 1 items of institutions consist of the following:

(a)capital instruments, provided that the conditions laid down in Article 28 or, where applicable, Article 29 are met;

(b)share premium accounts related to the instruments referred to in point (a);

(c)retained earnings;

(d)accumulated other comprehensive income;

(e)other reserves;

(f)funds for general banking risk.

The items referred to in points (c) to (f) shall be recognised as Common Equity Tier 1 only where they are available to the institution for unrestricted and immediate use to cover risks or losses as soon as these occur.

2. For the purposes of point (c) of paragraph 1, institutions may include interim or year-end profits in Common Equity Tier 1 capital before the institution has taken a formal decision confirming the final profit or loss of the institution for the year only with the prior permission of the competent authority. The competent authority shall grant permission where the following conditions are met:

(a) those profits have been verified by persons independent of the institution that are responsible for the auditing of the accounts of that institution;

(b) the institution has demonstrated to the satisfaction of the competent authority that any foreseeable charge or dividend has been deducted from the amount of those profits.

A verification of the interim or year-end profits of the institution shall provide an adequate level of assurance that those profits have been evaluated in accordance with the principles set out in the applicable accounting framework.

[F13.Competent authorities shall evaluate whether issuances of capital instruments meet the criteria set out in Article 28 or, where applicable, Article 29. Institutions shall classify issuances of capital instruments as Common Equity Tier 1 instruments only after permission is granted by the competent authorities.

By way of derogation from the first subparagraph, institutions may classify as Common Equity Tier 1 instruments subsequent issuances of a form of Common Equity Tier 1 instruments for which they have already received that permission, provided that both of the following conditions are met:

(a)the provisions governing those subsequent issuances are substantially the same as the provisions governing those issuances for which the institutions have already received permission;

(b)institutions have notified those subsequent issuances to the competent authorities sufficiently in advance of their classification as Common Equity Tier 1 instruments.

F2...

[F3Each competent authority] shall establish, maintain and publish a list of all forms of capital instruments F4... that qualify as Common Equity Tier 1 instruments. F5...]

4.[F6The [F7PRA may] make technical standards] to specify the meaning of foreseeable when determining whether any foreseeable charge or dividend has been deducted.

F8...

Textual Amendments

Article 27U.K. Capital instruments of mutuals, cooperative societies, savings institutions or similar institutions in Common Equity Tier 1 items

1. Common Equity Tier 1 items shall include any capital instrument issued by an institution under its statutory terms provided that the following conditions are met:

(a) the institution is of a type that is defined under [F9the applicable law of the United Kingdom, or any part of it,] and which competent authorities consider to qualify as any of the following:

(i)

a mutual;

(ii)

a cooperative society;

(iii)

a savings institution;

(iv)

a similar institution;

(v)

a credit institution which is wholly owned by one of the institutions referred to in points (i) to (iv) and has approval from the relevant competent authority to make use of the provisions in this Article, provided that, and for as long as, 100 % of the ordinary shares in issue in the credit institution are held directly or indirectly by an institution referred to in those points;

(b)the conditions laid down in Articles 28 or, where applicable, Article 29, are met.

Those mutuals, cooperative societies or savings institutions recognised as such under [F10the applicable law of the United Kingdom, or any part of it,] prior to 31 December 2012 shall continue to be classified as such for the purposes of this Part, provided that they continue to meet the criteria that determined such recognition.

2.[F11The [F12PRA may] make technical standards] to specify [F13the types of undertaking that qualify] as a mutual, cooperative society, savings institution or similar institution for the purposes of this Part.

F14...

Textual Amendments

Article 28U.K. Common Equity Tier 1 instruments

1.Capital instruments shall qualify as Common Equity Tier 1 instruments only if all the following conditions are met:

(a)the instruments are issued directly by the institution with the prior approval of the owners of the institution or, where permitted under applicable national law [F15of the United Kingdom, or any part of it, or of a third country], the management body of the institution;

[F1(b)the instruments are fully paid up and the acquisition of ownership of those instruments is not funded directly or indirectly by the institution;]

(c) the instruments meet all the following conditions as regards their classification:

(i)

[F16they qualify as capital, which for these purposes comprises all amounts, regardless of their actual designations, which, in accordance with the legal structure of the institution concerned, are regarded under the applicable law of the United Kingdom, or any part of it, or of a third country, as equity capital subscribed by the shareholders or other proprietors;]

(ii)

they are classified as equity within the meaning of the applicable accounting framework;

(iii)

they are classified as equity capital for the purposes of determining balance sheet insolvency, where applicable under national insolvency law [F17of the United Kingdom, or any part of it, or of a third country];

(d)the instruments are clearly and separately disclosed on the balance sheet in the financial statements of the institution;

(e)the instruments are perpetual;

(f)the principal amount of the instruments may not be reduced or repaid, except in either of the following cases:

(i)

the liquidation of the institution;

(ii)

discretionary repurchases of the instruments or other discretionary means of reducing capital, where the institution has received the prior permission of the competent authority in accordance with Article 77;

(g)the provisions governing the instruments do not indicate expressly or implicitly that the principal amount of the instruments would or might be reduced or repaid other than in the liquidation of the institution, and the institution does not otherwise provide such an indication prior to or at issuance of the instruments, except in the case of instruments referred to in Article 27 where the refusal by the institution to redeem such instruments is prohibited under applicable national law [F18of the United Kingdom, or any part of it, or of a third country];

(h)the instruments meet the following conditions as regards distributions:

(i)

there is no preferential distribution treatment regarding the order of distribution payments, including in relation to other Common Equity Tier 1 instruments, and the terms governing the instruments do not provide preferential rights to payment of distributions;

(ii)

distributions to holders of the instruments may be paid only out of distributable items;

(iii)

the conditions governing the instruments do not include a cap or other restriction on the maximum level of distributions, except in the case of the instruments referred to in Article 27;

(iv)

the level of distributions is not determined on the basis of the amount for which the instruments were purchased at issuance, except in the case of the instruments referred to in Article 27;

(v)

the conditions governing the instruments do not include any obligation for the institution to make distributions to their holders and the institution is not otherwise subject to such an obligation;

(vi)

non-payment of distributions does not constitute an event of default of the institution;

(vii)

the cancellation of distributions imposes no restrictions on the institution;

(i)compared to all the capital instruments issued by the institution, the instruments absorb the first and proportionately greatest share of losses as they occur, and each instrument absorbs losses to the same degree as all other Common Equity Tier 1 instruments;

(j)the instruments rank below all other claims in the event of insolvency or liquidation of the institution;

(k)the instruments entitle their owners to a claim on the residual assets of the institution, which, in the event of its liquidation and after the payment of all senior claims, is proportionate to the amount of such instruments issued and is not fixed or subject to a cap, except in the case of the capital instruments referred to in Article 27;

(l)the instruments are neither secured nor subject to a guarantee that enhances the seniority of the claim by any of the following:

(i)

the institution or its subsidiaries;

(ii)

the parent undertaking of the institution or its subsidiaries;

(iii)

the parent financial holding company or its subsidiaries;

(iv)

the mixed activity holding company or its subsidiaries;

(v)

the mixed financial holding company and its subsidiaries;

(vi)

any undertaking that has close links with the entities referred to in points (i) to (v);

(m)the instruments are not subject to any arrangement, contractual or otherwise, that enhances the seniority of claims under the instruments in insolvency or liquidation.

The condition set out in point (j) of the first subparagraph shall be deemed to be met, notwithstanding the instruments are included in Additional Tier 1 or Tier 2 by virtue of Article 484(3), provided that they rank pari passu.

[F19For the purposes of point (b) of the first subparagraph, only the part of a capital instrument that is fully paid up shall be eligible to qualify as a Common Equity Tier 1 instrument.]

2.The conditions laid down in point (i) of paragraph 1 shall be deemed to be met notwithstanding a write down on a permanent basis of the principal amount of Additional Tier 1 or Tier 2 instruments.

The condition laid down in point (f) of paragraph 1 shall be deemed to be met notwithstanding the reduction of the principal amount of the capital instrument within a resolution procedure or as a consequence of a write down of capital instruments required by the resolution authority responsible for the institution.

The condition laid down in point (g) of paragraph 1 shall be deemed to be met notwithstanding the provisions governing the capital instrument indicating expressly or implicitly that the principal amount of the instrument would or might be reduced within a resolution procedure or as a consequence of a write down of capital instruments required by the resolution authority responsible for the institution.

3.The condition laid down in point (h)(iii) of paragraph 1 shall be deemed to be met notwithstanding the instrument paying a dividend multiple, provided that such a dividend multiple does not result in a distribution that causes a disproportionate drag on own funds.

[F19The condition set out in point (h)(v) of the first subparagraph of paragraph 1 shall be considered to be met notwithstanding a subsidiary being subject to a profit and loss transfer agreement with its parent undertaking, according to which the subsidiary is obliged to transfer, following the preparation of its annual financial statements, its annual result to the parent undertaking, where all the following conditions are met:

(a)the parent undertaking owns 90 % or more of the voting rights and capital of the subsidiary;

(b)the parent undertaking and the subsidiary are located in the [F20United Kingdom];

(c)the agreement was concluded for legitimate taxation purposes;

(d)in preparing the annual financial statement, the subsidiary has discretion to decrease the amount of distributions by allocating a part or all of its profits to its own reserves or funds for general banking risk before making any payment to its parent undertaking;

(e)the parent undertaking is obliged under the agreement to fully compensate the subsidiary for all losses of the subsidiary;

(f)the agreement is subject to a notice period according to which the agreement can be terminated only by the end of an accounting year, with such termination taking effect no earlier than the beginning of the following accounting year, leaving the parent undertaking's obligation to fully compensate the subsidiary for all losses incurred during the current accounting year unchanged.

Where an institution has entered into a profit and loss transfer agreement, it shall notify the competent authority without delay and provide the competent authority with a copy of the agreement. The institution shall also notify the competent authority without delay of any changes to the profit and loss transfer agreement and the termination thereof. An institution shall not enter into more than one profit and loss transfer agreement.]

4. For the purposes of point (h)(i) of paragraph 1, differentiated distributions shall only reflect differentiated voting rights. In this respect, higher distributions shall only apply to Common Equity Tier 1 instruments with fewer or no voting rights.

5.[F21The [F22PRA may] make technical standards] to specify the following:

(a)the applicable forms and nature of indirect funding of own funds instruments;

(b)whether and when multiple distributions would constitute a disproportionate drag on own funds;

(c)the meaning of preferential distributions.

F23...

Textual Amendments

Article 29U.K. Capital instruments issued by mutuals, cooperative societies, savings institutions and similar institutions

1.Capital instruments issued by mutuals, cooperative societies, savings institutions and similar institutions shall qualify as Common Equity Tier 1 instruments only if the conditions laid down in Article 28 with modifications resulting from the application of this Article are met.

2.The following conditions shall be met as regards redemption of the capital instruments:

(a)except where prohibited under applicable national law [F24of the United Kingdom, or any part of it, or of a third country], the institution shall be able to refuse the redemption of the instruments;

(b)where the refusal by the institution of the redemption of instruments is prohibited under applicable national law [F25of the United Kingdom, or any part of it, or of a third country], the provisions governing the instruments shall give the institution the ability to limit their redemption;

(c)refusal to redeem the instruments, or the limitation of the redemption of the instruments where applicable, may not constitute an event of default of the institution.

3.The capital instruments may include a cap or restriction on the maximum level of distributions only where that cap or restriction is set out under applicable national law [F26of the United Kingdom, or any part of it, or of a third country] or the statute of the institution.

4.Where the capital instruments provide the owner with rights to the reserves of the institution in the event of insolvency or liquidation that are limited to the nominal value of the instruments, such a limitation shall apply to the same degree to the holders of all other Common Equity Tier 1 instruments issued by that institution.

The condition laid down in the first subparagraph is without prejudice to the possibility for a mutual, cooperative society, savings institution or a similar institution to recognise within Common Equity Tier 1 instruments that do not afford voting rights to the holder and that meet all the following conditions:

(a)the claim of the holders of the non-voting instruments in the insolvency or liquidation of the institution is proportionate to the share of the total Common Equity Tier 1 instruments that those non-voting instruments represent;

(b)the instruments otherwise qualify as Common Equity Tier 1 instruments.

5.Where the capital instruments entitle their owners to a claim on the assets of the institution in the event of its insolvency or liquidation that is fixed or subject to a cap, such a limitation shall apply to the same degree to all holders of all Common Equity Tier 1 instruments issued by the institution.

6.[F27The [F28PRA may] make technical standards] to specify the nature of the limitations on redemption necessary where the refusal by the institution of the redemption of own funds instruments is prohibited under applicable national law [F29of the United Kingdom, or any part of it, or of a third country].

F30...

Textual Amendments

Article 30 U.K. Consequences of the conditions for Common Equity Tier 1 instruments ceasing to be met

The following shall apply where, in the case of a Common Equity Tier 1 instrument, the conditions laid down in Article 28 or, where applicable, Article 29 cease to be met:

(a)

that instrument shall immediately cease to qualify as a Common Equity Tier 1 instrument;

(b)

the share premium accounts that relate to that instrument shall immediately cease to qualify as Common Equity Tier 1 items.

Article 31 U.K. Capital instruments subscribed by public authorities in emergency situations

1 . In emergency situations, competent authorities may permit institutions to include in Common Equity Tier 1 capital instruments that comply at least with the conditions laid down in points (b) to (e) of Article 28(1) where all the following conditions are met:

( a ) the capital instruments are issued after 1 January 2014 ;

( b ) the capital instruments [F31amount to financial support provided by the state];

( c ) the capital instruments are issued within the context of recapitalisation measures [F32amounting to financial support provided by the state in the United Kingdom, or pursuant to state aid rules in a third country, at the time];

( d ) the capital instruments are fully subscribed and held by the State or a relevant public authority or public-owned entity;

( e ) the capital instruments are able to absorb losses;

( f ) except for the capital instruments referred to in Article 27, in the event of liquidation, the capital instruments entitle their owners to a claim on the residual assets of the institution after the payment of all senior claims;

( g ) there are adequate exit mechanisms of the State or, where applicable, a relevant public authority or public-owned entity;

( h ) the competent authority has granted its prior permission and has published its decision together with an explanation of that decision.

F33 2 .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

Textual Amendments

Editorial Information