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

[X1 [F1 Section 1 U.K. Eligible liabilities items and instruments

Article 72a U.K. Eligible liabilities items

1 . Eligible liabilities items shall consist of the following, unless they fall into any of the categories of excluded liabilities laid down in paragraph 2 of this Article, and to the extent specified in Article 72c:

( a ) eligible liabilities instruments where the conditions set out in Article 72b are met, to the extent that they do not qualify as Common Equity Tier 1, Additional Tier 1 or Tier 2 items;

( b ) Tier 2 instruments with a residual maturity of at least one year, to the extent that they do not qualify as Tier 2 items in accordance with Article 64.

2 . The following liabilities shall be excluded from eligible liabilities items:

( a ) covered deposits;

( b ) sight deposits and short term deposits with an original maturity of less than one year;

( c ) the part of eligible deposits from natural persons and micro, small and medium-sized enterprises which exceeds the coverage level referred to [F2 regulation 7A(3) of the Deposit Guarantee Scheme Regulations 2015];

( d ) deposits that would be eligible deposits from natural persons, micro, small and medium–sized enterprises if they were not made through branches located outside the [F3 United Kingdom] of institutions established in the [F3 United Kingdom];

( e ) secured liabilities, including covered bonds and liabilities in the form of financial instruments used for hedging purposes that form an integral part of the cover pool and that in accordance with [F4 the law of the United Kingdom or any part of it] are secured in a manner similar to covered bonds, provided that all secured assets relating to a covered bond cover pool remain unaffected, segregated and with enough funding and excluding any part of a secured liability or a liability for which collateral has been pledged that exceeds the value of the assets, pledge, lien or collateral against which it is secured;

( f ) any liability that arises by virtue of the holding of client assets or client money including client assets or client money held on behalf of collective investment undertakings, provided that such a client is protected under the applicable insolvency law;

( g ) any liability that arises by virtue of a fiduciary relationship between the resolution entity or any of its subsidiaries (as fiduciary) and another person (as beneficiary), provided that such a beneficiary is protected under the applicable insolvency or civil law;

( h ) liabilities to institutions, excluding liabilities to entities that are part of the same group, with an original maturity of less than seven days;

( i ) liabilities with a remaining maturity of less than seven days, owed to:

(i)

systems or system operators designated in accordance with  [F5 regulation 4 of the Financial Markets and Insolvency (Settlement Finality) Regulations 1999];

(ii)

[F6 participants, as defined in regulation 2(1) of the Financial Markets and Insolvency (Settlement Finality) Regulations 1999, in a system designated in accordance with Regulation 4 of those Regulations and arising from the participation in such a system; or]

(iii)

third-country CCPs recognised in accordance with Article 25 of Regulation (EU) No 648/2012;

( j ) a liability to any of the following:

(i)

an employee in relation to accrued salary, pension benefits or other fixed remuneration, except for the variable component of the remuneration that is not regulated by a collective bargaining agreement, and except for the variable component of the remuneration of material risk takers [F7 within the meaning of Rule 3 of Part 152 (remuneration) of the PRA rulebook (other than persons deemed by virtue of rule 3.2 not to be material risk takers and notified to the PRA in accordance with rule 3.3)];

(ii)

a commercial or trade creditor where the liability arises from the provision to the institution or the parent undertaking of goods or services that are critical to the daily functioning of the institution's or parent undertaking's operations, including IT services, utilities and the rental, servicing and upkeep of premises;

(iii)

tax and social security authorities, provided that those liabilities are preferred under the applicable law;

(iv)

deposit guarantee schemes where the liability arises from [F8 levies imposed by the scheme manager under section 213(3)(b) or (4) of FSMA];

( k ) liabilities arising from derivatives;

( l ) liabilities arising from debt instruments with embedded derivatives.

For the purposes of point (l) of the first subparagraph, debt instruments containing early redemption options exercisable at the discretion of the issuer or of the holder, and debt instruments with variable interests derived from a broadly used reference rate such as Euribor or Libor, shall not be considered as debt instruments with embedded derivatives solely because of such features.

Textual Amendments

F2 Words in Art. 72a(2)(c) substituted (31.12.2020) by The Capital Requirements (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/1232), regs. 1(3), 25(2)(a); 2020 c. 1, Sch. 5 para. 1(1)

F3 Words in Art. 72a(2)(d) substituted (31.12.2020) by The Capital Requirements (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/1232), regs. 1(3), 25(2)(b); 2020 c. 1, Sch. 5 para. 1(1)

F4 Words in Art. 72a(2)(e) substituted (31.12.2020) by The Capital Requirements (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/1232), regs. 1(3), 25(2)(c); 2020 c. 1, Sch. 5 para. 1(1)

F5 Words in Art. 72a(2)(i)(i) substituted (31.12.2020) by The Capital Requirements (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/1232), regs. 1(3), 25(2)(d)(i); 2020 c. 1, Sch. 5 para. 1(1)

F6 Art. 72a(2)(i)(ii) substituted (31.12.2020) by The Capital Requirements (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/1232), regs. 1(3), 25(2)(d)(ii); 2020 c. 1, Sch. 5 para. 1(1)

F7 Words in Art. 72a(2)(j)(i) substituted (31.12.2020) by The Capital Requirements (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/1232), regs. 1(3), 25(2)(e)(i); 2020 c. 1, Sch. 5 para. 1(1)

F8 Words in Art. 72a(2)(j)(iv) substituted (31.12.2020) by The Capital Requirements (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/1232), regs. 1(3), 25(2)(e)(ii); 2020 c. 1, Sch. 5 para. 1(1)

Article 72b U.K. Eligible liabilities instruments

1 . Liabilities shall qualify as eligible liabilities instruments, provided that they comply with the conditions set out in this Article and only to the extent specified in this Article.

2 . Liabilities shall qualify as eligible liabilities instruments, provided that all the following conditions are met:

( a ) the liabilities are directly issued or raised, as applicable, by an institution and are fully paid up;

( b ) the liabilities are not owned by any of the following:

(i)

the institution or an entity included in the same resolution group;

(ii)

an undertaking in which the institution has a direct or indirect participation in the form of ownership, direct or by way of control, of 20 % or more of the voting rights or capital of that undertaking;

( c ) the acquisition of ownership of the liabilities is not funded directly or indirectly by the resolution entity;

( d ) the claim on the principal amount of the liabilities under the provisions governing the instruments is wholly subordinated to claims arising from the excluded liabilities referred to in Article 72a(2); that subordination requirement shall be considered to be met in any of the following situations:

(i)

the contractual provisions governing the liabilities specify that in the event of normal insolvency proceedings [F9 as defined in section 3(1) of the Banking Act 2009], the claim on the principal amount of the instruments ranks below claims arising from any of the excluded liabilities referred to in Article 72a(2) of this Regulation;

(ii)

the applicable law specifies that in the event of normal insolvency proceedings [F10 as defined in section 3(1) of the Banking Act 2009], the claim on the principal amount of the instruments ranks below claims arising from any of the excluded liabilities referred to in Article 72a(2) of this Regulation;

(iii)

the instruments are issued by a resolution entity which does not have on its balance sheet any excluded liabilities as referred to in Article 72a(2) of this Regulation that rank pari passu or junior to eligible liabilities instruments;

( e ) the liabilities are neither secured, nor subject to a guarantee or any other arrangement 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)

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

( f ) the liabilities are not subject to set-off or netting arrangements that would undermine their capacity to absorb losses in resolution;

( g ) the provisions governing the liabilities do not include any incentive for their principal amount to be called, redeemed or repurchased prior to their maturity or repaid early by the institution, as applicable, except in the cases referred to in Article 72c(3);

( h ) the liabilities are not redeemable by the holders of the instruments prior to their maturity, except in the cases referred to in Article 72c(2);

( i ) subject to Article 72c(3) and (4), where the liabilities include one or more early repayment options, including call options, the options are exercisable at the sole discretion of the issuer, except in the cases referred to in Article 72c(2);

( j ) the liabilities may only be called, redeemed, repaid or repurchased early where the conditions set out in Articles 77 and 78a are met;

( k ) the provisions governing the liabilities do not indicate explicitly or implicitly that the liabilities would be called, redeemed, repaid or repurchased early, as applicable by the resolution entity other than in the case of the insolvency or liquidation of the institution and the institution does not otherwise provide such an indication;

( l ) the provisions governing the liabilities do not give the holder the right to accelerate the future scheduled payment of interest or principal, other than in the case of the insolvency or liquidation of the resolution entity;

( m ) the level of interest or dividend payments, as applicable, due on the liabilities is not amended on the basis of the credit standing of the resolution entity or its parent undertaking;

( n ) for instruments issued after 28 June 2021 the relevant contractual documentation and, where applicable, the prospectus related to the issuance explicitly refer to the possible exercise of the write-down and conversion powers in accordance with [F11 section 12AA of the Banking Act 2009].

For the purposes of point (a) of the first subparagraph, only the parts of liabilities that are fully paid up shall be eligible to qualify as eligible liabilities instruments.

For the purposes of point (d) of the first subparagraph of this Article, where some of the excluded liabilities referred to in Article 72a(2) are subordinated to ordinary unsecured claims under [F12 the insolvency law of the United Kingdom or any part of it], inter alia, due to being held by a creditor who has close links with the debtor, by being or having been a shareholder, in a control or group relationship, a member of the management body or related to any of those persons, subordination shall not be assessed by reference to claims arising from such excluded liabilities.

3 . In addition to the liabilities referred to in paragraph 2 of this Article, the resolution authority may permit liabilities to qualify as eligible liabilities instruments up to an aggregate amount that does not exceed 3,5 % of the total risk exposure amount calculated in accordance with Article 92(3) and (4), provided that:

( a ) all the conditions set out in paragraph 2 except for the condition set out in point (d) of the first subparagraph of paragraph 2 are met;

( b ) the liabilities rank pari passu with the lowest ranking excluded liabilities referred to in Article 72a(2) with the exception of the excluded liabilities that are subordinated to ordinary unsecured claims under [F13 the insolvency law of the United Kingdom] referred to in the third subparagraph of paragraph 2 of this Article; and

( c ) the inclusion of those liabilities in eligible liabilities items would not give rise to a material risk of a successful legal challenge or of valid compensation claims as assessed by the resolution authority in relation to the principles referred to in [F14 United Kingdom legislation which immediately before IP completion day gave effect to] point (g) of Article 34(1) and Article 75 of Directive 2014/59/EU.

4 . The resolution authority may permit liabilities to qualify as eligible liabilities instruments in addition to the liabilities referred to in paragraph 2, provided that:

( a ) the institution is not permitted to include in eligible liabilities items liabilities referred to in paragraph 3;

( b ) all the conditions set out in paragraph 2, except for the condition set out in point (d) of the first subparagraph of paragraph 2, are met;

( c ) the liabilities rank pari passu or are senior to the lowest ranking excluded liabilities referred to in Article 72a(2), with the exception of the excluded liabilities subordinated to ordinary unsecured claims under [F15 the insolvency law of the United Kingdom] referred to in the third subparagraph of paragraph 2 of this Article;

( d ) on the balance sheet of the institution, the amount of the excluded liabilities referred to in Article 72a(2) which rank pari passu or below those liabilities in insolvency does not exceed 5 % of the amount of the own funds and eligible liabilities of the institution;

( e ) the inclusion of those liabilities in eligible liabilities items would not give rise to a material risk of a successful legal challenge or of valid compensation claims as assessed by the resolution authority in relation to the principles referred to in [F16 United Kingdom legislation which immediately before IP completion day gave effect to] point (g) of Article 34(1) and Article 75 of Directive 2014/59/EU.

5 . The resolution authority may only permit an institution to include liabilities referred to either in paragraph 3 or 4 as eligible liabilities items.

6 . The resolution authority shall consult the competent authority when examining whether the conditions set out in this Article are fulfilled.

7 . [F17 The Bank may make] F18 ... technical standards to specify:

( a ) the applicable forms and nature of indirect funding of eligible liabilities instruments;

( b ) the form and nature of incentives to redeem for the purposes of the condition set out in point (g) of the first subparagraph of paragraph 2 of this Article and Article 72c(3).

Those F18 ... technical standards shall be fully aligned with the [F19 technical standards] referred to in point (a) of Article 28(5) and in point (a) of Article 52(2).

F20 ...

Textual Amendments

F9 Words in Art. 72b(2)(d)(i) substituted (31.12.2020) by The Capital Requirements (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/1232), regs. 1(3), 26(2)(a)(i); 2020 c. 1, Sch. 5 para. 1(1)

F10 Words in Art. 72b(2)(d)(ii) substituted (31.12.2020) by The Capital Requirements (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/1232), regs. 1(3), 26(2)(a)(ii); 2020 c. 1, Sch. 5 para. 1(1)

F11 Words in Art. 72b(2)(n) substituted (31.12.2020) by The Capital Requirements (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/1232), regs. 1(3), 26(2)(b); 2020 c. 1, Sch. 5 para. 1(1)

F12 Words in Art. 72b(2) substituted (31.12.2020) by The Capital Requirements (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/1232), regs. 1(3), 26(2)(c); 2020 c. 1, Sch. 5 para. 1(1)

F13 Words in Art. 72b(3)(b) substituted (31.12.2020) by The Capital Requirements (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/1232), regs. 1(3), 26(3)(a); 2020 c. 1, Sch. 5 para. 1(1)

F14 Words in Art. 72b(3)(c) substituted (31.12.2020) by The Capital Requirements (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/1232), regs. 1(3), 26(3)(b) (as amended (30.12.2020) by S.I. 2020/1301, regs. 1, 3, Sch. para. 46); 2020 c. 1, Sch. 5 para. 1(1)

F15 Words in Art. 72b(4)(c) substituted (31.12.2020) by The Capital Requirements (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/1232), regs. 1(3), 26(4)(a); 2020 c. 1, Sch. 5 para. 1(1)

F16 Words in Art. 72b(4)(e) inserted (31.12.2020) by The Capital Requirements (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/1232), regs. 1(3), 26(4)(b) (as amended (30.12.2020) by S.I. 2020/1301, regs. 1, 3, Sch. para. 46); 2020 c. 1, Sch. 5 para. 1(1)

F17 Words in Art. 72b(7) substituted (31.12.2020) by The Capital Requirements (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/1232), regs. 1(3), 26(5)(a); 2020 c. 1, Sch. 5 para. 1(1)

F18 Words in Art. 72b(7) omitted (31.12.2020) by virtue of The Capital Requirements (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/1232), regs. 1(3), 26(5)(b); 2020 c. 1, Sch. 5 para. 1(1)

F19 Words in Art. 72b(7) substituted (31.12.2020) by The Capital Requirements (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/1232), regs. 1(3), 26(5)(c); 2020 c. 1, Sch. 5 para. 1(1)

F20 Words in Art. 72b(7) omitted (31.12.2020) by virtue of The Capital Requirements (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/1232), regs. 1(3), 26(5)(d); 2020 c. 1, Sch. 5 para. 1(1)

Article 72c U.K. Amortisation of eligible liabilities instruments

1. Eligible liabilities instruments with a residual maturity of at least one year shall fully qualify as eligible liabilities items.

Eligible liabilities instruments with a residual maturity of less than one year shall not qualify as eligible liabilities items.

2. For the purposes of paragraph 1, where a eligible liabilities instrument includes a holder redemption option exercisable prior to the original stated maturity of the instrument, the maturity of the instrument shall be defined as the earliest possible date on which the holder can exercise the redemption option and request redemption or repayment of the instrument.

3. For the purposes of paragraph 1, where an eligible liabilities instrument includes an incentive for the issuer to call, redeem, repay or repurchase the instrument prior to the original stated maturity of the instrument, the maturity of the instrument shall be defined as the earliest possible date on which the issuer can exercise that option and request redemption or repayment of the instrument.

4. For the purposes of paragraph 1, where an eligible liabilities instrument includes early redemption options that are exercisable at the sole discretion of the issuer prior to the original stated maturity of the instrument, but where the provisions governing the instrument do not include any incentive for the instrument to be called, redeemed, repaid or repurchased prior to its maturity and do not include any option for redemption or repayment at the discretion of the holders, the maturity of the instrument shall be defined as the original stated maturity.

Article 72d U.K. Consequences of the eligibility conditions ceasing to be met

Where, in the case of an eligible liabilities instrument, the applicable conditions set out in Article 72b cease to be met, the liabilities shall immediately cease to qualify as eligible liabilities instruments.

Liabilities referred to in Article 72b(2) may continue to count as eligible liabilities instruments as long as they qualify as eligible liabilities instruments under Article 72b(3) or (4).] ]

Editorial Information

X1 Substituted by Corrigendum to 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 (OJ L 176, 27.6.2013, p. 1).

Textual Amendments

F1 Inserted by Regulation (EU) 2019/876 of the European Parliament and of the Council of 20 May 2019 amending Regulation (EU) No 575/2013 as regards the leverage ratio, the net stable funding ratio, requirements for own funds and eligible liabilities, counterparty credit risk, market risk, exposures to central counterparties, exposures to collective investment undertakings, large exposures, reporting and disclosure requirements, and Regulation (EU) No 648/2012 (Text with EEA relevance).