CHAPTER III

ADDITIONAL TIER 1 CAPITAL
SECTION 1

Form and nature of incentives to redeem

Form and nature of incentives to redeem for the purposes of Article 52(1)(g) and 63(h)of Regulation (EU) No 575/2013
Article 20
1
Incentives to redeem shall mean all features that provide, at the date of issuance, an expectation that the capital instrument is likely to be redeemed.
2
The incentives referred to in paragraph 1 shall include the following forms:
a
a call option combined with an increase in the credit spread of the instrument if the call is not exercised;
b
a call option combined with a requirement or an investor option to convert the instrument into a Common Equity Tier 1 instrument where the call is not exercised;
c
a call option combined with a change in reference rate where the credit spread over the second reference rate is greater than the initial payment rate minus the swap rate;
d
a call option combined with an increase of the redemption amount in the future;
e
a remarketing option combined with an increase in the credit spread of the instrument or a change in reference rate where the credit spread over the second reference rate is greater than the initial payment rate minus the swap rate where the instrument is not remarketed;
f
a marketing of the instrument in a way which suggests to investors that the instrument will be called.
SECTION 2

Conversion or write-down of the principal amount

Nature of the write-up of the principal amount following a write-down for the purposes of Article 52(1)(n) and Article 52(2)(c)(ii) of Regulation (EU) No 575/2013
Article 21
1
The write-down of the principal amount shall apply on a pro rata basis to all holders of Additional Tier 1 instruments that include a similar write-down mechanism and an identical trigger level.
2
For the write-down to be considered temporary, all of the following conditions shall be met:
a
any distributions payable after a write-down shall be based on the reduced amount of the principal;
b
write-ups shall be based on profits after the institution has taken a formal decision confirming the final profits;
c
any write-up of the instrument or payment of coupons on the reduced amount of the principal shall be operated at the full discretion of the institution subject to the constraints arising from points (d) to (f) and there shall be no obligation for the institution to operate or accelerate a write-up under specific circumstances;
d
a write-up shall be operated on a pro rata basis among similar Additional Tier 1 instruments that have been subject to a write-down;
e
the maximum amount to be attributed to the sum of the write-up of the instrument together with the payment of coupons on the reduced amount of the principal shall be equal to the profit of the institution multiplied by the amount obtained by dividing the amount determined in point (1) by the amount determined in point (2):
1. the sum of the nominal amount of all Additional Tier 1 instruments of the institution before write-down that have been subject to a write-down;
2. the total Tier 1 capital of the institution.
f
the sum of any write-up amounts and payments of coupons on the reduced amount of the principal shall be treated as a payment that results in a reduction of Common Equity Tier 1 and shall be subject, together with other distributions on Common Equity Tier 1 instruments, to the restrictions relating to the Maximum Distributable Amount as referred to in Article 141(2) of Directive 2013/36/EU, as transposed in national law or regulation.
3
For the purposes of point (e) of paragraph 2, the calculation shall be made at the moment when the write-up is operated.

Procedures and timing for determining that a trigger event has occurred for the purposes of Article 52(1)(n) of Regulation (EU) No 575/2013
Article 22
1
Where the institution has established that the Common Equity Tier 1 ratio has fallen below the level that activates conversion or write-down of the instrument at the level of application of the requirements provided in Title II of Part One of Regulation (EU) No 575/2013, the management body or any other relevant body of the institution shall without delay determine that a trigger event has occurred and there shall be an irrevocable obligation to write-down or convert the instrument.
2
The amount to be written-down or converted shall be determined as soon as possible and within a maximum period of one month from the time it is determined that the trigger event has occurred pursuant to paragraph 1.
3
The competent authority may require that the maximum period of one month referred to in paragraph 2 is reduced in cases where it assesses that sufficient certainty on the amount to be converted or written down is established or in cases where it assesses that an immediate conversion or write-down is needed.
4
Where an independent review of the amount to be written down or converted is required according to the provisions governing the Additional Tier 1 instrument, or where the competent authority requires an independent review for the determination of the amount to be written down or converted, the management body or any other relevant body of the institution shall see that this is done immediately. That independent review shall be completed as soon as possible and shall not create impediments for the institution to write-down or convert the Additional Tier 1 instrument and to meet the requirements of paragraphs 2 and 3.
SECTION 3

Features of instruments that could hinder recapitalisation

Features of instruments that could hinder recapitalisation for the purposes of Article 52(1)(o) of Regulation (EU) No 575/2013
Article 23
Features that could hinder the recapitalisation of an institution shall include provisions that require the institution to compensate existing holders of capital instruments where a new capital instrument is issued.
SECTION 4

Use of special purposes entities for indirect issuance of own funds instruments

Use of special purposes entities for indirect issuance of own funds instruments for the purposes of Article 52(1)(p) and Article 63(n) of Regulation (EU) No 575/2013
Article 24
1
Where the institution or an entity within the consolidation pursuant to Chapter 2 of Title II of Part One of Regulation (EU) No 575/2013 issues a capital instrument that is subscribed by a special purpose entity, this capital instrument shall not, at the level of the institution or of the above-mentioned entity, receive recognition as capital of a higher quality than the lowest quality of the capital issued to the special purpose entity and the capital issued to third parties by the special purpose entity. That requirement shall apply at the consolidated, sub-consolidated and individual levels of application of prudential requirements.
2
The rights of the holders of the instruments issued by a special purpose entity shall be no more favourable than if the instrument was issued directly by the institution or an entity within the consolidation pursuant to Chapter 2 of Title II of Part One of Regulation (EU) No 575/2013.

Distribution on own funds instruments — broad market indices
Article 24a
1
An interest rate index shall be deemed to be a broad market index if it fulfils all of the following conditions:
a
it is used to set interbank lending rates in one or more currencies;
b
it is used as a reference rate for floating rate debt issued by the institution in the same currency, where applicable;
c
it is calculated as an average rate by a body independent of the institutions that are contributing to the index (
‘
panel
’ );
d
each of the rates set under the index is based on quotes submitted by a panel of institutions active in that interbank market;
e
the composition of the panel referred to in point (c) ensures a sufficient level of representativeness of institutions present in the Member State.
2
For the purposes of point (e) of paragraph 1, a sufficient level of representativeness shall be deemed to be achieved in either of the following cases:
a
where the panel referred to in point (c) of paragraph 1 includes at least 6 different contributors before any discount of quotes is applied for the purposes of setting the rate;
b
where all of the following conditions are met:
1. the panel referred to in point (c) of paragraph 1 includes at least 4 different contributors before any discount of quotes is applied for the purposes of setting the rate;
2. the contributors to the panel referred to in point (c) of paragraph 1 represent at least 60 % of the related market.
3
The related market referred to in point (b)(ii) of paragraph 2 shall be the sum of assets and liabilities of the effective contributors to the panel in the domestic currency divided by the sum of assets and liabilities in the domestic currency of credit institutions in the relevant Member State, including branches established in the Member State, and money market funds in the relevant Member State.
4
A stock index shall be deemed to be a broad market index where it is appropriately diversified in accordance with Article 344 of Regulation (EU) No 575/2013.
Inserted by Commission Delegated Regulation (EU) 2015/923 of 11 March 2015 amending Delegated Regulation (EU) No 241/2014 supplementing Regulation (EU) No 575/2013 of the European Parliament and of the Council with regard to regulatory technical standards for own funds requirements for institutions (Text with EEA relevance).