EBA · 2013_544 Final Q&A

Tier 2 instruments

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
63
Topic
Own funds
Submitted by
Investment firm
Submitted
2013-11-19
Answered
2014-07-04
Answer provided by
ESAs (EBA, ESMA, EIOPA)
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Question

In question 2013_31 the EBA clarified that non-step-up legacy Tier 1 instruments could be eligible, for the amounts exceeding the grandfathering limits, as fully eligible Tier 2 instruments with no time limit and independently of the frequency of calls, if conditions set in Article 63 are met. Article 63 (j) states that such Tier 2 instruments may be called where conditions in article 77 are met. Could the EBA confirm that article 77 would apply to such legacy non step Tier 1 bonds potentially fully eligible as Tier 2 and would effectively impose a constraint on the bank, so that the bank does not need to have a contractual call provision in the non-step-up legacy Tier 1 bond that states that the call can only be exercised with the approval of the regulatory authority to get this bond approved as Tier 2 ?

Background

Most legacy Tier 1 bonds do not mention explicitely that the call can only be exercised with regulatory approval and it is important to know if this will have an impact on the potential treatment as Tier 2 bonds.

Answer

Any call options, redemptions or repurchase transactions related to Tier 2 instruments must meet the requirements of Article 63(i), (j) and (k) of Regulation (EU) No. 575/2013 (CRR). For Tier 2 instruments, Article 63(j), in conjunction with Article 77 of the CRR, stipulates that the institution must not effect the call, redemption, repayment or repurchase prior to the date of an instrument's contractual maturity without the prior permission of the competent authority. Such instruments should therefore contain an explicit reference to these regulatory conditions in their terms.

Original source: European Banking Authority, Q&A ID 2013_544

This Q&A is published by European Banking Authority and is non-binding. It does not constitute legal advice. Updated weekly from official ESA sources.

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