Own funds - underwriting of own funds instruments

Is the underwriting of a Tier 2 (T2) instrument by an insurance subsidiary of the issuer possible when the instrument is then replaced in units of account within life insurance policies where the client bears the economic risk?

French life insurance policies usually offer to their clients to invest their money either in cash (euro funds) or in units of account (= investment in different markets, equity, bonds, etc.). Unless in some cases, there is no capital guarantee in case the client chose to invest in units of account. The client takes then the economic risk related to his investment. An insurance subsidiary of a bank would like to underwrite a T2 instrument of its parent company in order to place it on its clients’ units of account. It seems to us that this would not be CRR compliant for the following reasons: - From a legal point of view, the insurance subsidiary remains the owner of the instrument placed in units of account. This goes against Article 63(b) CRR which prohibits the subscription of a T2 instrument by a subsidiary or any undertaking in which the institution has 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; - The parent bank suggests to commit to buyback the part of the instrument for market making purposes in case the client ask reimbursement of its instrument and the insurance company is not able to replace the instrument in another client’s account (according to the bank, very rare cases). However, this would go against Article 63(k) CRR which prohibits the issuer to explicitly or implicitly indicate that the instrument would or might be repurchased other than in insolvency or liquidation. Moreover, this kind of buyback cannot be treated as market making purchases, as the instrument would be cancelled and not sold back to the market. - If we consider that the client is the owner of the instrument, from an economic point of view, then it would go against Article 63(i) which requires that all call options are exercisable only at the sole discretion of the issuer. However the underwriting would be possible by a subsidiary or branch as long as the instrument is immediately replaced in the market and subscribed by an external investor. The instrument is not taken into account in the parent company’s own funds as long as the instrument is not resold. Similarly, an insurance company could place a T2 instrument in units of account of its clients’ life insurance policies as long as this insurance company is not the subsidiary of the issuer, or an undertaking on which the issuer has participation in the form of ownership, direct or by way of control, of 20% or more of the voting rights or capital.