Permission to reduce own funds or eligible liabilities and deduction rules in the context of a liability management exercise (exchange offer, tender offer or issuance of a replacement instrument concurrent with a tender offer on the existing instrument)

In Q&A 3277 the EBA clarified that for instruments containing call options in their terms and conditions, in case of the use of the call, “sufficient certainty” pursuant to Article 28(2) of Delegated Regulation (EU) No 241/2014  is deemed to exist only at the time of the announcement of the call of the instrument to the holders and the deduction will take place only at that later point in time. In the most common case where the actions listed in Article 77(1) of the CRR are intended to be carried out by means of a repurchase of an own funds instrument (liability management exercises notably), under Article 78(1)(a) or 78(4)(d) of the CRR, the authorisation is subject to the condition that the instrument should be replaced before or at the same time as the repurchase. Irrespective of the announcement date of the repurchase, sufficient certainty is deemed to exist when the new issuance is effective and the deduction takes place at that point in time. As a consequence, in case of the simultaneous announcement to the market of the new issuance and the repurchase, the point in time for the deduction corresponds to the date the new issuance is effective. As a general principle, when the prior permission from the competent authority is requested under Article 78(1)(a) or 78(4)(d) of the CRR, the replacing and replaced instruments shall not be included in the own funds simultaneously. However, when the prior permission from the competent authority is requested under Article 78(1)(b) of the CRR (i.e. without replacement), both instruments can be included in the own funds simultaneously. For the sake of completeness, the above answer applies in an identical manner to any action described in Article 77(2) CRR to eligible liabilities instruments in accordance with Article 32b(2) of Delegated Regulation (EU) No 241/2014.