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You are viewing the version of the document as on 2023-04-28.

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    2023-04-28

This chapter includes rules that refer to provisions of the UK CRR in the form in which it stood at 1 January 2022. That version of the UK CRR can be found on legislation.gov.uk using this link.

MIFIDPRU 3.4 Additional Tier 1 capital

MIFIDPRU 3.4.1R
  1. (1)

    1A firm must determine its additional tier 1 capital in accordance with Chapter 3 of Title I of Part Two of the UK CRR, as modified by the rules in this section.

  2. (2)

    Any reference to the UK CRR in this section is to the UK CRR as applied by (1) and modified by the rules in this section.

MIFIDPRU 3.4.1AG

2MIFIDPRU 3 Annex 7R contains supplementary provisions relating to the calculation of a firm’s additional tier 1 capital and to write-down and conversion requirements for additional tier 1 instruments.

Trigger events and write-down or conversion

MIFIDPRU 3.4.2R

1The following provisions of the UK CRR do not apply in relation to the additional tier 1 capital of a MIFIDPRU investment firm:

  1. (1)

    article 54(1)(a); and

  2. (2)

    article 54(4)(a).

MIFIDPRU 3.4.3R
  1. (1)

    1A firm must specify in the terms of an additional tier 1 instrument one or more trigger events for the purposes of article 52(1)(n) of the UK CRR.

  2. (2)

    The trigger events specified under (1) must include a trigger event that occurs where the common equity tier 1 capital of the firm falls below a level specified by the firm that is no lower than 64% of the firm’s own funds requirement.

  3. (3)

    Article 54 of the UK CRR applies as if references to the trigger event in article 54(1)(a) of the UK CRR are references to the trigger event in (1).

  4. (4)

    The full principal amount of an additional tier 1 instrument must be written down or converted when a trigger event occurs.

MIFIDPRU 3.4.4G

1MIFIDPRU 3.4.3R requires that the principal amount of an additional tier 1 instrument will convert into common equity tier 1 capital or will be written down if the firm’s common equity tier capital falls below a specified level. This level must be set at no lower than 64% of the firm’s own funds requirement. The firm may set the relevant trigger at a higher level (such as 70% of its own funds requirement) if it wishes. The firm may also specify additional trigger events alongside the required trigger event in MIFIDPRU 3.4.3R(1).

Holdings of additional tier 1 instruments of financial sector entities

MIFIDPRU 3.4.5R
  1. (1)

    1This rule applies to a firm’s holdings of capital instruments that are not held in its trading book.

  2. (2)

    A firm must deduct its direct, indirect and synthetic holdings in additional tier 1 instruments of financial sector entities under article 56(c) of the UK CRR without applying article 60 of the UK CRR (deduction of holdings of additional tier 1 instruments where an institution does not have a significant investment in a financial sector entity).

  3. (3)

    The requirement in article 56(c) of the UK CRR does not apply where MIFIDPRU 3.4.7R applies.

MIFIDPRU 3.4.6R

1The following provisions do not apply to additional tier 1 instruments held in the trading book of a firm:

  1. (1)

    article 56(c) of the UK CRR; and

  2. (2)

    article 60 of the UK CRR.

Holdings of additional tier 1 instruments issued by a financial sector entity within an investment firm group

MIFIDPRU 3.4.7R

1A firm is not required to deduct holdings of additional tier 1 instruments issued by a financial sector entity from the firm’s additional tier 1 items in accordance with article 56 of the UK CRR if all of the following conditions are met:

  1. (1)

    the financial sector entity forms part of the same investment firm group as the firm;

  2. (2)

    there is no current or foreseen material, practical or legal impediment to the prompt transfer of capital or repayment of liabilities by the financial sector entity;

  3. (3)

    the risk evaluation, measurement and control procedures of the parent undertaking include the financial sector entity; and

  4. (4)

    the group capital test under MIFIDPRU 2.5 does not apply to the investment firm group.