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
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
1The following provisions of the UK CRR do not apply in relation to the additional tier 1 capital of a MIFIDPRU investment firm:
- (1)
article 54(1)(a); and
- (2)
article 54(4)(a).
- (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)
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)
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)
The full principal amount of an additional tier 1 instrument must be written down or converted when a trigger event occurs.
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
- (1)
1This rule applies to a firm’s holdings of capital instruments that are not held in its trading book.
- (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)
The requirement in article 56(c) of the UK CRR does not apply where MIFIDPRU 3.4.7R applies.
1The following provisions do not apply to additional tier 1 instruments held in the trading book of a firm:
Holdings of additional tier 1 instruments issued by a financial sector entity within an investment firm group
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)
the financial sector entity forms part of the same investment firm group as the firm;
- (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)
the risk evaluation, measurement and control procedures of the parent undertaking include the financial sector entity; and
- (4)
the group capital test under MIFIDPRU 2.5 does not apply to the investment firm group.