MIFIDPRU 3.6 General requirements for own funds instruments

1. (1)

   1A firm must comply with Chapter 6 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.

1To apply for permission for the purposes of articles 77 and 78 of the UK CRR to do any of the following, a firm must save in the circumstances set out in MIFIDPRU 3.6.3R,4 complete the form in MIFIDPRU 3 Annex 4R and submit it to the FCA using the online notification and application system:

1. (1)

   reduce, redeem or repurchase any of its common equity tier 1 instruments;

2. (2)

   reduce, distribute or reclassify as another own funds item the share premium accounts related to any of its own funds instruments; or

3. (3)

   effect the call, redemption, repayment or repurchase of its additional tier 1 instruments or tier 2 instruments prior to the date of their contractual maturity;

1Permission under MIFIDPRU 3.6.2R is deemed to have been granted if the following conditions are met:

1. (1)

   either of the conditions in MIFIDPRU 3.6.4R apply;

2. (2)

   at least 20 business days before the day on which the reduction, repurchase, call or redemption is proposed to occur, the firm has notified the FCA of:

   1. (a)

      the proposed reduction, repurchase, call or redemption; and

   2. (b)

      the basis on which the firm has concluded that either condition in (1) is satisfied;

3. (3)

   the notification in (2) is made using the form in MIFIDPRU 3 Annex 5R and submitted using the online notification and application system; and

4. (4)

   the FCA has not notified the firm of any objection to the proposal before the day on which the reduction, repurchase, call or redemption is proposed to occur.

1The conditions referred to in MIFIDPRU 3.6.3R are that:

1. (1)

   before or at the same time as the reduction, repurchase, call or redemption, the firm replaces the relevant own funds instruments with own funds instruments of equal or higher quality on terms that are sustainable for the income capacity of the firm; or

2. (2)

   the firm is redeeming additional tier 1 instruments or tier 2 instruments within five years of their date of issue and either:

   1. (a)

      there is a change in the regulatory classification of the instruments that is likely to result in their exclusion from own funds or reclassification as a lower quality form of own funds, and both the following conditions are met:

      1. (i)

         there are reasonable grounds to conclude that the change is sufficiently certain; and

      2. (ii)

         the regulatory reclassification of the instruments was not reasonably foreseeable at the time of their issuance; or

   2. (b)

      there is a change in the applicable tax treatment of those instruments which is material and was not reasonably foreseeable at the time of their issuance.

1. (1)

   1A firm must notify the FCA at least 20 business days before the intended issuance date of the firm’s intention to issue:

   1. (a)

      additional tier 1 instruments; or

   2. (b)

      tier 2 instruments.

2. (2)

   The notification requirement in (1) does not apply if:

   1. (a)

      the firm has previously notified the FCA of an issuance of the same class of additional tier 1 instruments or tier 2 instruments; and

   2. (b)

      the terms of the new instruments are identical in all material respects to the terms of the instruments in the issuance previously notified to the FCA.

3. (3)

   The notification under (1) must:

   1. (a)

      be submitted to the FCA through the online notification and application system using the form in MIFIDPRU 3 Annex 6R; and

   2. (b)

      include the following:

      1. (i)

         confirmation of whether the instruments are intended to be classified as additional tier 1 instruments or tier 2 instruments;

      2. (ii)

         confirmation of whether the instruments are intended to be issued to external investors or only to other members of the firm’s group or connected parties;

      3. (iii)

         a copy of the term sheet and details of any features of the capital instrument which are novel, unusual or different from a capital instrument of a similar nature previously issued by the firm or widely available in the market;

      4. (iv)

         confirmation from a member of the firm’s senior management or governing body who has oversight of the intended issuance that the instrument meets the conditions in MIFIDPRU 3.4 or MIFIDPRU 3.5 (as applicable, and including any conditions in the UK CRR applied by those sections) to be classified as additional tier 1 instruments or tier 2 instruments; and

      5. (v)

         a properly reasoned legal opinion from an appropriately qualified individual, confirming that the capital instruments meet the conditions in (iv).

1. (1)

   1A UK parent entity must apply the modifications in (2) when either of the following apply on a consolidated basis in accordance with MIFIDPRU 2.5.7R:

   1. (a)

      MIFIDPRU 3.3.2R to MIFIDPRU 3.3.4G; and

   2. (b)

      MIFIDPRU 3.6.5R.

2. (2)

   The Handbook provisions in (1)(a) and (b) apply as if a reference to:

   1. (a)

      a “firm” is a reference to the UK parent entity;

   2. (b)

      “capital instruments” is a reference to capital instruments issued by the UK parent entity;

   3. (c)

      “additional tier 1 instruments” and “tier 2 instruments” is a reference to these instruments issued by the UK parent entity; and

   4. (d)

      “common equity tier 1 capital” is a reference to that type of capital as calculated on a consolidated basis.