MIFIDPRU TP 1 Own funds transitional provisions

Application

11.1

R

MIFIDPRU TP 1 applies to:

(1)

a MIFIDPRU investment firm; and

(2)

a UK parent entity that is required by MIFIDPRU 2.5.7R to comply with MIFIDPRU 3 on the basis of its consolidated situation; and

(3)

a parent undertaking to which the group capital test applies.

Purpose

11.2

G

MIFIDPRU TP 1 contains transitional provisions relating to certain permissions granted by the FCA before 1 January 2022 for the purposes of the own funds provisions of the UK CRR. These provisions set out where a firm with such a permission may continue to rely on it under the MIFIDPRU regime.

11.3

G

MIFIDPRU TP 1 also contains transitional provisions relating to the continued eligibility of additional tier 1 instruments issued before 1 January 2022 under the UK CRR (in the form in which the UK CRR stood prior to that date).

Continuing application of certain UK CRR permissions

11.4

R

MIFIDPRU TP 1.5 applies for the duration of a permission to which it relates, except to the extent that the FCA revokes, varies or replaces the permission.

11.5

R

(1)

1This rule applies to any permission listed in column (A) of the table in MIFIDPRU TP 1.6R where that permission was granted to a firm by the FCA for the purposes of the UK CRR before 1 January 2022.

(2)

Where this rule applies, a permission in column (A) of the table in MIFIDPRU TP 1.6R is deemed to have been granted for its remaining duration on equivalent terms by the FCA under the corresponding provision in column (B) of that table.

11.6

R

1This table belongs to MIFIDPRU TP 1.5R.

Article 26(2) UK CRR: inclusion of interim or year-end profits in common equity tier 1 capital before the firm has taken a formal decision confirming the final profit or loss for the year

MIFIDPRU 3.3.2R

Article 26(3) UK CRR: classification of an issuance of capital instruments as common equity tier 1 capital

MIFIDPRU 3.3.3R

11.7

G

1The effect of MIFIDPRU TP 1.5 and MIFIDPRU TP 1.6 is that a permission that was initially granted under article 26(2) or 26(3) of the UK CRR will continue to produce an equivalent effect under the corresponding provisions in MIFIDPRU 3.3. The duration of the original permission is not affected. For example, a permission granted on 1 June 2021 for a one-year duration will be treated from 1 January 2022 as if it had been granted under MIFIDPRU 3.3, but will still expire on 1 June 2022.

Additional tier 1 capital instruments issued before 1 January 2022

11.8

R

(1)

This rule applies where:

(a)

a firm which became a MIFIDPRU investment firm on 1 January 2022 issued instruments before that date which satisfied the conditions to be classified as additional tier 1 instruments under the UK CRR in the form in which it stood immediately before 1 January 2022; and

(b)

the instruments in (1) remain in issue on 1 January 2022.

(2)

Where this rule applies, by no later than 1 February 2022, a MIFIDPRU investment firm must:

(a)

notify the FCA using the form in MIFIDPRU TP 1 Annex 1R, submitted via the online notification and application system, to confirm whether:

(i)

the relevant instruments satisfy the conditions in MIFIDPRU 3.4 to be classified as additional tier 1 instruments; or

(ii)

the relevant instruments do not satisfy the relevant conditions in MIFIDPRU 3.4 and the firm has therefore ceased to recognise them as part of its additional tier 1 capital or has otherwise redeemed or replaced them; or

(b)

apply to the FCA under section 138A of the Act for a modification of the relevant provisions in MIFIDPRU 3.4 to continue to allow the firm to classify the instruments as additional tier 1 instruments for the purposes of MIFIDPRU.

1 1.9

G

(1)

1A MIFIDPRU investment firm may have issued instruments that, immediately before 1 January 2022, met the conditions in the UK CRR (in the form in which it then stood) to be classified as additional tier 1 instruments and which remain in issue on 1 January 2022.

(2)

Although MIFIDPRU 3.4 contains provisions for the classification of instruments under MIFIDPRU as additional tier 1 instruments which are broadly equivalent to those in the UK CRR, the trigger event under article 54(1)(a) of the UK CRR does not apply under MIFIDPRU. This is because the own funds requirement under MIFIDPRU is calculated on a different basis and therefore the trigger event for conversion of additional tier 1 instruments under MIFIDPRU is defined by reference to different criteria.

1.10

G

1An additional tier 1 instrument issued before 1 January 2022 under the UK CRR may satisfy the conditions in MIFIDPRU 3.4 so that it can be classified as an additional tier 1 instrument for the purposes of MIFIDPRU. This may depend upon how the trigger events were defined in the terms of the relevant instrument and whether additional trigger events (i.e. over and above the mandatory UK CRR trigger event that was applicable at the time of issuance) were also included.

11.11

G

(1)

1A firm may apply to the FCA under section 138A of the Act to modify the provisions of MIFIDPRU 3.4 for existing additional tier 1 instruments issued under the UK CRR before 1 January 2022, to allow those instruments to be recognised as additional tier 1 instruments under MIFIDPRU.

(2)

In the application, the FCA would expect a firm to demonstrate how the conversion or write-down of the additional tier 1 instruments would function to enable the firm to continue to satisfy its own funds requirement under MIFIDPRU in times of financial stress.

(3)

If the FCA grants a modification under section 138A of the Act in such circumstances, it may grant it on a temporary basis to facilitate the firm’s orderly transition to the MIFIDPRU regime.

Continuing validity of IFPRU own funds notifications

11.12

R

(1)

1This rule applies to any notification listed in column (A) of the table in MIFIDPRU TP 1.13R, where the notification was validly submitted by a firm or parent undertaking to the FCA for the purposes of the relevant rule in the IFPRU sourcebook before 1 January 2022.

(2)

Where this rule applies, a notification in column (A) of the table in MIFIDPRU TP 1.13R is deemed to have been a valid notification for the purposes of the corresponding provision in column (B) in the same row of that table.

11.13

R

The table belongs to MIFIDPRU TP 1.12R.

IFPRU 3.2.10R: notification of issuance of own funds instruments

MIFIDPRU 3.6.5R(1) (for a MIFIDPRU investment firm)

MIFIDPRU 3.6.8R(1)(b) (for a UK parent entity to which consolidation under MIFIDPRU 2.5.7R applies)

MIFIDPRU 3.7.4R(1)(b) (for a parent undertaking to which the group capital test applies)

IFPRU 3.2.13R: notification of issuance of ordinary shares or debt instruments under a debt securities programme

MIFIDPRU 3.6.5R(1) (for a MIFIDPRU investment firm)

MIFIDPRU 3.6.8R(1)(b) (for a UK parent entity to which consolidation under MIFIDPRU 2.5.7R applies)

MIFIDPRU 3.7.4R(1)(b) (for a parent undertaking to which the group capital test applies)

11.14

G

1The effect of MIFIDPRU TP 1.12R and 1.13R is that a notification that was validly submitted for the purposes of the rules relating to the issuance of own funds in IFPRU is valid for the purposes of the notification requirements relating to the issuance of own funds in MIFIDPRU 3.6 or 3.7. This means that:

(1)

a MIFIDPRU investment firm or parent undertaking to which IFPRU applied is not required to submit another notification to the FCA in relation to pre-existing instruments to treat those instruments as additional tier 1 instruments or tier 2 instruments under MIFIDPRU; and

(2)

where the MIFIDPRU investment firm or parent undertaking issues the same class of instruments on or after 1 January 2022, it can rely on the exemption from the notification requirement in MIFIDPRU 3.6.5R(2), provided that the instruments are identical in all material respects to the previous issuance notified to the FCA under IFPRU.

11.15

G

1MIFIDPRU TP 1.12R and 1.13R do not affect the underlying criteria in MIFIDPRU 3 for classifying an instrument as own funds. Instead, the provisions deem existing notifications to be notifications for equivalent purposes under MIFIDPRU. This means that if the instruments that are the subject of the notifications do not meet the criteria in MIFIDPRU 3 to be classified as own funds, a firm or parent undertaking must not treat those instruments as such. It is the responsibility of the firm or parent undertaking relying on the transitional provisions in this annex to assess whether the relevant criteria are met in relation to any particular instrument.

Annex

1R

1[Editor’s note: The form can be found at this address: https://www.handbook.fca.org.uk/publication/form/mifidpru/MIFIDPRU_TP_1_Annex_1R_Notification_20211201.pdf