MIFIDPRU TP 7 Former non-CRR firms and parent undertakings: transitional for own funds instruments

Application

17.1

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MIFIDPRU TP 7 applies to a MIFIDPRU investment firm that, immediately before 1 January 2022:

(1)

was an authorised person; and

(2)

was not classified as a CRR firm in accordance with the rules then in force.

17.2

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(1)

MIFIDPRU TP 7 also applies to the following if the conditions in (2) are met:

(a)

a UK parent entity to which MIFIDPRU 3 applies on a consolidated basis in accordance with MIFIDPRU 2.5.7R; and

(b)

a parent undertaking to which the group capital test applies.

(2)

The conditions are that immediately before 1 January 2022 the UK parent entity or parent undertaking:

(a)

formed part of the same investment firm group as a firm, which, on 1 January 2022 became a MIFIDPRU investment firm; and

(b)

was not required to hold own funds on either an individual or a consolidated basis in accordance with the UK CRR.

Purpose

17.3

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(1)

Before MIFIDPRU applied, certain firms that subsequently became MIFIDPRU investment firms determined their available capital resources according to various provisions in GENPRU or IPRU-INV. In addition, certain other firms were not subject to a dedicated prudential sourcebook in the FCA Handbook that contained a detailed regime for recognising the eligibility of capital resources.

(2)

The rules on own funds in MIFIDPRU 3 broadly replicate the approach to recognising capital resources under the UK CRR. The purpose of MIFIDPRU TP 7 is to permit firms that were not CRR firms immediately before MIFIDPRU began to apply to recognise instruments as own funds under MIFIDPRU without requiring separate permission from, or notification to, the FCA if those instruments:

(a)

were issued before MIFIDPRU began to apply; and

(b)

meet the conditions to be classified as own funds under MIFIDPRU 3 (other than the conditions relating to the requirements to seek prior FCA consent or to notify the FCA).

(3)

Under MIFIDPRU TP 1, a permission recognising the issuance of capital instruments as common equity tier 1 capital under the UK CRR is deemed to be an equivalent permission under MIFIDPRU. Therefore, a notification made before MIFIDPRU began to apply by a former CRR firm in relation to the issuance of additional tier 1 instruments and tier 2 instruments will continue to be valid.

(4)

MIFIDPRU TP 7 also applies to UK parent entities to which MIFIDPRU 3 applies on a consolidated basis and parent undertakings to which the group capital test applies, where those entities were not required to hold own funds on an individual or consolidated basis under the UK CRR immediately before MIFIDPRU began to apply. This means that provided that the existing instruments issued by these entities meet the relevant conditions in MIFIDPRU 3, they can be treated as own funds for the purposes of the application of MIFIDPRU 3 on a consolidated basis or the group capital test as long as the entity complies with MIFIDPRU TP 7.

17.4

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(1)

This rule applies to any capital instrument that:

(b)

was still in issue on 1 January 2022.

(2)

The firm, UK parent entity or parent undertaking in (1)(a) is deemed to have been granted the permission, or to have complied with the notification obligation, in column (A) of the table in MIFIDPRU 7.5R in relation to a capital instrument where the following conditions are met:

(a)

the conditions in column (B) of the same row of the table in MIFIDPRU 7.5R are met in relation to that instrument; and

(b)

the firm has submitted the notification in MIFIDPRU TP 7 Annex 1R using the online notification and application system by no later than 1 January 2022.

(3)

A deemed permission or notification under (2) ceases to apply in relation to a capital instrument if the terms of the instrument are varied on or after 1 January 2022 and the instrument ceases to meet:

(a)

in relation to an instrument being treated as common equity tier 1 capital, the conditions in MIFIDPRU 3.3 (other than the condition for prior FCA permission to classify the instrument as common equity tier 1 capital);

(b)

in relation to an instrument being treated as additional tier 1 capital, the conditions in MIFIDPRU 3.4; and

(c)

in relation to an instrument being treated as tier 2 capital, the conditions in MIFIDPRU 3.5.

17.5

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This table belongs to MIFIDPRU TP 7.4R.

Article 26(3) UK CRR (as applied and modified by MIFIDPRU 3.3.1R) and MIFIDPRU 3.3.3R:

Requirement for prior FCA permission to classify an issuance of capital instruments by a firm as common equity tier 1 capital

Immediately before MIFIDPRU began to apply , the capital instruments met the conditions to be classified as common equity tier 1 capital in MIFIDPRU 3.3, except for the requirement for prior FCA permission under article 26(3) of the UK CRR and MIFIDPRU 3.3.3R

MIFIDPRU 3.6.5R(1)(a):

Requirement to notify the FCA of the intention to issue additional tier 1 instruments

Immediately before MIFIDPRU began to apply , the capital instruments met the conditions to be classified as additional tier 1 capital in MIFIDPRU 3.4

MIFIDPRU 3.6.5R(1)(b):

Requirement to notify the FCA of the intention to issue tier 2 instruments

Immediately before MIFIDPRU began to apply , the capital instruments met the conditions to be classified as tier 2 capital in MIFIDPRU 3.5

UK parent entities to which consolidation under MIFIDPRU 2.5.7R applies

Article 26(3) UK CRR (as applied and modified by MIFIDPRU 3.3.1R) and MIFIDPRU 3.6.8R, as they apply on a consolidated basis under MIFIDPRU 2.5.7R(1):

Requirement for prior FCA permission to classify an issuance of capital instruments by a UK parent entity as common equity tier 1 capital

Immediately before MIFIDPRU began to apply , the capital instruments met the conditions to be classified as common equity tier 1 capital in MIFIDPRU 3.3 (as it applies on a consolidated basis), except for the requirement for prior FCA permission under article 26(3) of the UK CRR and MIFIDPRU 3.3.3R

MIFIDPRU 3.6.5R(1)(a), as modified by MIFIDPRU 3.6.8R:

Requirement to notify the FCA of the intention to issue additional tier 1 instruments

Immediately before MIFIDPRU began to apply , the capital instruments met the conditions to be classified as additional tier 1 capital in MIFIDPRU 3.4 (as it applies on a consolidated basis)

MIFIDPRU 3.6.5R(1)(b), as modified by MIFIDPRU 3.6.8R:

Requirement to notify the FCA of the intention to issue tier 2 instruments

Immediately before MIFIDPRU began to apply , the capital instruments met the conditions to be classified as tier 2 capital in MIFIDPRU 3.5 (as it applies on a consolidated basis)

Parent undertakings to which the group capital test applies

Article 26(3) UK CRR (as applied and modified by MIFIDPRU 3.3.1R) and MIFIDPRU 3.3.3R, as they apply to a parent undertaking under MIFIDPRU 3.7.4R(1)(a):

Requirement for prior FCA permission to classify an issuance of capital instruments by a parent undertaking as common equity tier 1 capital

Immediately before MIFIDPRU began to apply , the capital instruments met the conditions to be classified as common equity tier 1 capital in MIFIDPRU 3.3, except for the requirement for prior FCA permission under article 26(3) of the UK CRR and MIFIDPRU 3.3.3R

MIFIDPRU 3.6.5R(1)(a), as modified by MIFIDPRU 3.7.4R(1)(b):

Requirement to notify the FCA of the intention to issue additional tier 1 instruments

Immediately before MIFIDPRU began to apply , the capital instruments met the conditions to be classified as additional tier 1 capital in MIFIDPRU 3.4

MIFIDPRU 3.6.5R(1)(b), as modified by MIFIDPRU 3.7.4R(1)(b):

Requirement to notify the FCA of the intention to issue tier 2 instruments

Immediately before MIFIDPRU began to apply , the capital instruments met the conditions to be classified as tier 2 capital in MIFIDPRU 3.5

17.6

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Where a firm, UK parent entity or parent undertaking is deemed under MIFIDPRU TP 7.3R and 7.4R to have notified the FCA of its intention to issue additional tier 1 instruments or tier 2 instruments, MIFIDPRU 3.6.5R(2)(a) will apply to a subsequent issuance of the same class of instruments. In practice, this means that provided that the subsequent issuance of the same class is on terms that are identical in all material respects to the existing class of those instruments, a notification to the FCA under MIFIDPRU 3.6.5R(1) is not required.

TP 7 Annex 1

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[Editor’s note: The form can be found at this address: https://www.handbook.fca.org.uk/forms/