MIFIDPRU TP 7 2Transitional provision for own funds instruments without UK CRR approvals before 1 January 2022

Application

27.1

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(1)

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

2(a)

was an authorised person; and

2(b)

2either:

2(i)

2was not classified as a CRR firm in accordance with the rules then in force; or

2(ii)

2met all of the conditions in (2).

2(2)

2The conditions referred to in (1)(b)(ii) are:

2(a)

2the firm was classified as a CRR firm in accordance with the rules that applied immediately before 1 January 2022; and

2(b)

2in relation to an instrument to which MIFIDPRU TP 7.4R(1) applies, the firm had not, before 1 January 2022:

2(i)

2obtained FCA approval under article 26(3) of the UK CRR (in the form in which it stood immediately before 1 January 2022); or

2(ii)

2notified the FCA of the issuance of the instrument under IFPRU 3.2 (as it applied immediately before 1 January 2022).

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)

2either:

2(i)

2was not required to hold own funds on an individual or a consolidated basis in accordance with the UK CRR; or

2(ii)

2met all of the conditions in (3).

2(3)

The conditions referred to in (2)(b)(ii) are:

2(a)

the UK parent entity or parent undertaking was required to hold own funds on an individual or a consolidated basis in accordance with the UK CRR (in the form in which it stood immediately before 1 January 2022); and

2(b)

the UK parent entity or parent undertaking has issued an instrument to which MIFIDPRU TP 7.4R(1) applies;

2(c)

in relation to the instrument in (b), the UK parent entity or parent undertaking had not, before 1 January 2022:

2(i)

2obtained FCA approval under article 26(3) of the UK CRR (in the form in which it stood immediately before 1 January 2022); or

2(ii)

2notified the FCA of the issuance of the instrument under IFPRU 3.2 (as it applied immediately before 1 January 2022).

2(4)

2A reference in (3)(c) to a notification or approval includes a notification or approval that was granted to another member of the UK parent entity or parent undertaking’s group in relation to an instrument issued by the UK parent entity or parent undertaking.

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. A 2notification 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 will 2also continue to be valid 2under MIFIDPRU TP 1.

2(3A)

2Where a former CRR firm did not obtain permission for an existing instrument under the UK CRR or make a notification under IFPRU 3.2 in relation to an instrument, there will be no existing permission or notification to carry forward under MIFIDPRU TP 1. In that case, the former CRR firm may make a notification under MIFIDPRU TP 7 in relation to any outstanding capital instruments issued before 1 January 2022, provided that those instruments meet the conditions to be recognised as the relevant type of own funds under MIFIDPRU 3.

(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.

2(5)

2MIFIDPRU TP 7 also applies to a UK parent entity or other parent undertaking that was required to hold own funds under the UK CRR (whether on an individual or consolidated basis) immediately before MIFIDPRU began to apply but did not:

2(a)

2obtain permission for an existing common equity tier 1 instrument under the UK CRR; or

2(b)

2make a notification in accordance with IFPRU 3.2 in relation to an existing2 additional tier 1 instrument or a tier 2 instrument.

2(6)

Where (5) applies, the UK parent entity or other parent undertaking may make a notification under MIFIDPRU TP 7 in relation to any outstanding capital instruments issued before 1 January 2022, provided that those instruments meet the conditions to be recognised as the relevant type of own funds under MIFIDPRU 3.

2(7)

2In some cases, the FCA may have granted permission to, or accepted a notification from, another member of the UK parent entity or other parent undertaking’s group in relation to an instrument issued by the UK parent entity or other parent undertaking that counted towards the consolidated situation. This is because the UK CRR previously applied only indirectly to unregulated parent undertakings. In that case, the existing UK CRR permission or notification will be treated as a permission or notification of the UK parent entity or parent undertaking. This means that it will convert into an equivalent deemed MIFIDPRU 3 permission or notification of the UK parent entity or parent undertaking under MIFIDPRU TP 1. A notification under MIFIDPRU TP 7 is not required in this situation.

Eligibility of pre-MIFIDPRU capital resources meeting requirements in MIFIDPRU 3 to qualify as own funds under MIFIDPRU without a separate permission or notification

17.4

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(1)

This rule applies to any capital instrument that:

(a)

was issued by a firm, UK parent entity or parent undertaking before 1 January 2022; and

(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 TP 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 TP 7.5R2 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 29 June 20222.

(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 or, if later, on the date on which the notification in MIFIDPRU TP 7.4R(2)(b) was made2, 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 or, if later, on the date on which the notification in MIFIDPRU TP 7.4R(2)(b) was made2, 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 or, if later, on the date on which the notification in MIFIDPRU TP 7.4R(2)(b) was made2, 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 or, if later, on the date on which the notification in MIFIDPRU TP 7.4R(2)(b) was made2, 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 or, if later, on the date on which the notification in MIFIDPRU TP 7.4R(2)(b) was made2, 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 or, if later, on the date on which the notification in MIFIDPRU TP 7.4R(2)(b) was made2, 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 or, if later, on the date on which the notification in MIFIDPRU TP 7.4R(2)(b) was made2, 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 or, if later, on the date on which the notification in MIFIDPRU TP 7.4R(2)(b) was made2, 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 or, if later, on the date on which the notification in MIFIDPRU TP 7.4R(2)(b) was made2, the capital instruments met the conditions to be classified as tier 2 capital in MIFIDPRU 3.5

17.6

G

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/