EBA欧洲银行-EBA-Report-on-the-Additional-Tier-1-instruments-May-2015_12页_268kb

EBA Final Report Summary: Monitoring of AT1 Instruments

Core Content

This EBA report provides an update on the monitoring of Additional Tier 1 (AT1) capital instruments issued by EU institutions, in line with the Capital Requirements Regulation (CRR) and Regulatory Technical Standards (RTS). The report highlights the ongoing efforts of the EBA to ensure the quality and consistency of these instruments, while also addressing areas where the wording of clauses may need revision or avoidance in future issuances.

Main Points and Key Information

1. Purpose and Scope

• The report is intended to inform external stakeholders about the EBA's monitoring activities and results.
• It serves as an update to the first version published in October 2014, reflecting ongoing work.
• The EBA has established a list of Common Equity Tier 1 (CET1) instruments and will maintain it.

2. Regulatory Framework

• The CRR defines eligibility criteria for AT1 instruments, particularly in Articles 51 to 55.
• These criteria are supplemented by the Commission Delegated Regulation (EU) No 241/2014.
• The EBA is now focusing more on the implementation of these criteria rather than drafting new technical standards.

3. Monitoring Approach

• The EBA has reviewed 15 AT1 issuances, totaling EUR 21.4 billion, issued between August 2013 and November 2014.
• Five of these were issued under a conversion mechanism, and ten under a temporary write-down mechanism.
• The monitoring is in its early stage and is expected to evolve through multiple iterations.

4. Key Recommendations

• Regulatory Calls: Only full regulatory calls are acceptable; partial calls based on write-downs or conversions are not eligible triggers.
• Tax Gross Up Clauses: These should be activated by the local tax authority, not the investor. Payments should not exceed distributable items, and they should only apply to dividend/coupon withholding tax.
• Write-Down or Conversion: The one cent floor should not be included in CET1 capital. If necessary, it should be handled via reserves. Permanent write-down clauses are acceptable if they do not contradict CRR requirements.
• Pre-emption Rights: Share conversion clauses that allow current shareholders to buy shares and cash compensation to AT1 holders are acceptable, as they do not jeopardize loss absorption.
• Contingent Clauses: These are discouraged due to prudential concerns, including complexity and unintended consequences. The EBA recommends their disallowance.
• Trigger Levels: Triggers should be based on the CET1 of the issuing entity, and not on the group level unless the institution is controlled by a holding company.

5. Clarifications and Interpretations

• The EBA emphasizes the need for clarity in the wording of prudential provisions, avoiding uncertainty or ambiguity.
• The available write-up amount should be based on the lower of the profit from different solvency levels (solo, sub-consolidated, or consolidated).
• The calculation of CET1 for instruments issued by subsidiaries in third countries should follow CRR rules, even if the instruments are Basel III compliant.

Detailed Analysis of Key Provisions

Calls

• Regulatory calls should only apply to the full amount of instruments.
• Calls below par are acceptable if they do not contradict prudential requirements or regulatory treatment.

Redemptions

• A condition should be included that prevents redemption after a trigger event notice has been issued.
• If a redemption notice is issued after a trigger event, it should be null and void.

Write-Down or Conversion

• Instruments with a one cent floor are not eligible for CET1 unless the floor is not included in CET1 capital.
• Permanent write-down clauses are acceptable if they do not affect the conversion requirements.

Contingent Clauses

• Contingent clauses (e.g., mandatory interest payments if AT1 status is lost) are discouraged due to complexity and potential unintended consequences.
• These clauses may undermine the EBA's goal of simplicity in terms and conditions.

Trigger Events

• Triggers should be based on the CET1 of the issuing entity, not the group.
• For subsidiaries in third countries, triggers must be calculated in accordance with CRR provisions.

Conclusion

The EBA aims to promote the standardisation and simplicity of AT1 instruments while ensuring they meet the prudential requirements of the CRR and RTS. The report highlights the need for clarity, consistency, and alignment with regulatory expectations. It also recommends avoiding certain provisions and encourages the use of standardised terms and conditions to enhance transparency and compliance. The EBA will continue its monitoring and engagement with institutions and market participants to refine the use of AT1 instruments in the future.