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EBA Standardised Templates for Additional Tier 1 (AT1) Instruments – Final Summary

1. Core Content and Objectives

The European Banking Authority (EBA) published a final report on standardised templates for Additional Tier 1 (AT1) instruments, aiming to enhance transparency and consistency in the issuance of these instruments across the European Union (EU). The objectives of the templates include:

• Standardisation: To provide a consistent framework for the terms and conditions of AT1 instruments, making them more transparent and easier to understand for investors.
• Support for Small Institutions: To assist smaller banks in meeting regulatory requirements without the burden of complex, non-standard terms.
• Compliance Facilitation: To help supervisors assess compliance with regulatory provisions and ensure the quality of AT1 instruments is maintained.
• Prudential Coverage: The templates focus on prudential aspects, such as loss absorption mechanisms, and do not cover non-prudential elements like taxation or risk factors.

2. Key Considerations by the EBA

The EBA acknowledges several challenges and considerations in developing these templates:

• Balance Between Simplicity and Coverage: The templates must be simple enough for smaller institutions while still being detailed enough to address the prudential aspects relevant to larger banks.
• Jurisdictional Adaptation: The templates must be adaptable to the legal frameworks of different jurisdictions, including company law and insolvency law.
• Non-Legal Binding Nature: The templates are not legally binding and are optional for institutions to use. Non-compliance with the templates does not render an issuance non-compliant with regulatory requirements.
• Ongoing Monitoring and Updates: The EBA will continue to monitor AT1 issuances and update the templates as needed to reflect new regulatory developments and market practices.

3. Structure of the Templates

The EBA’s standardised templates are divided into two main categories:

3.1 Essential Provisions

These are necessary or recommended clauses based on regulatory requirements and ongoing monitoring. They include:

• Definitions and Main Terms of the Notes: Covering key terms such as "Issue Date", "Issue Price", and "Maturity Date". These definitions align with the CRR, RTS, and EBA guidance.
• Status of the Notes: The Notes are defined as unsecured, subordinated, and rank pari passu with other AT1 instruments and junior to CET1 instruments.
• Cancellation of Distributions: Includes discretionary and mandatory cancellation rules. Distributions are non-cumulative and must be cancelled upon a Trigger Event.
• Redemption Conditions: Redemption is only permissible under specific conditions, such as the Issuer obtaining prior permission from the Competent Authority, and the Notes are perpetual with no fixed redemption date.

3.2 Optional Provisions

These are clauses that are considered acceptable but not mandatory. They include:

• Gross-up Clauses
• Substitution/Variation Clauses
• Pre-emption Rights

4. Loss Absorption Mechanisms

The templates cover three main forms of loss absorption:

• Full Conversion: The instrument is converted into equity.
• Partial Temporary Write-down: The principal amount is reduced temporarily.
• Full Permanent Write-down: The principal amount is reduced permanently.

The EBA based these mechanisms on the most commonly observed practices in the market and noted that other combinations may be possible but were not included in the templates.

5. Scope and Exclusions

• The templates focus only on prudential provisions such as terms and conditions, and do not cover taxation, risk factors, or use of proceeds.
• The templates are built on the observations of existing market issuances and are intended to reflect the EBA’s understanding of current practices.
• The templates do not address BRRD or resolution issues, except for contractual bail-in language for third-country law instruments, which is included based on existing EBA work.

6. Process and Consultation

• The EBA conducted a targeted consultation with industry participants, including law firms.
• A draft version of the templates was published on 11 July 2016.
• A public hearing was held on 26 July 2016.
• The final templates were developed in light of feedback and are accompanied by an updated AT1 monitoring report.

7. Conclusion

The EBA’s standardised templates for AT1 instruments aim to promote consistency, transparency, and compliance across the EU. They are not legally binding and are intended to serve as a guideline for institutions to follow. The EBA will continue to monitor and update the templates to ensure they remain relevant and aligned with evolving regulatory and market practices.