2016年-EBA欧洲银行管理局_EBA_draft_report_on_AT1_templates_June_2016_16页_553kb

EBA Report Summary: Monitoring of AT1 Instruments

Core Content

This report is the second update of the EBA's monitoring of Additional Tier 1 (AT1) instruments issued by EU institutions, published in October 2014. It aims to inform external stakeholders about the EBA's ongoing work and present findings from its review of AT1 instruments. The report also includes standardized terms and conditions for AT1 issuances, which are intended to support the prudential aspects of these instruments.

Main Purpose

• To monitor the quality of AT1 instruments in accordance with Article 80 of Regulation (EU) No 575/2013 (CRR) and the Commission Delegated Regulation (EU) No 241/2014 (RTS).
• To identify and recommend revisions to certain provisions that may raise prudential concerns.
• To promote standardization and clarity in the terms and conditions of future AT1 issuances.

Key Information

Regulatory Framework

• The CRR and RTS define eligibility criteria for AT1 instruments.
• The EBA has been working on regulatory and technical standards related to AT1 instruments, with over 20 delivered to the European Commission.
• The EBA's monitoring is based on the implementation of these criteria.

Review Scope

• The EBA reviewed 33 AT1 issuances totaling EUR 35.5 billion, issued between August 2013 and December 2015.
• These issuances included 11 under a conversion mechanism and 22 under a write-down mechanism.
• The review focused on the implementation of eligibility criteria and the clarity of terms and conditions.

Key Provisions and Recommendations

Regulatory Calls

• Only full regulatory calls are acceptable, and partial calls are not valid triggers for regulatory or tax calls.
• Tax calls should be based on a material and non-foreseeable change in tax treatment, not on the risk of future payments.

Redemptions and Repurchases

• Redemptions should not be possible after a trigger event notice has been issued.
• Provisions should not allow purchases of the instrument at any time; they are subject to limits and exceptions outlined in the RTS and Q&A 2013_290.
• References to LMEs or market making should be included with prior approval and specific limits.

Event of Default

• Provisions should not define non-payment as an event of default, as interest cancellation and conversion do not constitute such an event.
• The EBA recommends clarity in defining the event of default to avoid confusion.

Tax Gross Up Clauses

• Gross up clauses should be activated by a decision from the local tax authority, not the investor.
• Gross up should only apply to dividend/coupon withholding tax, not to principal.
• The EBA emphasizes that tax changes must increase the cost of the issuance for the institution to be considered material.

Write-Down or Conversion

• The one cent floor for write-down should not be included in AT1 instruments, as it may prevent full write-down.
• If a one cent floor is used, it should be excluded from CET1 capital and accounted for in reserves.
• The EBA recommends an automatic write-down or conversion upon trigger breach, without preconditions.
• In cases where conversion is not into the issuing entity's shares, an emergency permanent write-down should be available.

Pre-emption Rights for Shareholders

• Pre-emption rights for shareholders in conversion scenarios are acceptable, provided they do not create confusion or undermine loss absorption.
• These rights may simplify compliance with fit and proper rules and ensure stability in shareholder structure.

Contingent Clauses

• Contingent clauses, such as those requiring interest payments if AT1 status is lost, are discouraged due to prudential concerns.
• These clauses introduce complexity and may lead to unintended consequences, including constraints on regulatory changes.
• The EBA recommends against using contingent clauses as they may undermine the goal of simplicity in terms and conditions.

Contingent Conversion Convertibles (CCCs)

• The EBA has considered the potential issuance of CCCs, which allow conversion based on the share price being above a certain level (upside conversion).
• Such provisions may be viewed as new issuances and are discouraged due to increased complexity.

Conclusion

• The EBA will continue monitoring AT1 issuances to ensure alignment with prudential standards.
• Future issuances should aim for simplicity and clarity, avoiding overly complex or uncertain provisions.
• The EBA has provided guidance on the wording and structure of terms and conditions to support consistent and compliant AT1 instrument design.

Structure of the Report

• EBA's considerations: Summary of main conclusions and recommendations.
• Detailed analysis: Examination of specific clauses and their implications.
• Interpretation of CRR provisions: Focus on trigger events and related mechanisms.

Additional Notes

• The EBA has developed standardized templates for AT1 instruments to complement its monitoring findings.
• The report highlights the importance of clarity, simplicity, and alignment with regulatory and prudential requirements.