EBA updates on monitoring of Additional Tier 1 instruments

The European Banking Authority (EBA) published today a draft update of its report on the monitoring of Additional Tier 1 (AT1) instruments last published on 29 May 2015 and proposed draft standardised templates for AT1 instruments. 

This second update of the report is based on the review of 33 AT1 issuances from EU institutions, which took place between August 2013 and December 2015, for a total amount of EUR 35.5 bn.

Compared with the first update released in May 2015, this report includes new provisions on triggers, calls/ repurchases/redemptions, tax events and gross-up provisions and on conversion and write-down mechanisms.

The objective of these templates is to cover the prudential provisions of the AT1 issuances. They contain essential and optional provisions concerning in particular flexibility of payments, permanence, loss absorbency and are based on the most commonly observed loss absorption mechanisms.

These standardised templates are proposed to institutions on an opt-in basis, in case they are willing to use them The use of these templates would bring a certain level of security to the issuing institutions as the templates are perceived to reflect the expectations of the supervisory community on the practical implementation of the provisions laid down in the Capital Requirements Regulation (CRR), the Regulatory Technical Standards (RTS) and Q&As, based on the experience gained with the observations of issuances already made in the EU market.

The proposed templates are not legally binding and their use is optional. Where institutions decide not to use them, the concerned issuances (existing and future) would not be considered as non-compliant with regulatory requirements. 

The draft update of the monitoring report and the draft standardised templates will be discussed during a public hearing to be held at the EBA premises on 26 July 2016 from 9:30 to 12:30 UK time. (Registration link can be found here.)

In accordance with Article 80 of the CRR on the continuing review of the quality of own funds, the ‘EBA shall monitor the quality of own funds instruments issued by institutions across the Union'. 

 

The CRR lays down eligibility criteria for AT1 instruments (in particular Articles 51 to 55).Those criteria are supplemented by the Commission Delegated Regulation (EU) No 241/2014 (Regulatory Technical Standards (RTS) on own funds). Several AT1 instruments have now been issued by European institutions in accordance with those criteria.