Single Rulebook Q&A

Question ID: 2017_3587
Legal act : Regulation (EU) No 575/2013 (CRR) as amended
Topic : Own funds
Article: 77, 78
Paragraph: 4
Subparagraph:
COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) No 241/2014 - RTS for Own Funds requirements for institutions
Article/Paragraph : 28
Name of institution / submitter: Autorité de contrôle prudentiel et de résolution
Country of incorporation / residence: France
Type of submitter: Competent authority
Subject matter : Subsidiary repurchasing AT1 or Tier 2 instruments before five years from the date of issuance
Question:

1/ Could an institution’s subsidiary subject to prudential supervision purchase Additional Tier 1 or Tier 2 instruments issued by the institution before five years from the date of issuance of the instruments, given that this purchase would lead to a disqualification of the instruments?

2/ Could an institution’s subsidiary not subject to prudential supervision purchase Additional Tier 1 or Tier 2 instruments issued by the institution before five years from the date of issuance of the instruments, given that this purchase would lead to a disqualification of the instruments?

Background on the question:

Articles 52(b) and 63(b) CRR state that capital instruments and subordinated loans cannot classify, respectively, as Additional Tier 1 or Tier 2 instruments of an institution if they are purchased by the institution or its subsidiaries (whatever the nature and situation of the subsidiary).

Articles 77 and 78 CRR state that the competent authority has to grant prior permission for an institution to reduce, repurchase, call or redeem Common Equity Tier 1, Additional Tier 1 or Tier 2 instruments. Article 78(4) CRR sets specific conditions for institutions to be allowed to redeem Additional Tier 1 or Tier 2 instruments before five years from the date of issuance. Certain specific conditions have to be met (change in regulatory classification or change in the applicable tax treatment).

Article 28(3) of Commission Delegated Regulation (EU) No 241/2014 of 7 January 2014 states that the process and data requirements for an application by an institution to carry out redemptions, reductions and repurchases — for the purposes of Article 77 CRR shall apply at the consolidated, sub-consolidated and individual levels of application of prudential requirements, where applicable.

Date of submission: 07/11/2017
Published as Final Q&A: 27/04/2018
EBA answer:

According to Article 52(b)(i) and 63(b)(i) Regulation (EU) No 575/2013 (CRR) instruments cannot classify as Additional Tier 1 or Tier 2 instruments of an institution if they are purchased by the institution or its subsidiaries regardless of the subsidiary being subject to prudential supervision following Article 11 CRR or not. Hence, an institution’s subsidiary could purchase Additional Tier 1 or Tier 2 instruments issued by the institution before five years from the date of issuance of the instrument only if the conditions of Article 78(4) CRR are met or in the context of market making activities, in accordance with Article 29(3) of the Commission Delegated Regulation 241/2014 and EBA Q&A 2015_1791. The request to the competent authority pursuant to Article 78(4) CRR has to be filed by the institution and not the subsidiary in accordance with Article 77 CRR.  

Status: Final Q&A
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