29 May 2015

EBA publishes final version of its updated report on the monitoring of Additional Tier 1 capital instruments

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.

Over the past few years, the EBA has drafted regulatory and implementing technical standards in the area of regulatory capital (around 20 have been delivered). In particular, the EBA has proposed a number of provisions in relation to the form and nature of incentives to redeem, the nature of a write-up of an AT1 instrument following a write-down of the principal amount on a temporary basis, and the procedures and timing surrounding trigger events.

Now that this work has been finalised with submission to the European Commission and already adopted as EU delegated Regulation for large parts (Commission Delegated Regulation (EU) No 241/2014), the EBA is putting more emphasis on the review of the implementation of the eligibility criteria applicable to capital instruments on the basis of the CRR and the technical standards.

The EBA has focused its work primarily on the assessment of selected AT1 issuances. The terms and conditions of selected issuances have been assessed against the regulatory provisions in order to identify provisions which the EBA would recommend avoiding.

This monitoring is at its preliminary stage. It follows a dynamic approach which will necessitate several iterations. Further experience will need to be gained on the basis of future issuances and the current review has been limited in terms of number of issuances and scope. New issuances and new types of clauses in the future may also have an influence on the conclusions presented in this report. In addition, there is currently no experience available on the effectiveness of the different clauses in practice, in particular in relation to loss absorption mechanisms. Furthermore, it cannot be assumed that provisions/clauses not mentioned in this report can be considered as not raising any concerns.

This preliminary review makes no claims to be fully comprehensive but highlights areas where the EBA believes it necessary to revise the wording of some existing clauses for future issuances, or where the EBA would recommend avoiding the use of some clauses currently under consideration in future.

Full report

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