The Prudential Regulation Authority have published a Consultation Paper 20/19 in respect of regulatory capital instruments: update to Pre-Issuance Notification requirements.
The ‘CP’ sets out the proposals for amendments to the PIN regime applicable to PRA-authorised Capital Requirements Regulation (‘CRR;) firms. The proposals aim to make the PIN regime for CRR firms more risk sensitive and proportionate, and to allow firms greater flexibility in issuing capital instruments.
The proposals include:
Improving quality and governance of CET1 issuance
The ‘PRA’ proposes that all applications made under Article 26(3) of the ‘CRR’ be supported by an independent legal opinion on the ‘CET1’ eligibility of the new instrument
including the CET1 compliance template.
The ‘PRA’ proposes that Supervision Statement (SS) 7/13 be amended to clarify the PRA’s expectations on complex capital features and structures.
The ‘PRA’ proposes to clarify that, for the purposes of SS7/13, the ‘member of the senior management’ means an individual approved to hold a Senior Management Function under the Senior Managers and Certification Regime (‘SM&CR’) and who has been allocated either of the Prescribed Responsibilities of managing the allocation and maintenance of the firm’s capital, funding and liquidity or managing the firm’s financial resources.
Notification requirements for subsequent issuances of CET1 and AT1
CRR II amends Article 26(3) of the ‘CRR’ to provide for a firm to classify an instrument as ‘CET1’ where that instrument has previously been approved under the Article under certain conditions. The ‘PRA’ has offered firms a ‘modification by consent’ to address the overlap with the current PRA’s rules.
Subsequent issuances of ‘CET1’ and ‘AT1’ instruments should be aligned with the proposed amended PRA rules.
Firms are advised to review the CP internally,, ensuring that Senior Management and Boards are appraised, given the SMCR implications and contribute to the Consultation, which closes on 9th December 2019.
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Please Note: This publication is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to. Readers should take legal advice before applying the information contained in this publication to specific issues or transactions.
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