MIFIDPRU 3.3A Common equity tier 1 capital

1. (a) it is able to absorb losses as they occur;
2. (b) it ranks below all other claims in liquidation;
3. (c) it is permanent;
4. (d) there is no obligation to make a distribution; and
5. (e) the level of distributions is not capped.

1. (a) it has obtained prior permission from the FCA; or
2. (b) (i) it is issuing new instruments on terms which are substantially the same as instruments for which the firm has already received the FCA's prior permission; and
3.      (ii) it notifies the FCA sufficiently far in advance of classifying the new instruments as common equity tier 1 instruments.

     (b) A firm must notify under (1)(b) by completing the form in MIFIDPRU 3 Annex 3R and submitting it to the FCA using the online notification and application system.

1. (b) The common equity tier 1 instruments must entitle their owners to a claim on the residual assets of the firm which, in the event of liquidation and after payment of all senior claims, is proportionate to the amount of such instruments issued and is not fixed or subject to a cap, except that a claim specified as a percentage of residual assets does not constitute a fixed or capped claim.
2. (c) Each common equity tier 1 instrument must absorb losses to the same degree as all other common equity tier 1 instruments, and all common equity tier 1 instruments must absorb losses before any other own funds instruments issued by the firm.

1. (a) a firm grants a loan or other funding to an investor that is used to purchase the firm's own capital instruments;
2. (b) a firm grants any funding to an existing investor in its capital instruments;
3. (c) a firm provides a guarantee, enters into a credit derivative, or enters into some other form of arrangement so that the credit risk in a capital instrument is or may be transferred to the firm; or
4. (d) the funding in (a), (b) or (c) is provided to an external investor indirectly – for example, by a member of the firm'sgroup or via another intermediary.

1. (a) funding is provided as part of a firm's normal trading or business operations;
2. (b) the terms are comparable to the terms the firm offers for third-party instruments; and
3. (c) the funding is not designed to support the firm's capital position.

1. (a) the firm is in liquidation; or
2. (b) the firm carries out a reduction of capital which complies with MIFIDPRU 3.6A.4R or MIFIDPRU 3.6A.6R.

1. (a) a term which creates an economic incentive for the firm to carry out a reduction of capital at a particular point in time;
2. (b) a term which suggests that a reduction of capital may be carried out at a particular point in time, or at the initiative of any person other than the firm, even if this is conditional upon the approval of the firm'smanagement body and the FCA; or
3. (c)  any other contractual or non-contractual indication that the firm would or might carry out a reduction of capital on a particular date, or in particular circumstances. 

1. (a) a partner's account in a firm that is a partnership; and
2. (b) a member’s account in a firm that is a limited liability partnership.

1. (a) capital contributed by partners is paid into the account; and 

    

2. (b) the terms of the partnership agreement ensure that (otherwise than with prior FCA consent under MIFIDPRU 3.6A.4R or in the circumstances set out in MIFIDPRU 3.6A.6R) capital may only be withdrawn from the account by a partner (‘A’) if:
   1. (i) A ceases to be a partner and an equal amount is contributed to another partner's account by A’s former partners or any person replacing A as their partner;
   2. (ii) any reduction in the capital credited to A’s account is immediately offset by an equal contribution to other partner accounts by one or more of A’s partners (including any person becoming a partner of A at the time that the additional contribution is made);
   3. (iii) the partnership is wound up or dissolved; or
   4. (iv) the firm ceases to be authorised or no longer has a Part 4A permission. 

1. (a) those profits have been verified by a person who is independent of the firm and is responsible for the auditing of the accounts of that firm;
2. (b) the verification provides an adequate level of assurance that those profits have been evaluated in accordance with the principles set out in the applicable accounting framework;
3. (c) the firm is satisfied that any foreseeable charge or dividend has been deducted from the amount of those profits on a prudent and conservative basis; and
4. (d) the firm notifies the FCA as soon as reasonably practicable after including the profits in its common equity tier 1 capital.

1. (a) any formal decisions about dividends that have been taken by the firm'smanagement body;
2. (b) the upper end of any dividend policy;
3. (c) the ratio of dividends to income paid out in previous years; and
4. (d) any other factors that might reasonably affect the firm's approach to distributions for the relevant period.

1. (a) any tax charges attributable to the profits being verified;
2. (b) any other charges that are attributable to the relevant period but have not yet been reflected in the firm'scommon equity tier 1 capital calculation; and
3. (c) any other factors that might reasonably be expected to affect the final profit or loss figure for the period. 

1. (a) are subject to significant valuation uncertainty;
2. (b) may not reflect realisable values in stressed conditions; 
3. (c)  include unrealised or market-value gains and losses that may reverse with changing market conditions; or
4. (d) are only realisable if the firm continues to operate as a going concern.

1. (a) apply the same accounting policies and standards as used for the year-end financial report;
2. (b) prudently estimate and assign income and expenses to the interim period in which they are incurred;
3. (c)  recognise material or non-recurrent events in full and without delay in the interim period during which they arise; and
4. (d) determine profits, gains and losses, and deduct any resulting losses, as they arise.

(2) For the purposes of (1):

1. (a) a firm must also deduct any intangible assets included in the valuation of its qualifying holdings;
2. (b) where the qualifying holding in (2)(a) is not wholly owned or controlled by the firm, the firm must only deduct the portion of intangible assets corresponding to its percentage of ownership or control; and
3. (c)  a firm must reduce the amount to be deducted by the amount of associated deferred tax liabilities that would be extinguished if the intangible assets became impaired or were derecognised, under the applicable accounting framework.

1. (a) a firm may offset deferred tax liabilities against associated deferred tax assets if:
   1. (i) the firm has a legally enforceable right to set off those current tax assets against current tax liabilities;
   2. (ii) the deferred tax assets and the deferred tax liabilities arise from the same tax authority and for the same taxable entity; and
   3. (iii) the deferred tax liabilities do not reduce the amount of intangible assets or defined pension fund assets deductible under MIFIDPRU 3.3A.21R or MIFIDPRU 3.3A.23R; and
2. (b) for the calculation of deferred tax assets and liabilities at consolidated level, a taxable entity includes any number of entities which are members of the same tax group, fiscal consolidation, fiscal unity or consolidated tax return.

1. (a) a firm must net off pension fund assets against its obligations under the fund; and
2. (b) a firm must reduce the amount to be deducted by the amount of associated deferred tax liabilities which would be extinguished if the assets became impaired or were derecognised, under the applicable accounting framework.

1. (a) a firm must also apply the deduction where it could be obliged to purchase its own common equity tier 1 instrument as a result of an existing contractual obligation;
2. (b) a firm must deduct its gross long position unless (2)(c) applies; and
3. (c)  a firm may deduct its net long position if:
   1. (i) the long and short positions are in the same underlying exposure;
   2. (ii) the short positions are cleared through an authorised central counterparty or subject to appropriate margining requirements; and
   3. (iii) the long and short positions are both held in the trading book or are both held outside the trading book.

1. (a) (i) the maturity date of the short position is the same as, or longer than, the maturity date of the long position; or
2.      (ii) the residual maturity of the short position is at least one year; and

3. (b) the long and short positions are held outside of the trading book.

    

1. (a) identifying any intermediate entities or structures through which it may be exposed to a deductible common equity tier 1 instrument;
2. (b) making a prudent estimate of the full economic exposure of the intermediate entities or structures to deductible instruments; and
3. (c) deducting the proportion of economic exposure that is attributable to the firm.

1. (a) all contractual obligations relating to the position; and
2. (b) any other features that could increase the firm's economic exposure.

1. (a) the sum of the amounts by which any qualifying holdings in non-financial sector entities each exceed 15% of the firm'sown funds; or
2. (b) the amount by which all its qualifying holdings in non-financial sector entities exceed 60% of the firm'sown funds.

1. (a) shares held in the name of the firm on behalf of others;
2. (b) shares held in the trading book; and
3. (c) shares which are not financial fixed assets as defined in paragraph 94 of Schedule 2 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (SI 2008/401).

1. (a) the hedged item itself is measured at fair value; or
2. (b) the unrealised gain or loss represents effective net investment hedges of foreign operations; and

1. (a) exactly matching offsetting fair-valued assets and liabilities must be excluded;
2. (b) where a change in the accounting valuation of fair-valued assets and liabilities would only partially be reflected in common equity tier 1 capital, the value of those assets or liabilities must only be included in proportion to the impact of the relevant valuation change on common equity tier 1 capital; and
3. (c) where a change in the accounting valuation of fair-valued assets and liabilities would have no impact on common equity tier 1 capital, the value of those assets or liabilities must be excluded.