MIFIDPRU 3.6A General requirements for own funds instruments

A firm is not required to obtain the permission in MIFIDPRU 3.6A.4R if:

1. (1) the instrument is being repurchased for market making purposes; or
2. (2) all of the following conditions are met:
   1. (a) either of the conditions in MIFIDPRU 3.6A.7R are met;
   2. (b) at least 20 business days before the day on which the reduction of capital is proposed to occur, the firm has notified the FCA of:
      1. (i) the proposed reduction of capital; and
      2. (ii) the basis on which the firm has concluded that either condition in (a) is satisfied;
   3. (c) the notification in (2)(b) is made using the form in MIFIDPRU 3 Annex 5R and submitted using the online notification and application system; and

   4. (d) the FCA has not notified the firm of any objection to the proposal before the day on which the reduction of capital is proposed to occur.

       

• The conditions referred to in MIFIDPRU 3.6A.6R(2)(a) are that:
  1. (1) before or at the same time as the reduction of capital, the firm replaces the relevant own funds instruments with own funds instruments of equal or higher quality on terms that are sustainable for the income capacity of the firm, so that:
     1. (a) the profitability of the firm will continue to be sound and will not see any negative change in the foreseeable future after the replacement of the original own funds instruments with own funds instruments of equal or higher quality; and
     2. (b) the assessment of profitability in the foreseeable future in (1)(a) takes into account the firm's profitability in stressed situations; or
  2. (2) the firm is redeeming additional tier 1 instruments or tier 2 instruments within 5 years of their date of issue and either:
     1. (a) there is a change in the regulatory classification of the instruments that is likely to result in their exclusion from own funds or reclassification as a lower quality form of own funds, and both the following conditions are met:
        1. (i) there are reasonable grounds to conclude that the change is sufficiently certain; and
        2. (ii) the regulatory reclassification of the instruments was not reasonably foreseeable at the time of their issuance; or
     2. (b) there is a change in the applicable tax treatment of those instruments which is material and was not reasonably foreseeable at the time of their issuance.

1. (1) A firm must notify the FCA at least 20 business days before the intended issuance date of the firm's intention to issue:

   1. (a) additional tier 1 instruments; or

       

   2. (b) tier 2 instruments.
2. (2) The notification requirement in (1) does not apply if:
   1. (a) the firm has previously notified the FCA of an issuance of the same class of additional tier 1 instruments or tier 2 instruments; and
   2. (b) the terms of the new instruments are identical in all material respects to the terms of the instruments in the issuance previously notified to the FCA.
3. (3) The notification under (1) must:
   1. (a) be submitted to the FCA through the online notification and application system using the form in MIFIDPRU 3 Annex 6R; and
   2. (b) include the following:
      1. (i) confirmation of whether the instruments are intended to be classified as additional tier 1 instruments or tier 2 instruments;
      2. (ii) confirmation of whether the instruments are intended to be issued to external investors or only to other members of the firm'sgroup or connected parties;
      3. (iii) a copy of the term sheet and details of any features of the capital instrument which are novel, unusual or different from a capital instrument of a similar nature previously issued by the firm or widely available in the market;
      4. (iv) confirmation from a member of the firm'ssenior management or governing body who has oversight of the intended issuance that the instrument meets the conditions in MIFIDPRU 3.4A or MIFIDPRU 3.5A (as applicable) to be classified as additional tier 1 instruments or tier 2 instruments; and

      5. (v) a properly reasoned legal opinion from an appropriately qualified individual, confirming that the capital instruments meet the conditions in (iv).