This chapter includes rules that refer to provisions of the UK CRR in the form in which it stood at 1 January 2022. That version of the UK CRR can be found on legislation.gov.uk using this link.

MIFIDPRU 3.6 General requirements for own funds instruments

MIFIDPRU 3.6.1 R
  1. (1)

    1A firm must comply with Chapter 6 of Title I of Part Two of the UK CRR, as modified by the rules in this section.

  2. (2)

    Any reference to the UK CRR in this section is to the UK CRR as applied by (1) and modified by the rules in this section.

MIFIDPRU 3.6.1A G

2 MIFIDPRU 3 Annex 7R contains additional provisions relating to the eligibility of instruments to be classified as own funds and to the reduction of own funds.

Reduction of own funds instruments

MIFIDPRU 3.6.2 R

1To apply for permission for the purposes of articles 77 and 78 of the UK CRR to do any of the following, a firm must save in the circumstances set out in MIFIDPRU 3.6.3R,4 complete the form in MIFIDPRU 3 Annex 4R and submit it to the FCA using the online notification and application system:

  1. (1)

    reduce, redeem or repurchase any of its common equity tier 1 instruments;

  2. (2)

    reduce, distribute or reclassify as another own funds item the share premium accounts related to any of its own funds instruments; or

  3. (3)

    effect the call, redemption, repayment or repurchase of its additional tier 1 instruments or tier 2 instruments prior to the date of their contractual maturity;

MIFIDPRU 3.6.3 R

1Permission under MIFIDPRU 3.6.2R is deemed to have been granted if the following conditions are met:

  1. (1)

    either of the conditions in MIFIDPRU 3.6.4R apply;

  2. (2)

    at least 20 business days before the day on which the reduction, repurchase, call or redemption is proposed to occur, the firm has notified the FCA of:

    1. (a)

      the proposed reduction, repurchase, call or redemption; and

    2. (b)

      the basis on which the firm has concluded that either condition in (1) is satisfied;

  3. (3)

    the notification in (2) is made using the form in MIFIDPRU 3 Annex 5R and submitted using the online notification and application system; and

  4. (4)

    the FCA has not notified the firm of any objection to the proposal before the day on which the reduction, repurchase, call or redemption is proposed to occur.

MIFIDPRU 3.6.4 R

1The conditions referred to in MIFIDPRU 3.6.3R are that:

  1. (1)

    before or at the same time as the reduction, repurchase, call or redemption, 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; or

  2. (2)

    the firm is redeeming additional tier 1 instruments or tier 2 instruments within five 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.

Notification of issuance of additional tier 1 and tier 2 instruments

MIFIDPRU 3.6.5 R
  1. (1)

    1A 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’s group 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’s senior management or governing body who has oversight of the intended issuance that the instrument meets the conditions in MIFIDPRU 3.4 or MIFIDPRU 3.5 (as applicable, and including any conditions in the UK CRR applied by those sections) 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).

MIFIDPRU 3.6.6 G
  1. (1)

    1MIFIDPRU investment firms that were classified as CRR firms immediately before 1 January 2022 should refer to MIFIDPRU TP 1 for transitional provisions relating to own funds permissions that were issued, and notifications that were made, before that date.

    3Those firms should also refer to MIFIDPRU TP 7, which contains transitional provisions about capital instruments issued before 1 January 2022 and in respect of which the firm had not obtained own funds permissions or made notifications under the legal requirements in force at that time.

  2. (2)

    MIFIDPRU investment firms that were in existence immediately before 1 January 2022, but were not classified as CRR firms, should refer to MIFIDPRU TP 7 for transitional provisions relating to own funds instruments issued before that date.

  3. (3)

    3Parent undertakings should also refer to the following:

    1. (a)

      MIFIDPRU TP 1, where they were subject to the UK CRR on an individual or a consolidated basis immediately before 1 January 2022 and had obtained permissions or made notifications under the UK CRR relating to own funds instruments issued before that date; or

    2. (b)

      MIFIDPRU TP 7 in either of the following cases:

      1. (i)

        where they were not subject to the UK CRR on either an individual or a consolidated basis immediately before 1 January 2022, but wish to rely on transitional provisions relating to capital instruments issued before that date; or

      2. (ii)

        where they were subject to the UK CRR on an individual or a consolidated basis immediately before 1 January 2022, but wish to rely on transitional provisions relating to capital instruments issued before that date in respect of which the parent undertaking had not obtained own funds permissions or made notifications under the legal requirements in force at that time.

MIFIDPRU 3.6.7 G

1 Firms that are proposing to classify an issuance of capital instruments as common equity tier 1 capital should refer to the obligations and guidance in MIFIDPRU 3.3.3R and MIFIDPRU 3.3.4G. In particular, firms must obtain the FCA’s prior permission for the first issuance of a class of instruments that is intended to comprise common equity tier 1 capital.

MIFIDPRU 3.6.8 R
  1. (1)

    1A UK parent entity must apply the modifications in (2) when either of the following apply on a consolidated basis in accordance with MIFIDPRU 2.5.7R:

    1. (a)

      MIFIDPRU 3.3.2R to MIFIDPRU 3.3.4G; and

    2. (b)

      MIFIDPRU 3.6.5R.

  2. (2)

    The Handbook provisions in (1)(a) and (b) apply as if a reference to:

    1. (a)

      a “firm” is a reference to the UK parent entity;

    2. (b)

      “capital instruments” is a reference to capital instruments issued by the UK parent entity;

    3. (c)

      additional tier 1 instruments” and “tier 2 instruments” is a reference to these instruments issued by the UK parent entity; and

    4. (d)

      common equity tier 1 capital” is a reference to that type of capital as calculated on a consolidated basis.

MIFIDPRU 3.6.9 G

1Submitting a notification in accordance with MIFIDPRU 3.6.5R to MIFIDPRU 3.6.8R does not guarantee that the relevant instruments meet the required conditions in MIFIDPRU 3.4 or MIFIDPRU 3.5 to qualify as own funds. The firm or parent undertaking must ensure that an instrument continues to meet the conditions to be counted as own funds, including if its terms are varied on a later date.