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Status: Please note you should read all Brexit changes to the FCA Handbook and BTS alongside the main FCA transitional directions. Where these directions apply the 'standstill', firms have the choice between complying with the pre-IP completion day rules, or the post-IP completion day rules. To see a full list of Handbook modules affected, please see Annex B to the main FCA transitional directions.

You are viewing the version of the document as on 2021-01-01.

Status: In this content, we have included all amendments made by EU exit-related instruments up to end September 2020. There will be more amendments to be made later this year, further to the September QCP.

Article 4 Conditions for classes of Other Instruments

  1. (1)

    Under the conditions laid down in point (c) of Article 1(1), Other Instruments satisfy the conditions laid down in rule 15.15(1)(b) of the Remuneration Part of the PRA rulebook and in rules 19A.3.47(1)(b) and 19D.3.56(1)(b) of the Senior Management Arrangements, Systems and Controls sourcebook in each of the following cases:

    1. (a)

      the Other Instruments fulfil the conditions referred to in paragraph 2;

    2. (b)

      the Other Instruments are linked to an Additional Tier 1 instrument or Tier 2 instrument and fulfil the conditions referred to in paragraph 3;

    3. (c)

      the Other Instruments are linked to an instrument which would be an Additional Tier 1 instrument or Tier 2 instrument but for the fact that it is issued by a parent undertaking of the institution which is outside the scope of consolidation pursuant to Chapter 2 of Title II of Part One of Regulation (EU) No 575/2013 and the Other Instruments fulfil the conditions in paragraph 4.

  2. (2)

    The conditions referred to in point (a) of paragraph 1 are the following:

    1. (a)

      the Other Instruments shall be issued directly or through an entity included within the group consolidation pursuant to Chapter 2 of Title II of Part One of Regulation (EU) No 575/2013, provided that a change to the credit quality of the issuer of the instrument can reasonably be expected to lead to a similar change to the credit quality of the institution using the Other Instruments for the purpose of variable remuneration;

    2. (b)

      the provisions governing the Other Instruments do not give the holder the right to accelerate the scheduled payment of distributions or principal other than in the case of the insolvency or liquidation of the institution;

    3. (c)

      at the time of the award of the Other Instruments as variable remuneration the remaining period before maturity of the Other Instruments is equal to or exceeds the sum of the deferral periods and retention periods that apply in respect of the award of those instruments;

    4. (d)

      the provisions governing the instrument provide that, upon the occurrence of a trigger event the principal amount of the instruments shall be written down on a permanent or temporary basis or the instrument shall be converted to Common Equity Tier 1 instruments;

    5. (e)

      the trigger event referred to in point (d) occurs when the Common Equity Tier 1 capital ratio of the institution issuing the instrument referred to in point (a) of Article 92(1) of Regulation (EU) No 575/2013 falls below either of the following:

      1. (i)

        7 %;

      2. (ii)

        a level higher than 7 %, where determined by the institution and specified in the provisions governing the instrument;

    6. (f)

      one of the requirements in point (c) of Article 2 is met.

  3. (3)

    The conditions referred to in point (b) of paragraph 1 are the following:

    1. (a)

      the Other Instruments fulfil the conditions in points (a) to (e) of paragraph 2;

    2. (b)

      the Other Instruments are linked to an Additional Tier 1 or Tier 2 instrument issued through an entity included within the group consolidation pursuant to Chapter 2 of Title II of Part One of Regulation (EU) No 575/2013 (the "reference instrument");

    3. (c)

      the reference instrument fulfils the conditions of points (c) and (f) of paragraph 2 at the time that the instrument is awarded as variable remuneration;

    4. (d)

      the value of an Other Instrument is linked to the reference instrument such that it is at no time more than the value of the reference instrument;

    5. (e)

      the value of any distributions paid after the Other Instrument has vested is linked to the reference instrument such that distributions paid are at no time more than the value of any distributions paid under the reference instrument;

    6. (f)

      the provisions governing the Other Instruments provide that if the reference instrument is called, converted, repurchased or redeemed within the deferral or retention period the Other Instruments shall be linked to an equivalent reference instrument which fulfils the conditions in this Article such that the total value of the Other Instruments does not increase.

  4. (4)

    The conditions referred to in point (c) of paragraph 1 are the following:

    1. (a)

      the appropriate regulator has determined for the purpose of regulation 21 of the Capital Requirements Regulations 2013 that the institution that issues the instrument to which the other instruments are linked is subject to consolidated supervision by a third-country supervisory authority which is equivalent to that governed by the principles set out in Directive 2013/36/EU UK law and the requirements of Chapter 2 of Title II of Part One of Regulation (EU) No 575/2013;

    2. (b)

      the Other Instruments fulfil the conditions referred to in points (a) and points (c) to (f) of paragraph 3.