The Capital Requirements Regulation (CRR), and in particular Articles 52 and 63, sets out the conditions to be met by capital instruments to qualify as Additional Tier 1 (AT1) and Tier 2 (T2) instruments respectively. Other articles of the CRR and the relevant provisions of Commission Delegated Regulation (EU) No. 241/2014 (RTS on Own Funds) provide further details on these conditions.
The European Central Bank (ECB) has now published guidance that lays down the procedure that it follows when reviewing the qualification of capital instruments as AT1 and T2 instruments. It specifies the information that should be provided by significant supervised entities (entities) as defined in Article 2(16) of Regulation (EU) No. 468/2014 of the European Central Bank (the Regulation establishing the Single Supervisory Mechanism) that compute the capital instruments towards their AT1 or T2 capital on an individual, sub-consolidated and/or consolidated basis.
The ECB recommends that entities follow the guidance with respect to capital instruments issued after its date of publication. However, section III.2 of the guidance applies to all capital instruments irrespective of their date of issuance. Entities are responsible for ensuring that their capital instruments comply with all the relevant provisions of the CRR and the RTS on Own Funds, irrespective of the ex post review carried out by the ECB.
The guidance is without prejudice to any requirements in respect of the recognition of AT1 or T2 instruments under applicable national law. If national law requires pre-approval, the ECB is competent to grant such pre-approval to the entities.
View ECB public guidance on the review of the qualification of capital instruments as Additional Tier 1 and Tier 2 instruments, 6 June 2016