The Prudential Regulation Authority (PRA) has published a policy statement Amendments to the Pre-Issuance Notification regime (PS2/16). This policy statement provides feedback on CP29/15 which consulted upon changes to the pre-issuance notification regime for the issuance of capital instruments that will be included as either capital resources (in Non-Directive firms) or Own Funds for Solvency II firms.
At present firms must notify the PRA before issuing all capital instruments that will be included as regulatory capital (whether at a group or solo level). Since February 2012, the PRA has required firms to provide a pre-issuance notification (PIN) prior to issuing certain capital instruments.
PS2/16 makes the following changes to the current PIN requirements with the result that:
- insurers must submit a legal opinion (in draft form prior to issuance and in final form at the time of issuance) regarding the compliance of proposed capital instruments (other than ordinary share capital) with applicable quality of capital requirements as part of the PIN process;
- insurers will be required to provide the PRA with at least one month’s notice prior to amending any capital instruments;
- insurers wishing to make use of the advance notification exemption for drawdowns from note issuance programmes (NIPs) may only do so if certain conditions are satisfied (that any instrument issued will constitute Solvency II compliant basic own funds and the NIP has been updated to reflect any changes in law or regulation since it was last subject to a PIN); and
- insurers will be required to submit to the PRA accounting opinions (in draft form prior to issuance and in final form at the time of issuance) when issuing Restricted Tier 1 (RT1) capital instruments regarding the proposed capital instruments’ accounting treatment.
The PRA has also harmonised the advanced notification exemption for capital instruments issued on similar terms to previous issuances. For insurers, two conditions enable the exemption to apply: the previous issuance must have occurred within the twelve months immediately preceding the PRA’s receipt of the current PIN; and the previous issuance must have been subject to PIN. Additionally, the PRA has clarified that this exemption only applies when the terms and conditions of the current instrument are identical to the previous issuance, other than with regard to the: (i) the issue date, (ii) the maturity date, (iii) the amount of the issuance, (iv) the currency of the issuance, and/or (v) the rate of interest payable by the issuer.
The rules will apply from 1 March 2016.
View: PRA publishes policy statement on changes to the pre-issuance notification regime, with significant for insurers and links to the various amending instruments: Amendments to Pre-Issuance Notification regime.