4
Classification of own-funds (Guidelines 1–26)
4.1
These Guidelines are organised in several sections.
- 23/07/2015
Guidelines relevant to specific tiers (Guidelines 1–12)
4.2
Sections 1 to 3 set out considerations relating to items and features determining classification for Tier 1, Tier 2 and Tier 3 respectively.
- 23/07/2015
4.3
Firms should follow these Guidelines when designing and classifying their capital instruments and the PRA expects this to be reflected in firms’ submissions of pre-issuance notifications as set out in the Own Funds Part of the PRA Rulebook.
- 23/07/2015
4.4
In Section 2 of SS3/15[11] the PRA sets out its expectations relating to terms permitting the call of an instrument earlier than five years from date of issue. These will be relevant in respect of Guideline 15 on call options predicated on unforeseen changes and the paragraphs referred to within that Guideline.
Footnotes
- 11. PRA Supervisory Statement SS3/15, ‘Solvency II: the quality of capital instruments’, March 2015; www.bankofengland.co.uk/pra/Documents/publications/ss/2015/ss315.pdf.
- 23/07/2015
Guidelines relevant to all tiers (Guidelines 13–20)
4.5
Section 4 contains Guidelines relevant to all tiers. Firms should follow the approach set out in these Guidelines in order to ensure compliance with the Delegated Regulation.
- 23/07/2015
4.6
In Section 3 of SS3/15 the PRA sets out its expectation regarding a broad scope for the term ‘redemption’ in line with Guideline 13.
- 23/07/2015
4.7
Guideline 14 sets out the considerations relevant to encumbrance. Firms should identify the substance and not simply the form of arrangements and connected transactions when considering the potential impact on the quality of capital. Firms should consider SS8/14[12] on subordinated guarantees in the light of Guideline 14.
Footnotes
- 12. PRA Supervisory Statement SS8/14, ‘Subordinated guarantees and the quality of capital for insurers’, August 2014; www.bankofengland.co.uk/pra/Documents/ publications/ss/2014/ss814.pdf.
- 23/07/2015
4.8
In relation to Guideline 18, firms should comply with this Guideline regarding the nature of the information to be provided and when it should be submitted. The PRA will approach its review of potential redemptions in line with Guideline 18.
- 23/07/2015
4.9
In considering whether an instrument includes an incentive to redeem as described in Guideline 19, firms should provide a reasoned basis for the choice of coupon structure and any other provision that might suggest an incentive to redeem. Firms should include this information as part of their pre-issuance notification.
- 23/07/2015
Guidelines relating to items not on the lists of own fund items (Guidelines 21–26)
4.10
Section 5 covers the approach to the approval of items not on the lists of own-funds in the Delegated Regulation. Firms should engage with their usual supervisory contact at an early stage if they are considering development of an own-fund item not on the lists.
- 23/07/2015