Prudential Regulation Authority Rulebook

6.1

A firm must only include a perpetual non-cumulative preference share at stage B of the calculation in the capital resources table if (in addition to satisfying the conditions in 4.3) it satisfies the following conditions:

1. (1) any coupon on it is not cumulative, and the firm is under no obligation to pay a coupon in any circumstances; and
2. (2) it is not an innovative tier one instrument.

6.2

A firm must not include an item of capital that is an innovative tier one instrument in stages A (Core tier one capital) or B (Perpetual non-cumulative preference shares) of the calculation in the capital resources table.

6.3

A tier one instrument is an innovative tier one instrument if:

1. (1) it is redeemable; and
2. (2) a reasonable person would think that:
1. (a) the firm is likely to redeem it; or
2. (b) the firm is likely to have an economic incentive to redeem it.

6.4

A tier one instrument is an innovative tier one instrument if it has a cumulative or mandatory coupon.

6.5

A potential tier one instrument is an innovative tier one instrument if:

1. (1) it is or may become subject to a step-up; and
2. (2) it is redeemable at any time (whether before, at or after the time of the step-up).

6.6

A firm must not include in its tier one capital resources a potential tier one instrument that is or may become subject to a step-up if that step-up can arise earlier than the tenth anniversary of the date of issue of that item of capital.

6.7

A firm must not include a capital instrument that is not a share in its innovative tier one capital resources unless (in addition to satisfying the conditions in 4.3) the firm's obligations under the instrument either:

1. (1) do not constitute a liability (actual, contingent or prospective) under section 123(2) of the Insolvency Act 1986; or
2. (2) do constitute such a liability but the terms of the instrument are such that:
1. (a) any such liability is not relevant for the purposes of deciding whether:
1. (i) the firm is, or is likely to become, unable to pay its debts; or
2. (ii) its liabilities exceed its assets;
2. (b) a person (including, but not limited to, a holder of the instrument) is not able to petition for the winding up or administration of the firm or for any similar procedure in relation to the firm on the grounds that the firm is or may become unable to pay any such liability; and
3. (c) the firm is not obliged to take into account such a liability for the purposes of deciding whether or not the firm is, or may become, insolvent for the purposes of section 214 of the Insolvency Act 1986 (wrongful trading).