EBA欧洲银行-EBA-Public-Hearing-on-AT1-Standard-Templates-and-Updated-Monitoring-Report-26-July-2016_27页_1mb

EBA AT1 Standard Templates and Updated Monitoring Report Summary

Core Content

The European Banking Authority (EBA) has published a draft AT1 standard templates and a second update of the AT1 monitoring report, both aimed at enhancing the standardization and transparency of Additional Tier 1 (AT1) instruments issued by EU institutions. These instruments are crucial for meeting capital requirements under the Capital Requirements Regulation (CRR) and the related Regulatory Technical Standards (RTS).

The EBA's objective is to provide prudential standard templates that are not legally binding, allowing institutions to choose whether to use them. These templates are designed to ensure that the terms and conditions of AT1 instruments align with regulatory expectations, while also simplifying the complexity of such instruments and enhancing the quality of their implementation.

The updated AT1 monitoring report reflects the EBA's ongoing review of AT1 instruments issued between August 2013 and December 2015, totaling EUR 35.5 billion. It highlights new prudential considerations and best practices for the design of AT1 instruments.

Main Views and Key Information

1. AT1 Standard Templates

• Purpose: To standardize the prudential aspects of AT1 instruments, including definitions, trigger events, and loss absorption mechanisms.
• Structure:
  • Essential provisions: Cover key elements such as flexibility of payments, permanence, loss absorbency, and trigger events. These are mandatory for regulatory compliance.
  • Optional provisions: Include gross-up clauses, substitution/variation clauses, and pre-emption rights, which are considered acceptable but not necessary.
• Loss Absorption Mechanisms:
  • Full conversion: Instruments are converted into equity, with a clear trigger event.
  • Partial temporary write-down: A temporary reduction in the value of the instrument, with specific rules on write-up calculation and sequencing.
  • Full permanent write-down: A permanent reduction in the value of the instrument.
• Non-Covered Aspects:
  • Templates do not cover BRRD (Bank Recovery and Resolution Directive) or resolution-related provisions, except for contractual bail-in language for third-country law instruments.

2. AT1 Monitoring Report – Second Update

• Scope: Based on the analysis of 33 AT1 issuances, the report includes new recommendations and avoidance guidelines.
• Key Provisions:
  • Triggers: Should be automatic and not conditional on coupon cancellation. Trigger events should be clear and simple, with the CET1 ratio being calculated at any time, not just on regulatory reporting dates.
  • Calls, Repurchases, and Redemptions: Provisions should not suggest that purchases are possible at any time. They are subject to limits and prior permission from competent authorities.
  • Tax Events: Only material and non-foreseeable changes in tax treatment can trigger a tax event. Gross-up on principal is not allowed.
  • Conversion and Write-Down Mechanisms: The write-up calculation should follow the RTS on own funds. If multiple triggers are present, the lower of the profit from different levels is used.
  • Contingent Conversion Convertibles (CCC): The presence of an upside conversion option may attract new investors and reduce coupon costs, but should not be solely used to incentivize redemption.
  • Guarantees: Any guarantee provided must be subordinated, not cover cancelled coupons, and specific to restructuring or merger events.

3. Best Practices and Recommendations

• Include market making provisions with prior CA permission and RTS limits.
• Use sequencing on loss absorption between different categories of instruments.
• Ensure clarity in terms of trigger events and their calculation.
• Avoid contingent clauses that make redemption mandatory.
• Gross-up clauses should only be activated by the tax authority and be limited to dividend/coupons withholding tax.

Next Steps

• The EBA will amend the standard templates and monitoring report based on public hearing discussions.
• Final versions are expected to be published by October 2016.

Conclusion

The EBA's initiative aims to enhance transparency, reduce complexity, and ensure consistency in the issuance of AT1 instruments across the EU. By promoting the use of standard templates and updating the monitoring report, the EBA seeks to align market practices with regulatory expectations, while maintaining flexibility and ensuring that instruments remain compliant with prudential rules.