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  • PIB 3.14 PIB 3.14 Additional Tier 1 Capital (AT1 Capital)

    • PIB 3.14.1

      The AT1 Capital constitutes the sum of AT1 Capital elements in PIB Rule 3.14.2, subject to the deductions stipulated later in this section.

      Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • PIB 3.14.2

      AT1 Capital consists of the sum of the following capital elements:

      (a) capital instruments which meet the eligibility criteria laid down in PIB Rule 3.14.3; and
      (b) the share premium accounts related to the instruments referred to in (a).
      Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • PIB 3.14.3

      (1) For the purposes of PIB Rule 3.14.2(a), a capital instrument is eligible for inclusion in AT1 Capital where all the following conditions are met:
      (a) the instruments are issued and paid up;
      (b) the instruments are not purchased by any of the following:
      (i) the Authorised Firm or its Subsidiaries; or
      (ii) an Undertaking in which the Authorised Firm has participation in the form of ownership, direct or by way of control, of 20% or more of the voting rights or capital of that Undertaking;
      (c) the purchase of the instruments is not funded directly or indirectly by the Authorised Firm;
      (d) the instruments rank below T2 Capital instruments in the event of the insolvency of the Authorised Firm;
      (e) the instruments are not secured, or guaranteed by any of the following:
      (i) the Authorised Firm or its Subsidiaries;
      (ii) any Parent of the Authorised Firm or their Subsidiaries;
      (iii) any member of its Financial Group in accordance with PIB chapter 8; or
      (iv) any Undertaking that has Close Links with entities referred to in (i) to (iii);
      (f) the instruments are not subject to any arrangement, contractual or otherwise that enhances the seniority of the claim under the instruments in insolvency or liquidation;
      (g) the instruments are perpetual and the provisions governing them include no incentive for the Authorised Firm to redeem them;
      (h) where the provisions governing the instruments include one or more call options, the option to call may be exercised at the sole discretion of the issuer;
      (i) the instruments may be called, redeemed or repurchased only where the Authorised Firm has notified the DFSA of its intention to call, redeem or repurchase the instruments in writing and well in advance, and not before 5 years after the date of issuance of the respective instruments;
      (j) the provisions governing the instruments do not indicate explicitly or implicitly that the instruments would or might be called, redeemed or repurchased and the Authorised Firm does not otherwise provide such an indication;
      (k) the Authorised Firm does not indicate explicitly or implicitly that the DFSA would not object to a plan to call, redeem or repurchase the instruments;
      (l) distributions under the instruments meet the following conditions:
      (i) they are paid out of distributable items;
      (ii) the level of distributions made on the instruments will not be modified based on the credit standing of the Authorised Firm or any of its Parents or any entities in its Financial Group;
      (iii) the provisions governing the instruments give the Authorised Firm full discretion at all times to cancel the distributions on the instruments for an unlimited period and on a non-cumulative basis, and the Authorised Firm may use such cancelled payments without restriction to meet its obligations as they fall due;
      (iv) cancellation of distributions does not constitute an event of default of the Authorised Firm; and
      (v) the cancellation of distributions imposes no restrictions on the Authorised Firm;
      (m) the instruments do not contribute to a determination that the liabilities of an Authorised Firm exceed its assets, where such a determination constitutes a test of insolvency under the DIFC Insolvency Law;
      (n) the provisions governing the instruments require the principal amount of the instruments to be written down, or the instruments to be converted to CET1 Capital instruments, upon the occurrence of a trigger event;
      (o) the provisions governing the instruments include no feature that could hinder the recapitalisation of the Authorised Firm ; and
      (p) where the instruments are not issued directly by the Authorised Firm or by an operating entity within the Financial Group to which the Authorised Firm belongs, or by the Parent of the Authorised Firm , the proceeds are immediately available without limitation in a form that satisfies the conditions laid down in this Rule to any of the following:
      (i) the Authorised Firm ;
      (ii) an operating entity within the Financial Group to which the Authorised Firm belongs; or
      (iii) any Parent of the Authorised Firm .
      (2) For the purposes of (1)(l)(v) and (1)(o), the provisions governing AT1 Capital instruments must not include the following:
      (a) a requirement for distributions on the instruments to be made in the event of a distribution being made on an instrument issued by the Authorised Firm that ranks to the same degree as, or more junior than, an AT1 Capital instrument;
      (b) a requirement for the payment of distributions on CET1, AT1 or T2 Capital instruments to be cancelled in the event that distributions are not made on those AT1 Capital instruments; or
      (c) an obligation to substitute the payment of interest or dividend by a payment in any other form.
      (3) For the purposes of (1)(n), the following provisions apply to AT1 Capital instruments:
      (a) a trigger event occurs when the CET1 Capital of the Authorised Firm falls below either of the following:
      (i) 66.25% of its Capital Requirement; or
      (ii) a level higher than 66.25%, where determined by the Authorised Firm and specified in the provisions governing the instrument;
      (b) where the provisions governing the instruments require them to be converted into CET1 Capital instruments upon the occurrence of a trigger event, those provisions must specify either of the following:
      (i) the rate of such conversion and a limit on the permitted amount of conversion; or
      (ii) a range within which the instruments will convert into CET1 Capital instruments;
      (c) where the provisions governing the instruments require their principal amount to be written down upon the occurrence of a trigger event, the write down must reduce all the following:
      (i) the claim of the holder of the instrument in the liquidation of the Authorised Firm ;
      (ii) the amount required to be paid in the event of the call of the instrument; and
      (iii) the distributions made on the instrument.
      (4) The following must apply where, in the case of an AT1 Capital instrument, the conditions laid down in this Rule cease to be met:
      (a) that instrument must cease to qualify as an AT1 Capital instrument; and
      (b) the part of the share premium accounts that relates to that instrument must cease to qualify as an AT1 Capital element.
      Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • AT1 Regulatory Deductions

      • PIB 3.14.4

        Subject to the following Rules in this section, an Authorised Firm must deduct the following from the calculation of its AT1 Capital:

        (a) direct and indirect holdings by an Authorised Firm of own AT1 Capital instruments including instruments under which an Authorised Firm is under an actual or contingent obligation to effect a purchase by virtue of an existing contractual obligation;
        (b) holdings of the AT1 Capital instruments of Relevant Entities where those entities have a reciprocal cross holding with the Authorised Firm which have the effect of artificially inflating the Capital Resources of the Authorised Firm ;
        (c) the amount determined in accordance with PIB Rule 3.14.8 of direct and indirect holdings by the Authorised Firm of the AT1 Capital instruments of Relevant Entities where the Authorised Firm does not have a significant investment in those entities ;
        (d) direct and indirect holdings by the Authorised Firm of the AT1 Capital instruments of Relevant Entities where the Authorised Firm has a significant investment in those entities, excluding Underwriting positions held for 5 working days or fewer; and
        (e) the amounts required to be deducted from T2 Capital pursuant to PIB Rule 3.15.4 that exceed the T2 Capital of the Authorised Firm .
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • Deductions Relating to Holdings of Own AT1 Capital Instruments

      • PIB 3.14.5

        For the purposes of PIB Rule 3.14.4(a), an Authorised Firm must calculate holdings of its own AT1 Capital instruments on the basis of gross long positions subject to the following exceptions:

        (a) an Authorised Firm must calculate the amount of holdings of own AT1 Capital instruments in the Trading Book on the basis of the net long position provided the long and short positions are in the same underlying Exposure and the short positions involve no Counterparty Credit Risk;
        (b) an Authorised Firm must determine the amount to be deducted for indirect holdings in the Trading Book of own AT1 Capital instruments that take the form of holdings of index Securities by calculating the underlying Exposure to own AT1 Capital instruments in the indices; and
        (c) an Authorised Firm must net gross long positions in own AT1 Capital instruments in the Trading Book resulting from holdings of index Securities may be netted by the Authorised Firm against short positions in own AT1 instruments resulting from short positions in the underlying indices, including where those short positions involve Counterparty Credit Risk.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • Deductions Relating to AT1 Capital Instruments in Relevant Entities

      • PIB 3.14.6

        For the purposes of PIB Rule 3.14.4(b), (c) and (d), the amount of holdings of AT1 Capital instruments of Relevant Entities to be deducted, must be calculated, subject to PIB 3.14.7, on the basis of the gross long positions.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 3.14.7

        For the purposes of PIB Rule 3.14.4(c) and (d), an Authorised Firm must make the deductions in accordance with the following:

        (a) the holdings in the Trading Book of the capital instruments of Relevant Entities must be calculated on the basis of the net long position in the same underlying Exposure provided the maturity of the short position matches the maturity of the long position or has a residual maturity of at least one year; and
        (b) the amount to be deducted for indirect holdings in the Trading Book of the capital instruments of Relevant Entities that take the form of holdings of index Securities must be determined by calculating the underlying Exposure to the capital instruments of the Relevant Entities in the indices.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • AT1 Deductions Relating to Significant Investment in a Relevant Entity

      • PIB 3.14.8

        (1) For the purposes of PIB Rule 3.14.4(c), an Authorised Firm must calculate the applicable amount to be deducted by multiplying the amount referred to in (a) by the factor derived from the calculation referred to in (b):
        (a) the amount referred to in PIB Rule 3.13.16(1)(a);
        (b) the amount of direct and indirect holdings by the Authorised Firm of the AT1 Capital instruments of Relevant Entities divided by the aggregate amount of all direct and indirect holdings by the Authorised Firm of the CET1, AT1 and T2 Capital instruments of those Relevant Entities.
        (2) An Authorised Firm must exclude Underwriting positions held for 5 working days or fewer from the amount referred to in PIB Rule 3.13.16(1)(a) and from the calculation of the factor referred to in (1)(b).
        (3) An Authorised Firm must determine the portion of holdings of AT1 Capital instruments that is to be deducted pursuant to (1) by dividing the amount specified in (a) by the amount specified in (b):
        (a) the amount of holdings required to be deducted pursuant to (1)(a);
        (b) the aggregate amount of direct and indirect holdings by the Authorised Firm of all the capital instruments of Relevant Entities in which the Authorised Firm does not have a significant investment.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]