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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]