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RAR 3.4.4

(1) Subject to any exclusions set out in RAR Rule 3.4.1(3) and (4), in exercising the Write Down or Conversion Power when applying the Bail-in Tool, the DFSA shall apply the following sequence to write down or conversion:
(a) the DFSA shall reduce the CET1 items in accordance with RAR Rule 3.4.3;
(b) if the total reduction under (a) is less than the sum of the amounts referred to in RAR Rule 3.4.3(3)(b) and (c), the DFSA shall reduce the principal amount of AT1 Capital instruments to the extent required and to the extent of their capacity;
(c) if the total reduction pursuant to (a) and (b) is less than the sum of the amounts referred to in RAR Rule 3.4.3(3)(b) and (c), the DFSA shall reduce the principal amount of T2 Capital instruments to the extent required and to the extent of their capacity;
(d) if the total reduction of AT1 and T2 Capital instruments pursuant to (a), (b) and (c) is less than the sum of the amounts referred to in RAR Rule 3.4.3(3)(b) and (c), the DFSA shall reduce to the extent required the principal amount of Eligible Liabilities in accordance with the hierarchy of claims that will apply to the Authorised Firm under the DIFC Insolvency Law, in conjunction with the write down pursuant to (a), (b) and (c) to produce the sum of the amounts referred to in RAR Rule 3.4.3(3)(b) and (c); and
(e) if the total reduction of AT1 and T2 Capital instruments and Eligible Liabilities pursuant to (a) to (d) is less than the sum of the amounts referred in RAR Rule 3.4.3(3)(b) and (c), the DFSA shall reduce to the extent required the principal amount of, or outstanding amount payable in respect of, the rest of Eligible Liabilities in accordance with the hierarchy of claims that will apply to the Authorised Firm under the DIFC Insolvency Law, in conjunction with the write down pursuant to (a) to (d) to produce the sum of the amounts referred to in RAR Rule 3.4.3(3)(b) and (c).
(2) When applying the Write Down or Conversion Power, the DFSA shall allocate the losses represented by the sum of the amounts referred to in RAR Rule 3.4.3(3)(b) and (c) equally between Shares and Eligible Liabilities of the same rank by reducing the principal amount of, or outstanding amount payable in respect of, those Shares and Eligible Liabilities to the same extent pro rata to their value, except where a different allocation of losses amongst liabilities of the same rank is allowed in the circumstances specified in RAR Rule 3.4.1(4).
(3) Before applying the Write Down or Conversion Power, the DFSA shall convert or reduce the principal amount of instruments referred to in (1)(b), (c) (d) and (e) when those instruments contain the following terms and have not been fully converted:
(a) terms that provide for the principal amount of the instrument to be reduced on the occurrence of any event that refers to the financial situation, viability, solvency or levels of Capital Resources of the Authorised Firm; or
(b) terms that provide for the conversion of the instrument to Shares on the occurrence of any such event.
(4) Where the principal amount of an instrument has been reduced, but not reduced to zero, in accordance with terms referred to in (3)(a) before the application of the bail-in pursuant to (1), the DFSA shall apply the Write Down or Conversion Power to the residual amount.
(5) In deciding on whether liabilities are to be written down or converted into Shares, the DFSA shall not convert one class of liabilities while a class of liabilities that is subordinated to that class remains substantially unconverted into Shares or not written down, unless otherwise permitted under RAR Rule 3.4.1(4) and (5).

 

Derived from DFSA RMI283/2020 (Made 16th December 2020). [VER1/04-21]