Prudential Regulation Authority Rulebook

4.1

These Guidelines are organised in several sections.

4.2

Sections 1 to 3 set out considerations relating to items and features determining classification for Tier 1, Tier 2 and Tier 3 respectively.

4.3

Firms should follow these Guidelines when designing and classifying their capital instruments and the PRA expects this to be reflected in firms’ submissions of pre-issuance notifications as set out in the Own Funds Part of the PRA Rulebook.

4.4

In Section 2 of SS3/15¹¹ the PRA sets out its expectations relating to terms permitting the call of an instrument earlier than five years from date of issue. These will be relevant in respect of Guideline 15 on call options predicated on unforeseen changes and the paragraphs referred to within that Guideline.

4.5

Section 4 contains Guidelines relevant to all tiers.  Firms should follow the approach set out in these Guidelines in order to ensure compliance with the Delegated Regulation.

4.6

In Section 3 of SS3/15 the PRA sets out its expectation regarding a broad scope for the term ‘redemption’ in line with Guideline 13.

4.7

Guideline 14 sets out the considerations relevant to encumbrance. Firms should identify the substance and not simply the form of arrangements and connected transactions when considering the potential impact on the quality of capital. Firms should consider SS8/14¹² on subordinated guarantees in the light of Guideline 14.

4.8

In relation to Guideline 18, firms should comply with this Guideline regarding the nature of the information to be provided and when it should be submitted. The PRA will approach its review of potential redemptions in line with Guideline 18.

4.9

In considering whether an instrument includes an incentive to redeem as described in Guideline 19, firms should provide a reasoned basis for the choice of coupon structure and any other provision that might suggest an incentive to redeem. Firms should include this information as part of their pre-issuance notification.

4.10

Section 5 covers the approach to the approval of items not on the lists of own-funds in the Delegated Regulation. Firms should engage with their usual supervisory contact at an early stage if they are considering development of an own-fund item not on the lists.