Featured Product

    SARB Directive Addresses Issuance of Certain AT1 Capital Instruments

    March 12, 2021

    SARB published the Directive D2/2021 that explains the stance of the Prudential Authority on the South African banks efforts to seek to include a contingent payment provision in the terms and conditions of their additional tier 1, or AT1, capital instruments. The Prudential Authority is not opposed to banks including the contingent "must-pay" clause in the terms and conditions of both local and foreign currency denominated additional tier 1 instruments. However, banks that elect to utilize the contingent "must-pay" clause as part of the additional tier 1 instruments’ terms and conditions must note that the Prudential Authority will not approve the issuance of additional tier 1 instruments, unless it is also stated in the terms of the instrument that, in the event that the point of non-viability is triggered by the Prudent Authority, such a decision would not constitute a capital disqualification event.

    The Directive states that inclusion of the contingent "must-pay" clause shall neither amend nor revise the current terms and conditions of additional tier 1 instruments, in line with the terms of regulation 38(11)(b) of the Regulations or the guidance provided in Guidance Note 6 of 2017, as they relate to additional tier 1 capital. Therefore, the rights of the holders of the additional tier 1 instruments and the powers of the Prudential Authority, should a capital disqualification event occur and the contingent "must-pay" clause is invoked as a result of the occurrence of a capital disqualification event, shall be fully disclosed within the contractual pricing supplement or prospectus of the instrument. The issuance of all additional tier 1 instruments is subject to the prior written approval of the Prudential Authority, as per the terms of regulation 38(11)(b)(ii) of the Regulations. The Directive also sets out the requirements to be met for when the Authority will consider an application for approval for the issuance of additional tier 1 instruments. 

    • Coupons that are payable under the contingent "must-pay" clause must only be the coupons accruing after the instrument has been disqualified from regulatory capital in its entirety.
    • Coupon payment obligation becomes mandatory on each interest payment date once the instrument has been derecognized in full from qualifying capital.
    • Total value of additional tier 1 instruments with a contingent "must-pay" clause shall be limited to 25% of the qualifying tier 1 capital and reserve funds; this limit would be assessed and enforced at the time of each application in terms of section 79 of the Banks Act, Act No 94 of 1990.

     

    Related Links

    Keywords: Middle East and Africa, Banking, Regulatory Capital, Prudential Authority, Must-Pay Clause, Additional Tier 1 Capital, Basel, SARB

    Featured Experts
    Related Articles
    News

    EBA Finalizes Templates for One-Off Climate Risk Scenario Analysis

    The European Banking Authority (EBA) has published the final templates, and the associated guidance, for collecting climate-related data for the one-off Fit-for-55 climate risk scenario analysis.

    November 28, 2023 WebPage Regulatory News
    News

    EBA Mulls Inclusion of Environmental & Social Risks to Pillar 1 Rules

    The European Banking Authority (EBA) recently published a report that recommends enhancements to the Pillar 1 framework, under the prudential rules, to capture environmental and social risks.

    October 31, 2023 WebPage Regulatory News
    News

    BCBS Consults on Disclosure of Crypto-Asset Exposures of Banks

    As a follow on from its prudential standard on the treatment of crypto-asset exposures, the Basel Committee on Banking Supervision (BCBS) proposed disclosure requirements for crypto-asset exposures of banks.

    October 19, 2023 WebPage Regulatory News
    News

    BCBS and EBA Publish Results of Basel III Monitoring Exercise

    The Basel Committee on Banking Supervision (BCBS) and the European Banking Authority (EBA) have published results of the Basel III monitoring exercise.

    October 18, 2023 WebPage Regulatory News
    News

    PRA Updates Timeline for Final Basel III Rules, Issues Other Updates

    The Prudential Regulation Authority (PRA) recently issued a few regulatory updates for banks, with the updated Basel implementation timelines being the key among them.

    October 18, 2023 WebPage Regulatory News
    News

    US Treasury Sets Out Principles for Net-Zero Financing

    The U.S. Department of the Treasury has recently set out the principles for net-zero financing and investment.

    October 17, 2023 WebPage Regulatory News
    News

    EC Launches Survey on G7 Principles on Generative AI

    The European Commission (EC) launched a stakeholder survey on the draft International Guiding Principles for organizations developing advanced artificial intelligence (AI) systems.

    October 14, 2023 WebPage Regulatory News
    News

    ISSB Sustainability Standards Expected to Become Global Baseline

    The finalization of the two sustainability disclosure standards—IFRS S1 and IFRS S2—is expected to be a significant step forward in the harmonization of sustainability disclosures worldwide.

    September 18, 2023 WebPage Regulatory News
    News

    IOSCO, BIS, and FSB to Intensify Focus on Decentralized Finance

    Decentralized finance (DeFi) is expected to increase in prominence, finding traction in use cases such as lending, trading, and investing, without the intermediation of traditional financial institutions.

    September 18, 2023 WebPage Regulatory News
    News

    BCBS Assesses NSFR and Large Exposures Rules in US

    The Basel Committee on Banking Supervision (BCBS) published reports that assessed the overall implementation of the net stable funding ratio (NSFR) and the large exposures rules in the U.S.

    September 14, 2023 WebPage Regulatory News
    RESULTS 1 - 10 OF 8938