Featured Product

    PRA Consults on Treatment of Restricted Tier 1 Own Funds Instruments

    October 11, 2019

    PRA, in the consultation paper CP26/19, proposed to amend expectations on the treatment of restricted Tier 1 own funds (rT1) instruments in light of the recent information from the HMRC. PRA also proposed to amend the supervisory statement SS3/15 on the quality of capital instruments under Solvency II (Appendix). SS3/15 currently sets out the PRA expectation that insurers will deduct the maximum tax charge generated on write-down, when including externally issued rT1 instruments in their own funds. This consultation proposes to expand this expectation to reflect the maximum tax charge that could be generated on conversion of such items into ordinary shares. The consultation closes on January 13, 2020. The intended implementation date for the final policy following CP26/19 is the date of publication of the final policy.

    The proposals in CP26/19 are intended to maintain the existing regulatory policy of only recognizing rT1 items to the extent that they provide loss-absorbency on trigger and to prevent the amount of loss-absorbency provided by rT1 instruments that convert into ordinary shares on trigger from being overstated. PRA proposed to update SS3/15 to add an expectation that the

    • Insurers would deduct the maximum tax charge generated on conversion when they include in their own funds external rT1 capital instruments that convert to ordinary shares on trigger
    • Instrument has a conversion share offer (CSO) mechanism in its terms

    PRA proposed to introduce the expectations for all new issuances of rT1 instruments that convert on trigger and have conversion share offer features after the date of publication of the final policy. Where firms have already issued external rT1 instruments that convert to ordinary shares on trigger and have a conversion share offer mechanism, their supervisory team would discuss appropriate arrangements with each firm on a case-by-case basis. To reflect any changes to SS3/15 following this consultation, PRA would also update the reporting clarification published as Appendix 2 to the policy statement PS4/19 on adjusting for the reduction of loss-absorbency where own fund instruments are taxed on write-down. 

    CP26/19 is relevant to the UK insurance firms within the scope of Solvency II, the Society of Lloyd’s, and the firms that are part of a Solvency II group that will determine and classify capital instruments under the Solvency II own funds regime, together with their advisers. The proposals have been designed in context of the current UK and EU regulatory framework. PRA will keep the policy under review to assess whether any changes would be required due to changes in the UK regulatory framework, including those arising once any new arrangements with EU take effect. In the event that UK leaves EU with no implementation period in place, PRA has assessed that the proposals would not need to be amended under the EU (Withdrawal) Act 2018.

     

    Related Links

    Comment Due Date: January 13, 2020

    Effective Date: Publication Date of Final Policy (Proposed)

    Keywords: Europe, UK, Insurance, Solvency II, Own Funds, Loss Absorbency, PS4/19, SS 2/15, CP26/19, Restricted Tier 1, PRA

    Featured Experts
    Related Articles
    News

    EC Consults on PSD2 and Open Finance; EU Reaches Agreement on DORA

    The European Commission (EC) published a public consultation on the review of revised payment services directive (PSD2) and open finance.

    May 11, 2022 WebPage Regulatory News
    News

    EC Mandates ESAs to Propose Amendments to SFDR Technical Standards

    The European Commission (EC) has issued two letters mandating the European Supervisory Authorities (ESAs) to jointly propose amendments to the regulatory technical standards under Sustainable Finance Disclosure Regulation or SFDR.

    May 11, 2022 WebPage Regulatory News
    News

    EBA Examines Supervisory Practices, Issues Deposits Reporting Template

    The European Banking Authority (EBA) published its annual report on convergence of supervisory practices for 2021. Additionally, following a request from the European Commission (EC),

    May 11, 2022 WebPage Regulatory News
    News

    US Agency Publications Address Basel, Reporting, and CECL Developments

    The Farm Credit Administration published, in the Federal Register, the final rule on implementation of the Current Expected Credit Losses (CECL) methodology for allowances

    May 09, 2022 WebPage Regulatory News
    News

    SEC Extends Comment Period on Climate Risk Disclosures

    The U.S. Securities and Exchange Commission (SEC) looks set to intensify focus on crypto-assets and cyber risk and extended the comment period on the proposed rules to enhance and standardize climate-related disclosures for investors.

    May 09, 2022 WebPage Regulatory News
    News

    APRA Reduces Committed Liquidity Facility, Issues Other Updates

    The Australian Prudential Regulation Authority (APRA) announced reduction in the aggregate Committed Liquidity Facility and issued an update on the operational preparedness for zero and negative market interest rates.

    May 09, 2022 WebPage Regulatory News
    News

    CMF Consults on Basel Rules, Presents Roadmap to Address Climate Risks

    The Commission for the Financial Market (CMF) in Chile published capital adequacy ratios (as of February 2022, January 2022, and December 2021) for 17 banks and for the banking system.

    May 06, 2022 WebPage Regulatory News
    News

    PRA Issues Statement on NPEs and Policy on Trading Activity Wind-Down

    The Prudential Regulation Authority (PRA) issued a statement on the European Banking Authority (EBA) guidelines on management of non-performing exposures (NPEs) and forborne exposures.

    May 06, 2022 WebPage Regulatory News
    News

    EBA Updates Standards for 2023 Benchmarking of Internal Approaches

    The European Banking Authority (EBA) updated the implementing technical standards that specify the data collection for the 2023 supervisory benchmarking exercise in relation to the internal approaches used in market risk, credit risk, and IFRS 9 accounting.

    May 06, 2022 WebPage Regulatory News
    News

    EIOPA Responds to Stakeholder Views on Blockchain in Insurance

    The European Insurance and Occupational Pensions Authority (EIOPA) published a feedback statement on the responses received to the consultation on blockchain and smart contracts in insurance.

    May 06, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8179