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Compound Growth

8th December 2016

CET1 instruments updated by EBA

On the 1st December 2016 the European Banking Authority (EBA) published another update to the list of capital instrument that are classified as Common Equity Tier 1 (CET1) across the European Union (EU).

The EBA is tasked with monitoring and assessing the capital instruments in each EU Member State that qualifies as Common Equity Tier 1 (‘CET1’), as set out in the Capital Requirement Regulations (CRR) Article 26(3).

This is now the EBA’s fourth amendment to the list of CET1 instruments and their second within the space of three months, having previously revised the list on 8th September 2016.

Since the update in September, the EBA have now added an additional instrument that has been assessed and evaluated as compliant with the Capital Requirements Regulations (CRR) as CET1. In addition, the EBA have now revised legal references for some CET1 instruments issued in Member States.

The updated list of CET1 instruments can be viewed on the EBA website, with instruments listed by Member State.

UK CET1 Instruments

For the United Kingdom, there have been no changes to the CET1 list this time around; however the EBA’s September update saw the removal of The Royal Bank of Scotland Group plc Series 1 Class B Shares and Series 1 Dividend Access Share as being classified as CET1.

Thus, currently the following are classified as CET1 instruments within the United Kingdom:

Eligible as CET1 under CRR Article 28:

Ordinary Shares (with full voting rights) per the “Companies Act 2006” (see Chapter 2 of Part 17 Allotment of Shares);
Ordinary Shares (with fewer voting rights) per the “Companies Act 2006” (see Chapter 2 of Part 17 Allotment of Shares) that have also been issued with other CET1 instruments (including Ordinary Shares with full voting rights as above);
Deferred Shares per the “Building Societies (Deferred Shares) Order 1991”
Partnership Capital per the “Partnership Act 1890”;
Limited Partnership (LP) capital per the “Limited Partnerships Act 1907”; and
Limited Liability Partnership (LLP) capital per the “Limited Liability Partnerships Act 2000”

Eligible as CET1 under CRR Article 29:

Deferred Shares per the “Building Societies (Deferred Shares) Order 1991”

Information on the CET1 Instrument List

The CET1 Instrument list provides information that is consistent with that to be reported according to the disclosure for own funds Implementing Technical Standards (ITS).

Specifically, the information includes:

Name of the instrument in English and translation in domestic language;
Governing law of the instrument with appropriate legal references;
Whether the instrument is issued in addition to other CET1 instruments;
Whether the instrument has voting rights or not;
Whether the instrument is fully eligible under Article 28 or Article 29 of the Capital Requirements Regulation (CRR);
Whether the instrument has been grand-fathered under Article 484 of the CRR
Whether the instrument is a ‘State aid’ instrument that has been grandfathered under Article 483 of the CRR; and
Whether the Capital instruments can be subscribed by public authorities in emergency situations as per article 31 of the CRR

The EBA first published the CET1 Instruments list on 28 May 2014 and later updated this on 23 December 2014 and 21 October 2015 before the two most recent revisions this year.

The EBA highlights that “the inclusion of an instrument in the list implies the instrument meets the eligibility criteria” of the CRR and therefore “can be included in the CET1 capital by all institutions in the Member State to which is refers”.

It should be noted that the EBA will continue to monitor and assess the capital instruments included upon this list and will continue to update what can be considered eligible CET1 Instruments on a regular basis.