Past version: effective from 19/02/2020 - 18/02/2020
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(1) For the purposes of Rule 3.11.2(a), a capital instrument is eligible for inclusion in AT1 Capital where all of the following conditions are met:
(a) the instruments are issued and paid up;
(b) the instruments are not purchased by any of the following:
(i) the Authorised Person or its Subsidiaries; or
(ii) an Undertaking in which the Authorised Person has participation in the form of ownership, direct or by way of control, of 20% or more of the voting rights or capital of that Undertaking;
(c) the purchase of the instruments is not funded directly or indirectly by the Authorised Person;
(d) the instruments rank below T2 Capital instruments in the event of the insolvency of the Authorised Person;
(e) the instruments are not secured, or guaranteed by any of the following:
(i) the Authorised Person or its Subsidiaries;
(ii) any Parent of the Authorised Person or their Subsidiaries;
(iii) any member of its Financial Group in accordance with Chapter 8; or
(iv) any Undertaking that has Close Links with entities referred to in (i) to (iii);
(f) the instruments are not subject to any arrangement, contractual or otherwise that enhances the seniority of the claim under the instruments in insolvency or liquidation;
(g) the instruments are perpetual and the provisions governing them include no incentive for the Authorised Person to redeem them;
(h) where the provisions governing the instruments include one or more call Options, the option to call may be exercised at the sole discretion of the Issuer;
(i) the instruments may be called, redeemed or repurchased only where the Authorised Person has notified the Regulator of its intention to call, redeem or repurchase the instruments in writing and well in advance, and not before five years after the date of issuance of the respective instruments;
(j) the provisions governing the instruments do not indicate explicitly or implicitly that the instruments would or might be called, redeemed or repurchased and the Authorised Person does not otherwise provide such an indication;
(k) the Authorised Person does not indicate explicitly or implicitly that the Regulator would not object to a plan to call, redeem or repurchase the instruments;
(l) distributions under the instruments meet the following conditions:
(i) they are paid out of distributable items;
(ii) the level of distributions made on the instruments will not be modified based on the credit standing of the Authorised Person or any of its Parents or any entities in its Financial Group;
(iii) the provisions governing the instruments give the Authorised Person full discretion at all times to cancel the distributions on the instruments for an unlimited period and on a non-cumulative basis, and the Authorised Person may use such cancelled payments without restriction to meet its obligations as they fall due;
(iv) cancellation of distributions does not constitute an event of default of the Authorised Person; and
(v) the cancellation of distributions imposes no restrictions on the Authorised Person;
(m) the instruments do not contribute to a determination that the liabilities of an Authorised Person exceed its assets, where such a determination constitutes a test of insolvency under the Insolvency Regulations;
(n) the provisions governing the instruments require the principal amount of the instruments to be written down, or the instruments to be converted to CET1 Capital instruments, upon the occurrence of a trigger event;
(o) the instruments are capable of absorbing losses at the point of nonviability through the contractual provisions governing the instruments meeting the requirements set out in Rule 3.11.3(4);
(p) the provisions governing the instruments include no feature that could hinder the recapitalisation of the Authorised Person; and
(q) where the instruments are not issued directly by the Authorised Person or by an operating entity within the Financial Group to which the Authorised Person belongs, or by the Parent of the Authorised Person, the proceeds are immediately available without limitation in a form that satisfies the conditions laid down in this Rule to any of the following:
(i) the Authorised Person;
(ii) an operating entity within the Financial Group to which the Authorised Person belongs; or
(iii) any Parent of the Authorised Person.
(2) For the purposes of (1)(l)(v) and (1)(p), the provisions governing AT1 Capital instruments must not include the following:
(a) a requirement for distributions on the instruments to be made in the event of a distribution being made on an instrument issued by the Authorised Person that ranks to the same degree as, or more junior than, an AT1 Capital instrument;
(b) a requirement for the payment of distributions on CET1, AT1 or T2 Capital instruments to be cancelled in the event that distributions are not made on those AT1 Capital instruments; or
(c) an obligation to substitute the payment of interest or dividend by a payment in any other form.
(3) For the purposes of (1)(n), the following provisions apply to AT1 Capital instruments:
(a) a trigger event occurs when the CET1 Capital of the Authorised Person falls below either of the following:
(i) 6.625% of its Total Risk Exposure Amount; or
(ii) a level higher than 6.625%, where determined by the Authorised Person and specified in the provisions governing the instrument;
(b) where the provisions governing the instruments require them to be converted into CET1 Capital instruments upon the occurrence of a trigger event, those provisions must specify either of the following:
(i) the rate of such conversion and a limit on the permitted amount of conversion; or
(ii) a range within which the instruments will convert into CET1 Capital instruments;
(c) where the provisions governing the instruments require their principal amount to be written down upon the occurrence of a trigger event, the write down must reduce all the following:
(i) the claim of the holder of the instrument in the liquidation of the Authorised Person;
(ii) the amount required to be paid in the event of the call of the instrument; and
(iii) the distributions made on the instrument.
(4) For the purposes of (1)(o), the following provisions apply to AT1 Capital instruments.
(a) The provisions governing AT1 Capital instruments must require such instruments to, at the option of the Regulator, either be partially or fully written down or converted into ordinary shares upon the occurrence of a trigger event.
(b) For the purpose of this provision, a "trigger event" shall refer to a notification by the Regulator notifying the Authorised Person in writing, in accordance with any regulations of ADGM relating to recovery and resolution, that the Regulator has determined that unless a write down or conversion is conducted, the Authorised Person will no longer be viable.
(c) Any compensation paid to the instrument holders as a result of a write down shall be paid immediately and in the form of ordinary shares of the Authorised Person, or the holding company of the Authorised Person if approved by the Regulator.
(d) The Authorised Person shall maintain at all times all prior authorisation necessary to issue immediately the relevant number of ordinary shares should the trigger event occur and the AT1 Capital instruments be converted into ordinary shares.
(e) Where an Authorised Person intends to include the AT1 Capital instruments issued by a Subsidiary in a non-ADGM jurisdiction in the consolidated AT1 Capital, the Authorised Person may do so, to the extent permitted under these Rules, if the provisions governing the instrument specify a trigger event equivalent to the trigger specified in paragraph (b) above, or where the trigger event relates to the supervisor of the Subsidiary deciding to make a public sector injection of capital or equivalent support, without which the Authorised Person would no longer be viable. The Regulator will only activate such triggers in respect of such Subsidiary, after consultation with the supervisor of the Subsidiary, where:
(i) if applicable, the Subsidiary is non-viable as determined by the supervisor of the Subsidiary in accordance with applicable laws of that jurisdiction on insolvency, resolution or recovery of financial institutions; and
(ii) the Authorised Person is, or would be, non-viable, as determined by the Regulator, as a result of providing, or committing to provide, a capital injection or similar support to the Subsidiary.
(f) For the purposes of paragraph (e) above, any ordinary shares paid as compensation to the holders of the capital instrument shall be ordinary shares of either the Subsidiary or of the Authorised Person.
(5) The following must apply where, in the case of an AT1 Capital instrument, the conditions laid down in this Rule cease to be met:
(a) that instrument must cease to qualify as an AT1 Capital instrument; and
(b) the part of the Share premium accounts that relates to that instrument must cease to qualify as an AT1 Capital element.