Circular C232 (“the Circular”) dated 01.08.17 regarding the Capital instruments that can be qualified as Common Equity Tier 1

MNK Risk Consulting > News > Regulatory Developments > Circular C232 (“the Circular”) dated 01.08.17 regarding the Capital instruments that can be qualified as Common Equity Tier 1

Through the Circular, CySEC provides the Cypriot Investment Firms (“CIFs”) with clarifications regarding the capital instruments that can be qualified as Common Equity Tier I (“CET 1”). Particularly:

  1. According to Article 28(1)(b) of Regulation (EU) No. 575/2013 on prudential requirements for credit institutions and investment firms (“the CRR”), capital instruments shall qualify as CET 1 instruments only if the instruments are paid-up and their purchase is not funded directly or indirectly by the institution.
  2. Question ID 2013_8 of the Single Rulebook Q&A published by the European Banking Authority (“EBA”) repeats the provisions of Article 28(1)(b) of the CRR and in addition, it clarifies that this condition is to ensure that the institution has genuinely received new funds at issuance.
  3. In case where an increase of share capital is paid through contribution in kind (i.e. by pledging other assets as contribution instead of going via the route of “paying-up” with cash), these assets cannot be qualified as CET 1 instruments as they do not seem to meet the requirements of Article 28(1)(b) of CRR.

CySEC’s expects that: CIFs shall comply with the above-mentioned provisions on an ongoing basis, and during the preparation of their Capital Adequacy and Large Exposures Forms.

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