Prudential Regulation Authority Rulebook

5.1

This Chapter does not apply in respect of the following:

1. (1) any item which a firm intends to include within its basic own funds that is not covered by the lists of own funds items set out in the Solvency II Regulations, but which may be included in its basic own funds only if the firm has received the PRA’s approval; and
2. (2) any item which a firm intends to include within its ancillary own funds.

5.2

1. (1) Subject to 5.5, a firm must notify the PRA in writing of its intention to issue an item which it intends to include within its basic own funds at least one month before the intended date of issue, unless there are exceptional circumstances which make it impracticable to give such a period of notice. In such circumstances, the firm must give the PRA as much notice as is practicable in those circumstances and explain to the PRA why the circumstances are considered exceptional.
2. (2) When giving notice, a firm must:
1. (a) provide details of the amount of basic own funds the firm is seeking to raise through the intended issue and whether the item is intended to be issued to external investors or within its group;
2. (b) identify the classification of basic own funds the item is intended to fall within;
3. (c) provide a copy of the draft terms and conditions;
4. (d) provide a draft of a properly reasoned independent legal opinion from an appropriately qualified individual confirming that the item complies with the rules applicable to items of basic own funds included in the classification of the item identified in (b);
5. (e) for any item referred to in Article 82(3) of the delegated act, provide a draft of a properly reasoned independent accounting opinion from an appropriately qualified individual as to the item’s treatment in the firm’s financial statements;
6. (f) include confirmation from the governing body of the firm that the item complies with the rules applicable to items of basic own funds included in the classification of the item identified in (b); and
7. (g) state whether the item is encumbered or whether there are any connected transactions in respect of the item and, if so, provide details.

5.3

If after an initial notification under 5.2, but prior to an item’s issuance, a firm proposes to change the information previously submitted, it must provide a further written notification of that change without delay.

5.4

If a firm proposes to establish or amend a debt securities programme for the issue of an item for inclusion within its basic own funds, it must:

1. (1) notify the PRA of the establishment of the programme or of the proposed amendment to the programme; and
2. (2) provide the information required by 5.2(2)

at least one month before any proposed drawdown. The PRA must be notified of any changes in accordance with 5.3.

5.5

5.2 does not apply to:

1. (1) ordinary shares which:
1. (a) meet the classification criteria for ordinary share capital in Tier 1 own funds; and
2. (b) are the same as ordinary shares previously issued by the firm;
2. (2) debt instruments issued from a debt securities programme, provided that:
3. 1. (a) the establishment of (and any subsequent amendment to) the programme was notified to the PRA in accordance with 5.4 and the last such notification was given to the PRA no more than twelve months prior to the date of the proposed drawdown;
   2. (b) the programme complies with, and the information previously notified to the PRA in accordance with 5.4 in relation to the programme is unaffected by, any changes in law or regulation, or the interpretation or application of either, coming into effect since the last notification in accordance with 5.4; and
   3. (c) any instrument issued pursuant to the programme must, under the terms of the programme, constitute basic own funds; and
4. (3) any item which is to be issued on identical terms to one or more items included in basic own funds issued by the firm within the previous twelve months and notified to the PRA in accordance with 5.2, excluding (1) the issue date, (2) the maturity date, (3) the amount of the issuance, (4) the currency of the issuance, and (5) the rate of interest payable by the issuer.

5.6

A firm must notify the PRA in writing, no later than the date of issue, of its intention to issue an item listed in 5.5 which it intends to include within its basic own funds. When giving notice, a firm must:

1. (1) provide the information set out in 5.2 other than 5.2(2)(c) (draft terms and conditions), 5.2(2)(d) (draft legal opinion) and 5.2(2)(e) (draft accounting opinion); and
2. (2) for issuance of an item pursuant to 5.5(1) or 5.5(3), confirm that the terms of the item have not changed since the previous issue by the firm of that type of item of basic own funds.

5.7

A firm must notify the PRA in writing of its intention to amend or otherwise vary the terms of any item included within its basic own funds at least one month before the intended date of such amendment or other variation.

5.8

A firm must provide to the PRA as soon as practicable after the issuance of an item of basic own funds to which 5.2, 5.4, 5.5(2) or 5.5(3) applies:

1. (1) a finalised copy of the draft legal opinion referred to in 5.2(2)(d);
2. (2) a finalised copy of the draft accounting opinion referred to in 5.2(2)(e) if applicable;
3. (3) a copy of the instrument’s final terms and conditions; and
4. (4) a reasoned basis for the choice of coupon structure and any other provision that might suggest an incentive to redeem.