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Application provision

1.1 Unless otherwise stated, this Part applies to a non-directive insurer other than a non-directive friendly society.

10.1

01/01/2016

A firm must not include a capital instrument in its upper tier two capital resources unless it meets the following conditions:

  1. (1) it must have no fixed maturity date;
  2. (2) the terms of the instrument must provide for the firm to have the option to defer any coupon, except that the firm need not have that right in the case of a coupon payable in the form of an item of capital that is included in the same stage of capital or a higher stage of capital as that first item of capital;
  3. (3) the terms of the instrument must provide for the loss-absorption capacity of the capital instrument and unpaid coupons, whilst enabling the firm to continue its business;
  4. (4) it meets the conditions in 10.2; and
  5. (5) the terms of the instrument are such that either the instrument is not redeemable or repayable or it is repayable or redeemable only at the option of the firm.

 

10.2

01/01/2016

A firm must not include a capital instrument in its upper tier two capital resources unless (in addition to satisfying all the other requirements in relation to tier two capital) the firm's obligations under the instrument either:

  1. (1) do not constitute a liability (actual, contingent or prospective) under section 123(2) of the Insolvency Act 1986; or
  2. (2) do constitute such a liability but the terms of the instrument are such that:
    1. (a) any such liability is not relevant for the purposes of deciding whether:
      1. (i) the firm is, or is likely to become, unable to pay its debts; or
      2. (ii) its liabilities exceed its assets;
    2. (b) a person (including but not limited to a holder of the instrument) is not able to petition for the winding up or administration of the firm or for any similar procedure in relation to the firm on the grounds that the firm is or may become unable to pay any such liability; and
    3. (c) the firm is not obliged to take into account such a liability for the purposes of deciding whether or not the firm is, or may become, insolvent for the purposes of section 214 of the Insolvency Act 1986 (wrongful trading).