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Application provision

1.1 This Part, save for Chapter 4, applies to Article 109 undertakings and references to a firm in Chapters 2-3 should, as appropriate, be read to include all Article 109 undertakings.

Combined buffer

4.1

29/12/2020

A firm does not meet the combined buffer if the common equity tier 1 capital  maintained by the firm which is not used to meet the capital requirements under paragraphs (a), (b) and (c) of Article 92(1) of the CRR does not meet the combined buffer.

Additional Notes


[Note: Art 128 (part) and and Art 141a of the CRD]

4.2

31/12/2020

The changes to this rule are effective from 23:00 on 31/12/2020.

[Deleted.]

4.3

31/12/2020

The changes to this rule are effective from 23:00 on 31/12/2020.

  1. (1) A firm that does not meet the combined buffer must:
    1. (a) calculate the MDA in accordance with (4); and
    2. (b) report the MDA to the PRA in writing no later than 5 working days after the firm identified that it did not meet the combined buffer.
  2. (2) A firm that does not meet the combined buffer must not undertake any of the following actions before it has calculated the MDA:
    1. (a) make a distribution in connection with common equity tier 1 capital;
    2. (b) create an obligation to pay variable remuneration or discretionary pension benefits or pay variable remuneration or discretionary pension benefits if the obligation to pay was created at a time when the firm did not meet the combined buffer; and
    3. (c) make payments on additional tier 1 instruments.
  3. (3) If a firm does not meet the combined buffer, it must not distribute more than the MDA calculated in accordance with (4) through any action referred to in points (a) to (c) of (2).
  4. (4) A firm must calculate the MDA by multiplying the sum calculated in accordance with (5) by the factor determined in accordance with (6). The MDA shall be reduced by any amount resulting from any of the actions referred to in point (a), (b) or (c) of (2).
  5. (5) The sum to be multiplied in accordance with (4) shall be the sum of the profits earned in each of the past four calendar quarters less, in each case:
    1. (a) any distributions of profits or payments resulting from the actions referred to in points (a), (b) or (c) of (2), or
    2. (b) amounts which would be payable by tax if the undistributed profits of the past four calendar quarters were to be retained.
  6. (6) The factor referred to in (4) shall be determined as follows:
    1. (a) if the common equity tier 1 capital maintained by the firm which is not used to meet any of the capital requirements under paragraphs (a), (b) or (c) of Article 92(1) of the CRR, expressed as a percentage of the firm’s total risk exposure amount, is within the first (that is, the lowest) quartile of the combined buffer, the factor shall be 0;
    2. (b) if the common equity tier 1 capital maintained by the firm which is not used to meet any of the capital requirements under paragraphs (a), (b) or (c) of Article 92(1) of the CRR, expressed as a percentage of the firm’s total risk exposure amount, is within the second quartile of the combined buffer, the factor shall be 0.2;
    3. (c) if the common equity tier 1 capital maintained by the firm which is not used to meet any of the capital requirements under paragraphs (a), (b) or (c) of Article 92(1) of the CRR, expressed as a percentage of the firm’s total risk exposure amount is within the third quartile of the combined buffer, the factor shall be 0.4; and
    4. (d) if the common equity tier 1 capital maintained by the firm which is not used to meet any of the capital requirements under paragraphs (a), (b) or (c) of Article 92(1) of the CRR, expressed as a percentage of the firm’s total risk exposure amount, is within the fourth (that is, the highest) quartile of the combined buffer, the factor shall be 0.6.
  7. (7) A firm must calculate the lower and upper bounds of each quartile of the combined buffer as follows:
    1. Lower bound of quartile

    2.             Combined buffer
      =     –––––––––––––– x (Qn - 1)
                         4
    1. Upper bound of quartile

    2.             Combined buffer
      =     –––––––––––––– x Qn
                         4
    1. "Qn" indicates the ordinal number of the quartile concerned.
  8. (8) The restrictions imposed by this rule only apply to payments that result in a reduction of common equity tier 1 capital or in a reduction of profits, and where a suspension of payment or failure to pay does not constitute an event of default or a condition for the commencement of proceedings for an order for the appointment of a liquidator or administrator of the firm.
  9. (9) If a firm does not meet the combined buffer and intends to distribute any of its distributable profits or undertake an action referred to in points (a), (b) and (c) of (2) it must give the PRA notice of its intention at least one month before the intended date of distribution or action unless there are exceptional circumstances which make it impracticable to give such a period of notice in which event the firm must give as much notice as is practicable in those circumstances. When giving notice a firm must provide the following information:
    1. (a) the amount of own funds maintained by the firm, subdivided as follows:
      1. (i) common equity tier 1 capital;
      2. (ii) additional tier 1 capital; and
      3. (iii) tier 2 capital.
    2. (b) the amount of its interim and year-end profits;
    3. (c) the MDA calculated in accordance with (4);
    4. (d) the amount of distributable profits it intends to allocate between the following:
      1. (i) dividend payments;
      2. (ii) share buybacks;
      3. (iii) payments on additional tier 1 instruments; and
      4. (iv) the payment of variable remuneration or discretionary pension benefits, whether by creation of a new obligation to pay, or payment pursuant to an obligation to pay created at a time when the firm did not meet its combined buffer.
  10. (10) A firm must maintain arrangements to ensure that the amount of distributable profits and the MDA are calculated accurately and must be able to demonstrate that accuracy to the PRA on request.

Additional Notes


[Note: Art 141(2) to 141(10) of the CRD]

Capital conservation plan

4.4

01/05/2014

When a firm does not meet the combined buffer, it must prepare a capital conservation plan and submit it to the PRA no later than 5 working days after the firm identified that it did not meet the combined buffer.

Additional Notes


[Note: Art 142(1) of the CRD]

4.5

01/05/2014

The capital conservation plan must include the following:

  1. (1) the MDA;
  2. (2) estimates of income and expenditure and a forecast balance sheet;
  3. (3) measures to increase the capital ratios of the firm; and
  4. (4) a plan and timeframe for the increase of own funds with the objective of meeting the combined buffer.

Additional Notes


[Note: Art 142(2) of the CRD]