2013_44 Grandfathering, cascading and phasing out limits

Question ID:: 2013_44
Legal Act:: Regulation (EU) No 575/2013 (CRR)
Topic:: Own funds
Article:: 465
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations:: Not applicable
Article/Paragraph:: N/A
Disclose name of institution / entity:: No
Type of submitter:: Individual
Subject Matter:: Grandfathering, cascading and phasing out limits
Question:: In the case of an issuer whose outstanding Tier 2 instruments as at December 2012 are fully CRR compliant (ie bullet Tier 2 bonds), should Article 486(4) apply? To put it simply: can an issuer still have some disqualfied parts of Tier 1 instruments (for limit reasons) cascaded into Tier 2 even if the issuer has no phased out Tier 2 amount as at December 2012 (and hence no phased out limits for Tier 2) ?
Background on the question:: A lot of issuers have seen their bullet Tier 2 instruments being fully recognized under CRR (because there is no need to have a non viability language in the existing documentations). Are they still able to cascade the portion of disqualified Tier 1 instruments into the Tier 2 phasing out limits?
Date of submission:: 08/07/2013
Published as Final Q&A:: 29/11/2013
Final Answer:: Items referred to in Article 484(4) of Regulation (EU) No. 575/2013 (CRR) and exceeding the limits in Article 486(3) may only be treated as items referred to in Article 484(5) within the limits referred to in Article 486(4). If the amount referred to in Article 484(5) of the CRR is zero, it cannot be increased in the following years.
Status:: Final Q&A
Answer prepared by:: Answer prepared by the EBA.
Note to Q&A:: Update 26.03.2021: This Q&A has been reviewed in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR) and continues to be relevant.