In question 2013_31 the EBA clarified that non-step-up legacy Tier 1 instruments could be eligible, for the amounts exceeding the grandfathering limits, as fully eligible Tier 2 instruments with no time limit and independently of the frequency of calls, if conditions set in Article 63 are met. Article 63 (j) states that such Tier 2 instruments may be called where conditions in article 77 are met. Could the EBA confirm that article 77 would apply to such legacy non step Tier 1 bonds potentially fully eligible as Tier 2 and would effectively impose a constraint on the bank, so that the bank does not need to have a contractual call provision in the non-step-up legacy Tier 1 bond that states that the call can only be exercised with the approval of the regulatory authority to get this bond approved as Tier 2 ?
Most legacy Tier 1 bonds do not mention explicitely that the call can only be exercised with regulatory approval and it is important to know if this will have an impact on the potential treatment as Tier 2 bonds.
Any call options, redemptions or repurchase transactions related to Tier 2 instruments must meet the requirements of Article 63(i), (j) and (k) of Regulation (EU) No. 575/2013 (CRR). For Tier 2 instruments, Article 63(j), in conjunction with Article 77 of the CRR, stipulates that the institution must not effect the call, redemption, repayment or repurchase prior to the date of an instrument's contractual maturity without the prior permission of the competent authority. Such instruments should therefore contain an explicit reference to these regulatory conditions in their terms.
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.