Where an institution applies for a prior permission for repurchase of several Additional Tier 1 or Tier 2 capital instruments
for market making purposes according to Article 29 (3) of Regulation (EU) 241/to 2014, may the predetermined amount of the permission be set for several instruments or must a predetermined amount be set for each instrument?
When applying for permission for repurchase of several Additional Tier 1 or Tier 2 capital instruments for market making purposes, the reading of Article 29 (3) (b) of Regulation (EU) 241/2014 could suggest that permissions must be given for a predetermined amount for each instrument. Specifically, this would mean the limits set out in Article 29(3)(b)(1) and (2) is evaluated for each instrument, and the predetermined amount of the application up to 10% of the issuance, not exceeding 3% of the total outstanding AT1 or T2 instruments, is to be deducted from own funds. Alternatively, the permission may apply the limits of Article 29(3)(b) of Regulation (EU) 241/2014 to several instruments. This means that permission to repurchase several AT1 or T2 instruments may be granted for up to 3% of total amount of outstanding AT1 or T2 instruments while maintaining that no more than 10% of the amount of each individual issuance is repurchased at any time. The permissible predetermined amount can be used to repurchase across all instruments of the relevant capital tier and is not specified for each individual instrument and the deduction is to be taken for the total permissible amount. This allows for flexible market making across issuances and time in several instruments. This is shown in the following example. Example: An institution has four AT1 capital instruments with an amount of 100 of each issuance, and total amount of outstanding AT1 instruments of 400. Under the proposed answer the institution can apply for a permission to repurchase a predetermined amount of 12 or a lower amount (up to 3 % of the total of 400), and can freely distribute the permissible amount for repurchase among the AT1 instruments, while maintaining that the repurchased amount of each individual instrument is capped at 10 (10% of the amount of 100). The predetermined amount of the permission (12 or lower) is to be deducted from AT1, at the moment the permission is granted.
Disclaimer: This Q&A was submitted prior to the amendments introduced with Regulation (EU) 2019/876 (CRR 2) and the enter into force of its relevant delegated act. Therefore, the legal references made by the submitter are not reflected in the revised answer.
It is possible to obtain one permission to repurchase several Additional Tier 1 or Tier 2 instruments for a predetermined amount. In accordance with the second subparagraph of Article 78(1) of the CRR that predetermined amount
shall not exceed 10% of the relevant issue and shall not exceed 3% of limit in Article 29 (3) (b) (2), applied to the total amount of outstanding Additional Tier 1 or Tier 2 instruments, as applicable and any action in accordance with Article 77 (1) (c) CRR shall not lead to reduction of more than 10% of the relevant issuance in accordance with the prior permission, while maintaining that the 10% limit in Article 29 (3) (b) (1) applies to each individual instrument. The predetermined amount is to be fully deducted from the moment the authorisation is granted pursuant to Article 28(3 2) of Delegated Regulation (EU) No 241/2014 (and Q&A 1352.
For the sake of completeness, the above answer applies in an identical manner to actions referred to in Article 77 (2) CRR in the context of eligible liabilities in accordance with Article 32b(3) of Delegated Regulation (EU) No 241/2014, as well, within the 10% limit stipulated in Article 32b(5) of Delegated Regulation (EU) No 241/2014, unless the institution is subject to the simplified requirements set out in Article 32h of that Regulation.
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.
Update 14.02.2023: the Q&A has been reviewed and the changes are highlighted in mock track changes.
Update 09.06.2023: the Q&A has been reviewed in the light of the changes introduced by Commission Delegated Regulation (EU) No 2023/827 laying down regulatory technical standards amending Delegated Regulation (EU) No 241/2014. As a result, only the disclaimer that was introduced on 14.02.2023 in the “EBA answer" section has been deleted.