| (11) | Conditions for issue of instruments or shares of which the proceeds rank as common equity tier 1 capital and/or additional tier 1 capital |
| (a) | The proceeds of any share that as a minimum meets or complies with all the conditions specified below, may rank as common equity tier 1 capital: |
[Regulation 38(11)(a) substituted by regulation 7(a) of Notice No. R. 261 dated 27 March 2015]
[Regulation 38(11)(a)(i) substituted by regulation 7(b) of Notice No. R. 261 dated 27 March 2015]
| (A) | shall be issued directly by the relevant bank or controlling company and paid in full by the relevant investor, and the bank or controlling company shall not directly or indirectly fund the purchase of the share; |
[Item (A) of regulation 38(11)(a)(i) substituted by regulation 7(c) of Notice No. R. 261 dated 27 March 2015]
| (B) | shall entitle the holder to a claim on the residual assets of the relevant bank or controlling company that is proportionate to the holder's share of issued capital, after all senior claims have been repaid in liquidation, that is, the holder of the share shall have an unlimited and variable claim, not a fixed or capped claim; |
| (C) | shall be issued only with the approval of the relevant owners of the issuing bank or controlling company, either given directly by the owners or the Board of Directors or other person(s) duly authorized thereto; |
| (D) | shall be clearly and separately disclosed in the balance sheet of the relevant bank or controlling company. |
| (ii) | Unless specifically otherwise provided in these Regulations, the principal amount shall be perpetual and never repaid or repayable outside of liquidation. |
[Regulation 38(11)(a)(ii) substituted by regulation 22(ll) of Notice No. 297, GG 40002, dated 20 May 2016]
| (iii) | Neither the bank nor the statutory or contractual terms of the share shall create an expectation at issuance that the share may be bought back, repurchased or cancelled. |
[Regulation 38(11)(a)(iii) substituted by regulation 22(mm) of Notice No. R. 297, GG 40002, dated 20 May 2016]
| (iv) | Any distribution in respect of the share shall be paid out of distributable reserves, such as retained earnings, provided that the level of distribution shall not be tied or linked to the amount paid at issuance and shall not be subject to a contractual cap except to the extent that a bank or controlling company may be unable to pay distributions that exceed the level of distributable items. |
[Regulation 38(11(a)(iv) substituted by regulation 7(e) of Notice No. R. 261 dated 27 March 2015]
| (v) | Distribution in respect of the share shall not be obligatory, that is, non-payment of a distribution shall not constitute an event of default. |
[Regulation 38(11)(a)(v) substituted by regulation 22(nn) of Notice No. R. 297, GG 40002, dated 20 May 2016]
| (vi) | Any distribution in respect of the share shall be paid only after all legal and contractual obligations have been met and all relevant payments on more senior capital instruments have been made, that is, there shall be no preferential distribution, including in respect of other instruments or elements that may be classified as the highest quality issued capital. |
[Regulation (13)(a)(vi) substituted by regulation 7(g) of Notice No. R. 261 dated 27 March 2015]
| (A) | shall be recognised and disclosed as equity capital and not as a liability when determining the relevant bank or controlling company's balance sheet solvency or insolvency; |
| (B) | shall be classified as equity in terms of the relevant Financial Reporting Standards issued from time to time; |
| (C) | shall be neither secured nor covered by any guarantee of the issuer or related or associated entity or subject to any other arrangement that legally or economically enhances the seniority of the claim; |
| (b) | Subject to the provisions of paragraphs (c) and (d) below, the relevant proceeds of any instrument or share that as a minimum meets or complies with all the conditions specified below may rank as additional tier 1 capital: |
| (i) | The terms and conditions of the instrument shall contain a provision that requires such instrument, at the option of the Registrar, to either be written off or converted into the most subordinated form of equity upon the occurrence of the trigger event specified in writing by the Registrar, unless duly enforceable legislation is in place— |
| (A) | that requires the instrument to be written off upon the occurrence of the aforesaid event; or |
| (B) | that otherwise requires the instrument to fully absorb loss before tax payers or ordinary depositors are exposed to loss, |
and the bank or controlling company complies with such further requirements as may be directed by the Registrar in writing.
Provided that—
| (i) | any compensation paid to the instrument holders as a result of the aforesaid write-off shall be paid immediately and in the form of the most subordinated form of equity of the relevant bank or its controlling company, and the bank or controlling company, as the case may be, shall at all times maintain all prior authorisation necessary to immediately issue the relevant number of shares specified in the instrument's terms and conditions should the trigger event occur; |
| (ii) | the issuance of any new shares as a result of the trigger event shall occur prior to any public sector injection of capital so that the capital provided by the public sector shall not be diluted; |
| (iii) | as a minimum, the aforesaid trigger event shall be the earlier of— |
| (aa) | a decision that a write-off, without which the bank or controlling company would become non-viable, is necessary, as determined by the Registrar; or |
| (bb) | the decision to make a public sector injection of capital, or equivalent support, without which the bank or controlling company would have become non-viable, as determined by the Registrar. |
| (ii) | The bank or controlling company, as the case may be, shall obtain the prior written approval of the Registrar before the instrument or share is issued; |
| (iii) | The key features of the relevant instruments or shares shall be duly disclosed in the annual financial statements and other relevant disclosures to the general public; |
| (iv) | The instrument or share— |
| (A) | shall be issued by the relevant bank or controlling company and shall be paid in full by the relevant investor; |
| (B) | shall be neither secured nor covered by a guarantee of the issuer or any related entity, or another arrangement that legally or economically enhances the seniority of the claim; |
| (C) | shall be perpetual, that is, the instrument or share shall have no maturity date, and there shall be no provision for step-up or other incentive to redeem the instrument or share; |
| (D) | may be callable at the sole initiative of the issuer only after a minimum period of five years, provided that— |
| (i) | the relevant bank or controlling company, as the case may be, shall obtain the prior written approval of the Registrar before exercising the said call; |
| (ii) | neither the bank nor the controlling company shall create any expectation that such call will be exercised; |
| (iii) | the bank or controlling company shall not exercise the call unless the bank or controlling company— |
| (aa) | concurrently replaces the called instrument with capital of similar or better quality and the replacement of capital is done at conditions that are sustainable for the income capacity of that bank or controlling company; or |
| (bb) | demonstrates to the satisfaction of the Registrar that its capital position shall be well above the relevant specified minimum capital requirements after the call option is exercised; |
| (E) | shall not be held or acquired by the bank or any person related to or associated with the bank over which the bank exercises or may exercise control or significant influence; |
[Regulation 38(11)(b)(iv)(E) substituted by regulation 22(oo) of Notice No. 297, GG 40002, dated 20 May 2016]
| (F) | shall not be funded directly or indirectly by the relevant bank or controlling company; |
| (G) | shall not contain any feature that may hinder any potential future recapitalisation, such as, for example, a provision that requires the issuer to compensate investors if a new instrument is issued at a lower price during a specified time frame; |
| (H) | shall under no circumstances contribute to liabilities exceeding assets if such a balance sheet test, for example, forms part of any insolvency law or insolvency proceedings, provided that any instrument classified as a liability or equity in terms of a Financial Reporting Standard shall have principal loss absorption through either— |
| (i) | conversion to common or ordinary shares at an objective pre-specified trigger point; or |
| (ii) | a write-down mechanism that allocates losses to the instrument at a pre-specified trigger point, which write-down mechanism, as a minimum— |
| (aa) | shall reduce the claim of the instrument in liquidation; |
| (bb) | shall reduce the amount re-paid when a relevant related call is exercised; and |
| (cc) | shall partially or fully reduce any relevant coupon or dividend payments on the instrument. |
[Regulation 38(11)(b)(iv)(H) substituted by regulation 22(pp) of Notice No. 297, GG 40002, dated 20 May 2016]
| (v) | The relevant bank or controlling company shall obtain the prior written approval of the Registrar before any repayment of principal is considered by way of, for example, repurchase or redemption, provided that the bank or controlling company shall not assume or create market expectation that the Registrar will grant approval. |
| (vi) | The relevant bank or controlling company shall at all times have full discretion regarding any relevant distribution or payment of dividend, provided that— |
| (A) | a cancellation of a discretionary payment shall not constitute an event of default; |
| (B) | the relevant bank or controlling company shall have full access to cancelled payments to meet any relevant obligation as it falls due; |
| (C) | any cancellation of a distribution or payment of dividend shall not impose any restriction on the bank or controlling company, except in relation to a distribution to holders of more deeply subordinated shares or instruments; |
| (D) | any dividend or coupon payment shall be paid out of distributable reserves, such as retained earnings; |
| (E) | the relevant underlying instrument shall not have any credit sensitive dividend feature, that is, a dividend or coupon that is periodically reset based in whole or in part on the bank or controlling company's credit standing or rating; |
| (vii) | When the instrument or share is issued by a special purpose vehicle or institution, instead of by an operating entity, that is, an entity established to conduct business with clients with the intention of earning a profit in its own right, or the relevant controlling company in the consolidated group, the proceeds shall be immediately available without limitation to an operating entity or the controlling company in a form that meets or exceeds all the relevant criteria for inclusion in additional tier 1 capital specified above. |
| (c) | Without derogating from the provisions of subregulation (9) above relating to the phasing-out of specified hybrid-debt instruments qualifying as tier 1 capital, when an instrument or a share— |
| (i) | was issued prior to 12 September 2010 and that instrument or share does not comply with the relevant criteria and conditions specified in paragraphs (b)(ii) to (b)(vii) above, which criteria and conditions shall for purposes of these Regulations be referred to as the entry criteria and conditions, the proceeds obtained through the issue of that instrument or share shall be phased out from 1 January 2013 in accordance with the relevant requirements specified in paragraph (d) below; |
| (ii) | was issued on or after 12 September 2010 but before 1 January 2013, and that instrument or share does not comply with the relevant criteria and conditions specified in paragraph (b)(i) above, but the instrument or share meets or complies with all the relevant entry criteria and conditions specified in paragraphs (b)(ii) to (b)(vii), the proceeds obtained through the issue of that instrument or share shall be phased out from 1 January 2013 n accordance with the relevant requirements specified in paragraph (d) below; |
| (iii) | is issued on or after 1 January 2013, that instrument or share shall comply with all the relevant conditions specified in paragraph (b) above in order for the proceeds obtained through the issue of that instrument or share to qualify as additional tier 1 capital; |
| (d) | Based on the relevant requirements specified in paragraph (c) above, a bank or controlling company— |
| (i) | shall on 1 January 2013 determine the base amount in respect of all relevant instruments that do not meet or comply with the relevant specified criteria or requirements in paragraph (b), the proceeds of which shall be phased out in accordance with the relevant requirements specified in subparagraph (ii) below; |
| (ii) | shall manage its business in such a manner that during the periods specified in table 3 below, the relevant aggregate amount of the said instruments included in the bank or controlling company's relevant amount of qualifying additional tier 1 capital shall not exceed the percentage of the base amount specified in table 3 below: |
Table 3
Specified period
|
Specified percentage of the relevant base amount
|
1 January 2013 to 31 December 2013
|
90
|
1 January 2014 to 31 December 2014
|
80
|
1 January 2015 to 31 December 2015
|
70
|
1 January 2016 to 31 December 2016
|
60
|
1 January 2017 to 31 December 2017
|
50
|
1 January 2018 to 31 December 2018
|
40
|
1 January 2019 to 31 December 2019
|
30
|
1 January 2020 to 31 December 2020
|
20
|
1 January 2021 to 31 December 2021
|
10
|
Provided that from 1 January 2022 only instruments that fully comply with all the criteria and requirements specified in paragraph (b) shall be included in the bank or controlling company's relevant amount of qualifying additional tier 1 capital.
[Regulation 38(13) renumbered as regulation 38(11) by regulation 22(kk)(i) of Notice No. 297, GG 40002, dated 20 May 2016]
