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EBA Updates List of CET 1 Instruments

EBA’s Updated List of CET1 Instruments

29th July 2019

Since initially publishing the first list in May 2014, the European Banking Authority (EBA) has now published their eighth update to the list of CET1 items. This means that since the initial list in 2014, there have now been 16 new forms of CET1 instruments included.

The list, published last week on 22nd July 2019, details the types of capital instruments in each Member State that qualify as Common Equity Tier 1 (CET1) instruments. (These are as referred to in the first subparagraph of Article 26(3) of the Regulation (EU) No 575/2013) and does not include any other CET1 items).

Alongside the updated list of CET1 Instruments the EBA have published an updated CET1 Report.

What has changed on the CET1 List?

The updated list highlights new instruments that now qualify as CET1 instruments in certain Member States along with previous instruments that no longer qualify as CET1 instruments, and those where there has been a modification to an existing CET1 instrument for a Member State.

22 July 2019: CET1 Update (EBA’s 8th Version)

So, which Member States have been affected by the latest CET1 List? Well, those countries affected include:

 UNITED KINGDOM: One additional CET1 instrument now included

 LITHUANIA: Two additional CET1 Instruments now included

 AUSTRIA: One deletion of a previous qualifying CET 1 instrument

 CYPRUS: One deletion of a previous qualifying CET 1 instrument

 GREECE: One modification of an existing CET1 instrument

About the CET1 Report:

The Report accompanying the latest CET1 List includes information on the underlying objectives of the EBA’s monitoring work, as well as on the consequences of including or excluding instruments in or from the CET1 List.

The EBA undertakes assessments of different forms of CET1 instruments, either pre-CRR or new instruments, and their findings are detailed within the Report, which they look to update on a regular basis.

In a number of cases where the EBA has conducted a review of pre-CRR CET1 instruments, the EBA has requested terms and conditions of instruments to be amended, mainly in relation to the eligibility criteria flexibility of payments and permanence.

The main findings from the EBA’s monitoring and assessment of CET1 instruments are summarised within the ‘Lessons Learnt’ section of the report, where details of any necessary amendments to instrument terms and conditions, national laws of a jurisdiction or the institutions’ by-laws are provided.

Capital Adequacy & COREP Reporting

The EU capital adequacy rules recognise two layers of capital, referred to as Tier 1 Capital and Tier 2 Capital. Common Equity Tier 1 (CET 1) is a sub-division of capital instruments that comes under Tier 1 Capital.

Common Reporting or COREP covers the capital requirements and own funds reporting based on Directives 2006/48/EC and 2006/49/EC.

COREP applies to investment firms and covers a variety of a firm’s operations all of which need to be reported to the UK Regulator - the Financial Conduct Authority (FCA). These items include own funds resources and requirements, large exposures and leverage.

If you would like any assistance in clarifying what you should be reporting within Tier 1 when making your COREP Returns, or with any of your firm’s requriements under CRD IV we’d be happy to discuss how we can support you. Simply drop us an mail to corep@compoundgrowth.co.uk

In addition, we offer a dedicated COREP Support website that provides a knowledge base for COREP Reporting as well as COREP support, COREP FAQs and a glossary of information for those firms that wish to find out more about Common Reporting Requirements.

Read our latest articles, news and views affecting compliance and regulation in the UK Financial Services Industry.