Regulatory Alerts2021-03-12
D2/2021 Directive on Additional Tier 1 Capital Instruments with Contingent Must-Pay Clauses
The Prudential Authority of the South African Reserve Bank issued Directive D2/2021 to authorize banks and controlling companies to incorporate contingent must-pay clauses into additional tier 1 capital instruments. By mandating that coupon payments become compulsory upon full regulatory disqualification, the directive enables foreign currency denominated AT1 instruments to achieve liability classification and mitigate foreign exchange profit volatility. The PA requires prior written approval for all such issuances and caps the aggregate value of instruments with these clauses at twenty-five percent of qualifying tier 1 capital and reserve funds.
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