Regulatory Alerts2024-10-24
D5/2024 Loss absorbency requirements for additional tier 1 and tier 2 capital instruments
The Prudential Authority of the Reserve Bank of South Africa mandates banks, controlling companies, and foreign branches to comply with updated loss absorbency requirements for additional tier 1 and tier 2 capital instruments, effectively replacing Guidance Note 6 of 2017. The directive specifies that these instruments must contain clear contractual terms for conversion to equity or permanent write-off triggered by the CEO's discretion or a CET1 ratio threshold of 5.875 percent. Furthermore, it aligns statutory bail-in powers with contractual provisions to ensure losses are absorbed before taxpayers or depositors bear them, while clarifying the distinct treatment of resolution and non-viability points.
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