Instruction No. 11/2014

Official Journal No. 7 • 15-07-2014

Topics
Supervision • Prudential Standards

Form
99999911/T 01/14

Index
Text of the Instruction
Annex I
Annex II
Auxiliary Notes for Completion

Text of the Instruction

Subject: Inclusion of instruments in own funds

Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June on prudential requirements for credit institutions and investment firms (CRR) is generally applicable from 1 January 2014.

Considering that, among the requirements established in the CRR, those relating to own funds elements, namely the conditions that must be met for certain instruments to be considered eligible for own funds, are set out in Title I of Part II (Articles 25 to 80);

Considering the disclosure requirements for the main characteristics of own funds instruments, referred to in Article 3 of Commission Implementing Regulation (EU) No 1423/2013 of 20 December;

The Bank of Portugal, under the provisions of Article 120 of the General Regime of Credit Institutions and Financial Companies, approved by Decree-Law No. 298/92 of 31 December, and using the competence conferred upon it by Article 17 of its Organic Law, approved by Law No. 5/98 of 31 January, determines the following:

1. Credit institutions and investment firms (hereinafter referred to as institutions) that wish to include a specific instrument (on an individual and/or consolidated basis) in their Tier 1 Common Equity own funds, Additional Tier 1 own funds, or Tier 2 own funds, must submit a prior authorization request to the Bank of Portugal, which must be accompanied by:
   a) The table presented in Annex I to this Instruction, duly completed, depending on whether it is an instrument of Tier 1 Common Equity own funds, an instrument of Additional Tier 1 own funds, or an instrument of Tier 2 own funds; b) The table presented in Annex II to this Instruction, completed in accordance with the instructions contained in Annex III to Commission Implementing Regulation (EU) No 1423/2013 of 20 December; c) A declaration, signed by the person with the power to approve the issuance of the instrument in question, committing to comply at all times with the criteria set out in points (b), (c), (d), (l) and (m) of Article 28, points (b), (c), (e) and (f) of Article 52, points (a) to (c) of Article 53, and points (b), (c), (e) and (f) of Article 63 of the CRR, as applicable.

2. The inclusion in own funds of instruments subscribed by public authorities in the context of state aid is exempt from the obligation to submit the request referred to in paragraph 1, and is subject to authorization by the Bank of Portugal under the terms provided for in Article 31 of the CRR.

3. The inclusion in Tier 1 Common Equity own funds of ordinary shares, institutional capital of economic savings boxes, and ordinary share capital of agricultural savings boxes is exempt from the obligation to submit an authorization request.

4. The request referred to in paragraph 1 must be accompanied by copies of the contractual documents of the issuance, namely the prospectus, technical sheet, or other applicable documents (generally referred to as contractual terms).

5. Institutions must submit to the Bank of Portugal the authorization request referred to in paragraph 1, duly prepared, with a minimum advance notice of 45 days relative to the date scheduled for the inclusion of the instrument in own funds.

6. The inclusion in own funds of the instrument referred to in the request mentioned in paragraph 1 may only be carried out after express and formal authorization by the Bank of Portugal.

7. This Instruction enters into force on the day following its publication and applies to the inclusion in own funds of instruments issued after that date.

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Annex to Instruction No. 11/2014
Official Journal No. 7 • 15-07-2014

Topics
Supervision • Prudential Standards

Form
99999911/T 01/14

Annex I

Issuer:
Type of instrument:
Issuance (1):
Amount and currency of issuance:

TIER 1 COMMON EQUITY OWN FUNDS

ARTICLE 28.º CONTRACTUAL CLAUSES / OTHER REFERENCES (2)

1. a) The instruments are issued directly by the institution with the prior approval of the owners of the institution or, when authorized by applicable national law, by the institution's management body;
   b) The instruments are paid up and their acquisition is not financed, directly or indirectly, by the institution; c) The instruments cumulatively meet the following conditions regarding their classification:
   (i) are considered capital, within the meaning of Article 22 of Directive 86/635/EEC (i.e.: "This item includes all amounts that, whatever their denomination, in accordance with the legal form of the institution in question, must be considered as shares subscribed by the partners or other subscribers of the institution's equity, under national legislation"). (ii) are classified as equity, within the meaning of the applicable accounting framework; (iii) are classified as equity for the purposes of determining obvious insolvency in the balance sheet, if this is applicable under national insolvency legislation; d) The instruments are disclosed separately and clearly in the balance sheet that forms part of the institution's financial statements; e) The instruments are perpetual; f) The capital amount of the instruments cannot be reduced or repaid, except in one of the following cases:
   (i) liquidation of the institution;
   (ii) discretionary buybacks of the instruments or other forms of discretionary capital reduction, provided the institution has obtained prior authorization from the competent authority under Article 77; g) The provisions governing the instruments do not expressly or implicitly indicate that the capital amount of the instruments is or may be reduced or repaid in circumstances other than the liquidation of the institution, and the institution does not otherwise give any indication to that effect before or at the time of issuance of the instruments, except in the case of instruments referred to in Article 27, where the institution's refusal to repay such instruments is prohibited by applicable national law; h) The instruments meet the following conditions regarding distributions:
   (i) there is no preferential treatment regarding distributions in terms of the order in which payments are made, notably in relation to other Tier 1 Common Equity own funds instruments, and the terms governing the instruments do not provide for preferential rights regarding the payment of distributions; (ii) distributions to holders of the instruments may only come from distributable elements; (iii) the conditions governing the instruments do not include an upper limit or other restriction on the maximum level of distributions, except in the case of instruments referred to in Article 27; (iv) the level of distributions is not determined based on the amount by which the instruments were acquired at the time of issuance, except in the case of instruments referred to in Article 27; (v) the conditions governing the instruments do not include any obligation, on the part of the institution, to make distributions to their holders, and the institution is not otherwise subject to any such obligation; (vi) non-payment of distributions does not constitute a default by the institution; (vii) cancellation of distributions does not impose any restrictions on the institution; i) Compared to all other own funds instruments issued by the institution, the instruments absorb the first and proportionally largest share of losses as they occur, and each instrument absorbs losses to the same extent as all other Tier 1 Common Equity own funds instruments; j) The instruments have a subordination ranking below all other claims in the event of the institution's insolvency or liquidation; k) The instruments confer on their holders a claim on the residual assets of the institution, which, in the event of liquidation and after payment of all claims with a higher subordination ranking, is proportional to the amount of such instruments issued and is not fixed nor subject to an upper limit, except in the case of own funds instruments referred to in Article 27; l) The instruments are not secured nor subject to any guarantee that increases the seniority of the claim by any of the following entities:
   (i) the institution or its subsidiaries; (ii) the parent undertaking of the institution or its subsidiaries; (iii) the parent financial holding company or its subsidiaries; (iv) the parent mixed financial holding company or its subsidiaries; (v) the mixed financial holding company or its subsidiaries; (vi) any undertaking that has a close relationship with the entities referred to in sub-points (i) to (v); m) The instruments are not subject to any provision, contractual or otherwise, that increases the subordination ranking of the claims resulting from the instruments in the event of insolvency or liquidation;

Annex I
ELIGIBILITY CONDITIONS FOR ISSUANCES, UNDER REGULATION (EU) NO 575/2013 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL OF 26 JUNE

Bank of Portugal
EUROSYSTEM
Prudential Supervision Department

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Annex to Instruction No. 11/2014
Official Journal No. 7 • 15-07-2014

Topics
Supervision • Prudential Standards

Form
99999911/T 01/14

Bank of Portugal
EUROSYSTEM
Prudential Supervision Department

Issuer:
Type of instrument:
Issuance (1):
Amount and currency of issuance:

ADDITIONAL TIER 1 OWN FUNDS

ARTICLE 52.º CONTRACTUAL CLAUSES / OTHER REFERENCES (2)

1. a) The instruments are issued and paid up;
   b) The instruments are not acquired by any of the following entities:
   (i) the institution or its subsidiaries; (ii) an undertaking in which the institution holds a participation in the form of direct holding or through a control relationship of 20% or more of the voting rights or capital of that undertaking; c) The acquisition of the instruments is not financed directly or indirectly by the institution; d) The instruments have a subordination ranking below Tier 2 own funds instruments in the event of the institution's insolvency; e) The instruments are not secured nor subject to any guarantee that increases the seniority of the claims by any of the following entities:
   (i) the institution or its subsidiaries; (ii) the parent undertaking of the institution or its subsidiaries; (iii) the parent financial holding company or its subsidiaries; (iv) the parent mixed financial holding company or its subsidiaries; (v) the mixed financial holding company or its subsidiaries; (vi) any undertaking that has a close relationship with the entities referred to in sub-points (i) to (v); f) The instruments are not subject to any provision, contractual or otherwise, that increases the subordination ranking of the claims resulting from the instruments in the event of insolvency or liquidation; g) The instruments are perpetual and the provisions governing them do not include any incentive for their repayment by the institution; h) If the provisions governing the instruments include one or more redemption options, the exercise of the redemption option depends exclusively on the discretionary decision of the issuer; i) The instruments may only be repaid or bought back when the conditions established in Article 77 are met, and never before five years have elapsed from the date of issuance, except when the conditions established in Article 78(4) are met; j) The provisions governing the instruments do not expressly or implicitly indicate that the instruments are or may be repaid or bought back, and the institution does not otherwise give any indication to that effect, except in the following cases:
   (i) in the liquidation of the institution; (ii) discretionary buybacks of the instruments or other forms of discretionary reduction of the amount of Additional Tier 1 own funds, provided the institution has obtained prior authorization from the competent authority under Article 77; k) The institution does not expressly or implicitly indicate that the competent authority will consent to a request for repayment or buyback of the instruments; l) Distributions on the instruments satisfy the following conditions:
   (i) they come from distributable elements; (ii) the level of distributions made on the instruments will not be altered based on the credit quality of the institution or its parent undertaking; (iii) the provisions governing the instruments permanently confer on the institution full discretionary power to cancel distributions on the instruments for an unlimited period and on a non-cumulative basis, and the institution may use these cancelled payments without restriction to meet its obligations as they fall due; (iv) the cancellation of distributions does not constitute a default by the institution; (v) the cancellation of distributions does not impose any restrictions on the institution; m) The instruments do not contribute to determining that an institution's liabilities exceed its assets in situations where such determination constitutes an insolvency test under applicable national law; n) The provisions governing the instruments require that, upon the occurrence of a trigger event, the capital amount of the instruments be reduced, permanently or temporarily, or that the instruments be converted into Tier 1 Common Equity own funds instruments; o) The provisions governing the instruments do not include any feature likely to prevent the recapitalization of the institution; p) If the instruments are not issued directly by an institution, the following two conditions must be met:
   (i) the instruments are issued through an entity included in the scope of consolidation under Part I, Title II, Chapter 2; (ii) the proceeds of the issuance are immediately made available to that institution, without limitation, in a manner that satisfies the conditions set out in this paragraph.

Annex I
ELIGIBILITY CONDITIONS FOR ISSUANCES, UNDER REGULATION (EU) NO 575/2013 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL OF 26 JUNE

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Annex to Instruction No. 11/2014
Official Journal No. 7 • 15-07-2014

Topics
Supervision • Prudential Standards

Form
99999911/T 01/14

Bank of Portugal
EUROSYSTEM
Prudential Supervision Department

Issuer:
Type of instrument:
Issuance (1):
Amount and currency of issuance:

TIER 2 OWN FUNDS

ARTICLE 63.º CONTRACTUAL CLAUSES / OTHER REFERENCES (2)

a) The instruments are issued or the subordinated loans are contracted, as applicable, and fully paid up; b) The instruments are not acquired or the subordinated loans are not granted, as applicable, by any of the following entities:
(i) the institution or its subsidiaries;
(ii) an undertaking in which the institution holds a participation in the form of direct holding or through a control relationship of 20% or more of the voting rights or capital of that undertaking; c) The acquisition of the instruments or the granting of the subordinated loans, as applicable, is not financed directly or indirectly by the institution; d) The claim on the capital amount of the instruments under the provisions governing the instruments or the claim on the capital amount of the subordinated loans under the provisions governing the subordinated loans, as applicable, is fully subordinated to the claims of all non-subordinated creditors; e) The instruments or the subordinated loans, as applicable, are not secured nor subject to any guarantee that increases the subordination ranking of the claim by any of the following entities:
(i) the institution or its subsidiaries;
(ii) the parent undertaking of the institution or its subsidiaries; (iii) the parent financial holding company or its subsidiaries; (iv) the parent mixed financial holding company or its subsidiaries; (v) the mixed financial holding company or its subsidiaries; (vi) any undertaking that has a close relationship with the entities referred to in sub-points (i) to (v); f) The instruments or the subordinated loans, as applicable, are not subject to any provision that otherwise increases the subordination ranking of the claim resulting from the instruments or the subordinated loans, respectively; g) The instruments or the subordinated loans, as applicable, have an initial maturity of at least five years; h) The provisions governing the instruments or the subordinated loans, as applicable, do not include any incentive for their capital amount to be redeemed or repaid by the institution before their maturity; i) If the instruments or the subordinated loans, as applicable, include one or more redemption or early repayment options, as applicable, the exercise of these options depends exclusively on the discretionary decision of the issuer or the debtor, as applicable; j) The instruments or the subordinated loans, as applicable, may only be repaid, bought back, or early repaid when the conditions established in Article 77 are met, and never before five years have elapsed from the date of issuance or contracting, as applicable, except when the conditions established in Article 78(4) are met; k) The provisions governing the instruments or the subordinated loans, as applicable, do not expressly or implicitly indicate that the instruments or the subordinated loans, as applicable, are or may be repaid, bought back, or early repaid by the institution in any situation other than the insolvency or liquidation of the institution, and the institution does not otherwise give any indication to that effect; l) The provisions governing the instruments or the subordinated loans, as applicable, do not confer on their holder the right to accelerate the schedule of future interest or capital payments, except in the event of insolvency or liquidation of the institution; m) The level of interest or dividend payments, as applicable, due on the instruments or the subordinated loans, as applicable, will not be altered based on the credit quality of the institution or its parent undertaking; n) If the instruments are not issued directly by an institution, or if the subordinated loans are not contracted directly by an institution, as applicable, the following two conditions must be met:
(i) the instruments are issued or the subordinated loans are contracted, as applicable, through an entity included in the scope of consolidation under Part I, Title II, Chapter 2; (ii) the proceeds of the instrument or the subordinated loan are made available to the institution, without limitation, in a manner that satisfies the conditions set out in this paragraph.

Annex I
ELIGIBILITY CONDITIONS FOR ISSUANCES, UNDER REGULATION (EU) NO 575/2013 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL OF 26 JUNE

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Annex to Instruction No. 11/2014
Official Journal No. 7 • 15-07-2014

Topics
Supervision • Prudential Standards

Form
99999911/T 01/14

Bank of Portugal
EUROSYSTEM
Prudential Supervision Department

OBSERVATIONS (3):

Annex I
ELIGIBILITY FOR ISSUANCES, UNDER REGULATION (EU) NO 575/2013 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL OF 26 JUNE

Annex to Instruction No. 11/2014
BO No. 7 • 15-07-2014
Supervision Topics • Prudential Standards
..................................................................................................................................................................................................
Mod. 99999911/T 01/14

Annex II
Bank of Portugal
EUROSYSTEM
Prudential Supervision Department

1. Issuer

Unique identifier (e.g., CUSIP, ISIN, or Bloomberg identifier for private placement)
3. Applicable legislation(s) for the instrument (4)
Regulatory treatment
4. RRFP transitional rules
5. RRFP post-transition rules
6. Eligible on an individual / (sub)consolidated / individual and (sub)consolidated basis
7. Type of instrument
8.
Amount actually recognized in regulatory own funds (in millions of the monetary unit, as of the most recent reporting date)
9. Nominal amount of the instrument
9.a) Issue price
9.b) Redemption price
10. Accounting classification
11. Issue date
12. Perpetual or fixed term
13. Maturity date
14. Issuer call option subject to prior supervisory approval
15. Call option date, conditional call option dates, and redemption value
16. Subsequent call dates, if applicable
Coupons/dividends
17. Fixed or variable dividend / coupon
18. Coupon rate and any related index (5)
19. Existence of a dividend cap
20.a
) Total discretion, partial discretion, or obligation (in terms of timing) 20.b ) Total discretion, partial discretion, or obligation (in terms of amount)
21. Requirement for bail-in or other redemption incentives
22. Non-cumulative or cumulative
23. Convertible or non-convertible
24. If convertible, conversion trigger(s)
25. If convertible, total or partial
26. If convertible, conversion rate
27. If convertible, mandatory or optional conversion
28. If convertible, specify the type of instrument into which they can be converted
29. If convertible, specify the issuer of the instrument into which they will be converted
30. Write-down characteristics
31. In case of write-down, trigger(s) for that write-down
32. In case of write-down, total or partial
33. In case of write-down, permanent or temporary
34.
In case of temporary write-down, description of the write-up mechanism 35.
Position in the subordination hierarchy in the event of liquidation (specify the type of instrument immediately above in the priority hierarchy)
36. Non-compliant characteristics subject to transition
37. If yes, specify the non-compliant characteristics
Note: Indicate "N/A" if the question is not relevant.

Annex II
PRINCIPAL CHARACTERISTICS OF OWN FUNDS INSTRUMENT

Annex to Instruction No. 11/2014
BO No. 7 • 15-07-2014
Supervision Topics • Prudential Standards
..................................................................................................................................................................................................
Mod. 99999911/T 01/14

Supplementary Filling Notes
SUPPLEMENTARY FILLING NOTES
(5) Indicate the coupon rate of the instrument and any related index to which the coupon/dividend rate is linked, as well as the method of calculating remuneration and the mode of payment of coupons. (4) Specify the legislation(s) governing the instrument, including that(s) relating to the absorption of losses and the subordination of the instrument, where applicable. (2) Whenever the verification of conditions results from the contractual terms of the instrument, indicate the respective clause, presenting a brief transcription. The following notes should be understood as aids to filling in annexes I and II, with the CRR constituting the fundamental reference for their completion. (3) Include other information that may be relevant for the eligibility of the instrument, namely regarding the application of Article 29 of the CRR. (1) Indicate the name of the issue and the program under which the instruments were issued, if applicable.