Question ID: 309
Regulation Reference: Guidelines on classification of own funds
Article: 71
Status: Final
Date of submission: 02 Jun 2015
Question
The Delegated Regulations and the Guidelines do not stipuate whether the distributions on Restricted Tier 1, Tier 2 or Tier 3 subordinated debt instruments can be linked to the credit standing of the firm (e.g. increase in the interest rate payable if the firm's credit ratings are downgraded, or a decrease if upgraded).
What is EIOPA's position on this subject, or will it be up to the discretion of the relevant NCA instead?
EIOPA answer
EIOPA considers that a subordinated debt instrument feature such as described in your question whereby a distribution is linked to the credit standing of the insurance or reinsurance undertaking may cause the insolvency of the undertaking or may accelerate the process of the undertaking becoming insolvent and therefore would not be permitted in accordance with Articles 71(1)(b), 73(1)(b), 77(1)(b) of Commission Delegated Regulation 2015/35 (EU) concerning Tier 1, Tier 2 and Tier 3 basic own funds respectively.