Document ID: chunk:federal_register_of_legislation:F2023L00684:body:0:p30
Version: federal_register_of_legislation:F2023L00684
Segment Type: other
Provision Reference: 
Character Range: 75321–78174

the reference rate, the reference rate must not exhibit any significant correlation with the issuer's credit standing. APRA may require a regulated institution to exclude an instrument from treatment as Tier 2 Capital where APRA considers that the reference rate is sensitive to the credit standing of the issuer.
12. The instrument is directly issued by the issuer, and, except where otherwise permitted in this Prudential Standard, the issuer, any other member of a group to which the issuer belongs, or any other related entity[36] cannot have purchased or directly or indirectly[37] funded the purchase of the instrument or be funding the purchase of the instrument.
13. If the terms of the instrument provide the ability (even in contingent circumstances) to substitute the issuer of the Tier 2 Capital instruments or the issuer of the ordinary shares into which they may convert (i.e. to replace the regulated institution with another party), the relevant documentation must set out the mechanism to ensure that there will be a capital injection into the regulated institution to replace the transferred capital instrument. The replacement capital injection must occur at least simultaneously with the substitution and must be unconditional. The capital injection must be of equal or better-quality capital and at least the same amount as the original issue, unless otherwise approved by APRA.
14. The rate of dividend or interest on the instrument, or the formulae for calculating dividend or interest payments, must be predetermined and set out in the issue documentation.
15. If an issuer defaults under the terms of the instrument, the remedies available to the holders must be limited to actions for specific performance, recovery of amounts currently outstanding or the winding-up of the issuer. The amounts that may be claimed in the event that the issuer defaults may include any accrued unpaid dividends and interest, including payment of market interest on these unpaid amounts. Any claim against the issuer for unpaid dividends and interest must be the most subordinated claims in liquidation of the issuer after Common Equity Tier 1 Capital instruments and Additional Tier 1 Capital instruments.
16. The instrument must not provide for payment of a higher dividend or interest rate if dividend or interest payments are not made on time, or a reduced dividend or interest rate if such payments are made on time.
17. The instrument includes provisions which comply with the loss absorption requirements at the point of non-viability in accordance with Attachment E to this Prudential Standard.
18. The instrument is clearly and separately disclosed in the issuer's financial statements and, at Level 2, in any consolidated financial statements.
19. The instrument must not include any of the following clauses:
20. a cross-default clause