Document ID: chunk:federal_register_of_legislation:F2022L01562:body:0:p43
Version: federal_register_of_legislation:F2022L01562
Segment Type: other
Provision Reference: 
Character Range: 111751–114539

inclusion in Tier 2 Capital
     1. To be classified as Tier 2 Capital, an instrument must satisfy all of criteria in this Attachment.
     2. The instrument must be paid-up and the amount must be irrevocably received by the issuer.
     3. The instrument represents, prior to any conversion to Common Equity Tier 1 Capital (refer to Attachment H to this Prudential Standard), the most subordinated claim in liquidation of the issuer after Common Equity Tier 1 Capital instruments and Additional Tier 1 Capital instruments. Where an issuer is a holding company, any claim in relation to the instrument must be subordinate to the claims of general creditors of the holding company.
     4. The paid-up amount of the instrument, or any future payments related to the instrument, is neither secured, nor covered by a guarantee of the issuer or related entity, or other arrangement that legally or economically enhances the seniority of the claim. The instrument may not be secured or otherwise subject to netting or offset of claims on behalf of the holder or issuer of the instrument.
     5. The principal amount of the instrument:
(a)          has a minimum maturity of at least five years[44]; and
(b)          is only recognised in Tier 2 Capital (and therefore in Total Capital) in the five years prior to maturity on a straight-line amortised basis (refer to paragraph 21 of this Attachment).
6.             The instrument contains no step-ups or other incentives to redeem. The issuer and any other member of a group to which the issuer belongs must not create an expectation at issuance that the instrument will be bought back, redeemed or cancelled before its contractual maturity. The contractual terms of the instrument must not provide any feature that might give rise to such an expectation.[45]
7.             The instrument may only be callable at the initiative of the issuer and only after a minimum of five years from the date on which the issuer irrevocably receives the proceeds of payment for the instrument. The issuer:
(a)          must receive prior approval from APRA to exercise a call option;
(b)          must not do anything that creates an expectation that a call will be exercised; and
(c)          must not exercise a call unless:
(i)            the issuer, prior to or concurrent with the exercise of the call, replaces the instrument with a capital instrument of the same or better quality, and the replacement of the instrument is done under conditions that are sustainable for the income capacity of the issuer; or
(ii)         the ADI meets the requirements relating to reductions in capital in APS 110.
8.             The instrument may provide for multiple call dates after five years. However, the specification of multiple call dates must not act to