Document ID: chunk:federal_register_of_legislation:F2023L00684:body:0:p32
Version: federal_register_of_legislation:F2023L00684
Segment Type: other
Provision Reference: 
Character Range: 80498–83180

Capital
More than 4                                100 per cent
Less than and including 4 but more than 3  80 per cent
Less than and including 3 but more than 2  60 per cent
Less than and including 2 but more than 1  40 per cent
Less than and including 1                  20 per cent

 1. For the purposes of paragraph 6 of this Attachment, an incentive or expectation to call or otherwise redeem a Tier 2 Capital instrument includes, but is not limited to:
     1. a call option combined with a requirement, or an investor option, to convert the instrument into ordinary shares if the call is not exercised;
     2. a call option combined with a change in reference rate where the credit spread over the second reference rate is greater than the initial payment rate less the swap rate (i.e. the fixed rate paid to the call date to receive the second reference rate);
     3. a call option combined with an increase in redemption amount in the future;
     4. automatic redemption or an option to redeem following a change of control event;
     5. mandatory conversion within the first five years of issue, except conversions arising from change of control, regulatory or tax events;
     6. any arrangement whereby an investor will become subject to: (i) known tax or charges; or to (ii) known higher tax or charges than they would have had to pay before, following a call date and the issuer is required to compensate an investor for any payment of the additional tax or charges (refer to paragraph 26 of this Attachment); and
     7. application of maximum or minimum rates on distributions.
 2. A call option and a provision to convert into ordinary shares will not constitute an incentive to redeem provided there is at least two years from the date upon which the regulated institution may have an option to call the instrument to the nearest subsequent date upon which that conversion option may be exercised.
 3. Calling an instrument and replacing it with an instrument with a higher credit spread or that is otherwise more expensive is deemed to create the expectation that the issuer will exercise a call option on other outstanding Tier 2 Capital instruments and Additional Tier 1 Capital instruments with call options, unless the issuer can satisfy APRA as to the economic and prudential rationale and that such an action will not create an expectation that other instruments will be called in similar circumstances.
 4. A Tier 2 capital instrument must provide for the immediate, automatic and permanent revocation of a call notice upon a non-viability event (refer to Attachment E to this Prudential Standard). A call option cannot be exercised in anticipation of a