The European Banking Authority has confirmed that amendments to the contractual terms of capital instruments for the purpose of implementing benchmark rate reforms will not be considered as a material change which will require them to be treated as new instruments for the purposes of the EU Capital Requirements Regulation (CRR).
In a Q&A response (2019_4568) published on its Interactive Single Rulebook, the EBA confirmed that:
- Amendments to the contractual terms of capital instruments pursued solely for the purpose of implementing benchmark rate reforms will not be considered as a material change to those terms and therefore will not result in them being treated as new instruments, provided that the instrument continues to meet all relevant eligibility criteria.
- Accordingly, a greater credit spread as a consequence of a one-off adjustment to the credit spread at the time the replacement rate is implemented, would not be considered to be a feature that provides an incentive to redeem for the purpose of Article 63(h) CRR.
The EBA noted that its response is limited to the inclusion of the new rates (e.g. SOFR as alternative to LIBOR) in the Terms and Conditions of the relevant instruments. Any other change, going beyond the mere implementation of the benchmark rate reforms, might be considered as a material change and would require a case-by-case assessment.
{ Amendments to the contractual terms of capital instruments pursued solely for the purpose of implementing benchmark rate reforms will not be considered as a material change [...] and therefore will not result in them being treated as new instruments, however the instrument needs to continue meeting all eligibility criteria.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.
