Tax and the City review for November 2018

Hybrid regulatory capital

The UK has for many years adopted a policy of allowing banks and insurers which issue securities which though legally debt contain certain equity-like features in order to meet regulatory capital requirements deductions for the coupons thereon. Pre-CRD IV and Solvency II so-called ‘innovative tier 1’ capital was deductible on first principles although this required careful analysis of the terms and conditions of each particular issue. Although perpetual in nature and therefore ‘equity notes’ they were not held by ‘associated persons’ and were debt because they fell to be repaid on a winding up of the issuer. Payments were subject to a ‘solvency condition’ which did not make coupons ‘results dependent’ because that only went to timing of payment...