Several clarifications have been provided with regard to subordinated debt instruments.
On 30 November 2013, amendments to the Bank of Russia’s Regulation 395-P, “On the Methodology of Determination of the Amount and Assessment of Sufficiency of the Capital of Credit Organizations (Basel III)”, were published.[1] The amendments, which aim to address certain questions and concerns from Russian banks that arose from a lack of clarity in Regulation 395-P, provide for the following with regard to subordinated instruments:
The amendments also provide clarification as to which bankruptcy prevention measures under Federal Law No. 175-FZ, “On Additional Measures for Improvement of Stability of the Banking System”, will trigger a write-down or conversion into equity of Tier 2 subordinated instruments under Regulation 395-P. According to the amendments, the bankruptcy prevention measures that trigger a write-down or conversion into equity are limited to certain equity investments made in the relevant bank by the Agency for Deposit Insurance (ADI). The date on which the write-down or conversion into equity is triggered is the date on which the bank receives notice from ADI that it has adopted a decision to implement a plan contemplating such investments that was approved by the Central Bank of the Russian Federation. In addition, the Amendments indicate that, upon the occurrence of a trigger event, the obligation of the bank to repay the interest and principal under the subordinated instrument will terminate.
The amendments will come into force on 1 January 2014.