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Providing Certainty for Contractual Loss Absorption Provisions in Regulatory Capital

2 June 2014 | Discussion Paper

The purpose of this paper is to assist in the preparation of advice to Government on the need for legislative amendments to facilitate the effective operation of new prudential requirements on the loss absorbency of regulatory capital. These requirements have been adopted in order to strengthen Australia’s financial system by ensuring capital instruments can absorb losses when institutions are in financial distress as opposed to relying on public sector funds.

The amendments discussed in this consultation paper are intended to ensure that contractual loss absorption provisions contained in Additional Tier 1 and Tier 2 capital instruments issued by ADIs, general insurers (GIs) and life insurers (LIs) operate as intended and are not rendered ineffective by provisions in the Corporations Act 2001 that may restrict the ability of companies to issue, vary, convert or cancel shares. This will ensure that these instruments can fulfil their role as regulatory capital by absorbing losses in line with their contractual terms.

Submissions closed on Monday 30 June 2014

Key Documents

Ref Num: {6BA620EF-B9E9-4C34-9537-93100E43AE1F}
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