requirement for the conversion or write-off of a capital instrument. Comparison of key features of new law and current law New law Current law It is clarified that the terms of capital In some situations it is unclear that instruments that provide for the certain capital instruments will instrument to absorb losses by absorb losses either by conversion – converting or being written off are or write off due to potential legal – effective despite potential legal impediments. impediments. Detailed explanation of new law Conversion and write-off of capital instruments Definitions The Bill amends the Industry Acts to incorporate several new definitions for the purpose of the amendments to provide certainty for the conversion and of capital instruments. The new term and write-off provisions’ refers to the ‘conversion provisions in APRA’s prudential standards that require certain capital instruments to be converted into ordinary shares or mutual equity interests, or to be written off, in certain circumstances described in the prudential standards. [Schedule 1, item 27, Schedule 2, item 19, Schedule 3, item 61, section 11CAA of the Banking Act, section 36Aof the Insurance Act, and section 230AAB of the Life Insurance Act] Presently, the provisions in the prudential standards that set these requirements are referred to as the absorption requirements’ ‘loss and requirements for absorption at the point of non-viability’. The ‘loss concept of and write-off provisions’ is intended to refer to ‘conversion these, while also leaving room for future changes to APRA’s prudential standards, including changes that might refer to instruments that are not currently considered capital under the prudential standards. The new term describes any process by which capital ‘converts’ instruments may be converted into ordinary shares or mutual equity interests. This term is broadly defined in order to accommodate current and future contractual approaches to how instruments are converted into ordinary shares or mutual equity interests. [Schedule 1, item 27, Schedule 2, item 19, Schedule 3, item 61, section 11CAA of the Banking Act, section 36A of the Insurance Act, and section 230AAB of the Life Insurance Act]
requirement for the conversion or write-off of a capital instrument. Comparison of key features of new law and current law New law Current law It is clarified that the terms of capital instruments that provide for the instrument to absorb losses by converting or being written off are effective despite potential legal impediments. In some situations it is unclear that certain capital instruments will absorb losses – either by conversion or write off – due to potential legal impediments. Detailed explanation of new law Conversion and write-off of capital instruments Definitions The Bill amends the Industry Acts to incorporate several new definitions for the purpose of the amendments to provide certainty for the conversion and of capital instruments. The new term ‘conversion and write-off provisions’ refers to the provisions in APRA’s prudential standards that require certain capital instruments to be converted into ordinary shares or mutual equity interests, or to be written off, in certain circumstances described in the prudential standards. [Schedule 1, item 27, Schedule 2, item 19, Schedule 3, item 61, section 11CAA of the Banking Act, section 36Aof the Insurance Act, and section 230AAB of the Life Insurance Act] Presently, the provisions in the prudential standards that set these requirements are referred to as the ‘loss absorption requirements’ and requirements for ‘loss absorption at the point of non-viability’. The concept of ‘conversion and write-off provisions’ is intended to refer to these, while also leaving room for future changes to APRA’s prudential standards, including changes that might refer to instruments that are not currently considered capital under the prudential standards. The new term ‘converts’ describes any process by which capital instruments may be converted into ordinary shares or mutual equity interests. This term is broadly defined in order to accommodate current and future contractual approaches to how instruments are converted into ordinary shares or mutual equity interests. [Schedule 1, item 27, Schedule 2, item 19, Schedule 3, item 61, section 11CAA of the Banking Act, section 36A of the Insurance Act, and section 230AAB of the Life Insurance Act]
c2017-t212012-Explanatory-Memorandum.docx