Prudential Regulation Authority Rulebook

7.1

Where a rule in this Part says that a particular treatment applies to an item of capital that is subject to a step-up of a specified amount, the question of whether that rule is satisfied must be judged by reference to the cumulative amount of all step-ups since the issue of that item of capital rather than just by reference to a particular step-up.

7.2

A firm must not include in its tier one capital resources a tier one instrument that is or may be subject to a step-up that is not one which results in an increase over the initial rate that is no greater than the higher of the following two amounts as at the date of issue of the relevant instrument:

1. (1) 100 basis points, less the swap spread between the initial index basis and the stepped-up index basis; or
2. (2) 50% of the initial credit spread, less the swap spread between the initial index basis and the stepped-up index basis.

7.3

Subject to 7.4, if a tier two instrument is or may be subject to a step-up that does not meet the condition in 7.2 as at the date of issue, the first date that a step-up can take effect is deemed to be its final maturity date if that date is before its actual maturity date.

7.4

If a tier two instrument:

1. (1) is or may be subject to a step-up during the period beginning on the fifth anniversary of the date of issue of that item and ending immediately before the tenth anniversary of the date of issue; and
2. (2) the step-up or possible step-up is one which may result in an increase over the initial rate that is greater than 50 basis points, less the swap spread between the initial index basis and the stepped-up index basis;

the first date that a step-up can take effect is deemed to be its final maturity date if that date is before its actual maturity date.