4.21. Introduction

This section sets out the criteria and formulae for the treatment of minority interests in a Bank’s Regulatory Capital.

4.22. Criteria for third party interests— CET 1 Capital

(1) For Rule 4.14 (e), CET1 Capital issued by a consolidated Subsidiary of a Bank and held by a third party as a non-controlling interest, may be included in the Bank’s CET 1 Capital if:

1. (a) the share would be included in the Bank’s CET 1 Capital had it been issued by the Bank; and
2. (b) the Subsidiary that issued the share is itself a Bank or a Broker Dealer (or an equivalent entity in its home jurisdiction).

(2) The amount to be included in the consolidated CET 1 Capital of a Bank is calculated in accordance with the following formula: NCI – ((CET1s – Min) × SS) where:

NCI is the total of the non-controlling interests of minority shareholders in a consolidated Subsidiary of the Bank. CET1s is the amount of CET 1 Capital of the Subsidiary. Min is the lower of:

1. (a) 0.07 × total RWAs, as defined in Rule 4.7 (2), of the Subsidiary; and
2. (b) 0.07 × share of consolidated RWAs of the group attributable to the Subsidiary. SS means the percentage of the shares in the Subsidiary (being shares included in CET 1 Capital) held by those third parties.

4.23. Criteria for third party interests—AT1 Capital

(1) For Rule 4.16 (c), an instrument (including a common share) issued by a consolidated Subsidiary of a Bank and held by a third party as a non-controlling interest may be included in the Bank’s AT1 Capital if the instrument would be included in the Bank’s AT1 Capital had it been issued by the Bank.

(2) Subject to (3), the amount to be included in the consolidated AT1 Capital of a Bank is calculated in accordance with the following formula: NCI – ((T1s – Min) × SS) where: NCI is the total of the non-controlling interests of third parties in a consolidated Subsidiary of the Bank. T1s is the amount of Tier 1 Capital of the Subsidiary. Min is the lower of:

1. (a) 8.5% of the total RWAs, as defined in Rule 4.7 (2), of the Subsidiary; and
2. (b) 8.5% of the share of consolidated RWAs of the group attributable to the Subsidiary. SS means the percentage of the shares in the Subsidiary (being shares included in additional Tier 1 Capital) held by those third parties.

(3) A Bank must determine the amount of qualifying T1 Capital of a Subsidiary that is included in consolidated AT1 Capital by excluding the minority interests of that Subsidiary that are included in consolidated CET1 Capital, in accordance with Rule 4.22.

4.24. Criteria for Minority interests— Tier 2 Capital

(1) For Rule 4.18 (c), an instrument (including common equity or any other T1 Capital instrument) issued by a consolidated Subsidiary of a Bank and held by a third party as a non-controlling interest may be included in the Bank’s T2 Capital if the instrument would be included in the Bank’s T2 Capital had it been issued by the Bank.

(2) The amount to be included in the consolidated T2 Capital of a Bank is calculated in accordance with the following formula: NCI – ((T2s – Min) × SS) where:NCI is the total of the non-controlling interests of third parties in a consolidated Subsidiary of the Bank. T2s is the amount of Tier 2 Capital of the Subsidiary. Min is the lower of:

1. (a) 10.5% of the total RWAs, as defined in Rule 4.7 (2), of the Subsidiary; and
2. (b) 10.5% of the share of consolidated RWAs of the group attributable to the Subsidiary. SS means the percentage of the shares in the Subsidiary (being shares included in Tier 2 Capital) held by those third parties.

(3) A Bank must determine the amount of qualifying Total Capital of a Subsidiary that is included in consolidated T2 Capital by excluding the minority interests of that Subsidiary that are included in consolidated CET1 Capital and consolidated AT1 Capital, in accordance with Rules 4.22 and 4.23.

4.25 Treatment of third party interests from special purpose vehicles

(1) An instrument issued out of a special purpose vehicle and held by a third party must not be included in a Bank’s CET 1 Capital. Such an instrument may be included in the Bank’s AT1 or T2 Capital (and treated as if it had been issued by the Bank itself directly to the third party), if:

1. (a) the instrument satisfies the criteria for inclusion in the relevant category of Regulatory Capital; and
2. (b) the only asset of the special purpose vehicle is its investment in the capital of the Bank and that investment satisfies the criterion in Rule 4.17 (15) or 4.19 (10) for the immediate availability of the proceeds.

(2) A capital instrument described in sub-rule (1) above that is issued out of a special purpose vehicle through a consolidated Subsidiary of a Bank may be included in the Bank’s consolidated AT 1 or T2 Capital if the instrument satisfies the criteria in Rule 4.23 or 4.24, as the case requires. Such an instrument is treated as if it had been issued by the Subsidiary itself directly to the third party.