PS15/14: Restrictions on the retail distribution of regulatory capital instruments

Why are we issuing this Policy Statement?

We regard CoCos and common equity tier 1 (CET1) share instruments issued by mutual societies as posing particular risks of inappropriate distribution to ordinary retail customers.

In August 2014 we announced the introduction of temporary product intervention rules (from 1 October 2014) restricting the retail distribution of contingent convertible securities (CoCos). We published a consultation paper in October last year inviting comments on draft permanent rules to replace the temporary rules when they expire on 1 October 2015.

Our new rules are designed to advance our objectives of securing an appropriate degree of consumer protection and promoting effective competition in the interests of consumers by limiting the scope for distribution that exploits information asymmetries and other consumer behavioural weaknesses, which are a particular concern where complex, risky instruments are offered to non-sophisticated retail investors of ordinary means. The new rules should significantly limit the scope for consumer harm from inappropriate retail investment in these loss-absorbing instruments.

Policy Statement PS15/14[1] [PDF]

Who is this PS aimed at?

This Policy Statement will be of interest to:

• consumers and consumer organisations
• firms that have issued or are considering issuing CoCos
• firms that have issued or are considering issuing mutual society share instruments, in particular core capital deferred shares (CCDS)
• firms involved with promotion, advice, sales or other transactions relating to these instruments
• firms involved with the management, operation or distribution of securities issued by unregulated collective investment schemes, qualified investor schemes or special purpose vehicles investing wholly or predominantly in CoCos
• trade bodies representing these firms
• compliance consultants and other firms that assist distributors

What are the next steps?

The rules set out in Appendix 1 come into force later this year: on 1 July 2015 for mutual society shares and on 1 October 2015 for CoCos. The temporary rules on CoCos will remain in force until 1 October 2015.

If your firm is affected by these rules, you should consider the changes you need to make.

Want to find out more?

For more information:

• CP14/23: Restrictions on the retail distribution of regulatory capital instruments[2]
• Temporary product intervention rules: Restrictions in relation to the retail distribution of contingent convertible instruments[3]