On 2 July 2020, DNB published a newsletter regarding the capital audit by DNB, which has shown that there is still a lot of uncertainty about the use of preference shares.
21 Sep 2020
DNB deals in this edition with shares that give shareholders a number of preferential rights, the preference shares. Issuance of preference shares is permitted provided that the ordinary shares continue to comply with the regulations that apply to CET1 instruments (eg ordinary shares must bear the first loss and share the profit last). That is why it is important to use the following principles at least for ordinary shares: pari passu (equal rights) and pro rata (in the same ratio). These two principles are briefly explained in the newsletter.
Incidentally, preference shares never qualify as CET1 instruments and should therefore never be part of the shareholders' equity and qualifying capital.
Most investment firms and institutions will shortly receive a letter by email with the findings of our investigation. Based on this information, we ask you to investigate whether your company meets the capital requirements.
This article was originally published in the August edition of REGWATCH. Read the full edition covering the following jurisdictions:
- European Union
- Hong Kong
- United Kingdom