Repurchase of financial undertakings

Pursuant to the first paragraph of Article 77 of Regulation (EU) No. 575/2013 (CRR), a financial undertaking shall require the prior permission of the Financial Supervisory Authority to:

1. Reduce, redeem or repurchase Common Equity Tier 1 (CET1) instruments issued by the relative undertaking in accordance with Act no. 2/1995 on Public Limited Companies.

2. Reduce, pay out or reclassify share capital or guarantee capital premium accounts.

3. Call, redeem, repay or repurchase instruments considered as Additional Tier 1 (AT1) or Tier 2 (T2), as applicable, before their contractual maturity.

The Paragraph 1 of Article 78 of the CRR stipulates the conditions for the Financial Supervisory Authority to authorise the reduction, repurchase, call or redemption of instruments that are considered own funds, pursuant to Paragraphs 2-4 of the same Article. Any of the following conditions must be met:

1. the relevant financial undertaking issues new own funds instruments of equal or higher quality at terms that are sustainable for the income capacity of the undertaking to reduce, redeem or repurchase, or at the same time as the action takes place or

2. that the financial undertaking has demonstrated to the satisfaction of the Financial Supervisory Authority that the own funds of the undertaking would, following the reduction, redemption or repurchase, exceed the requirements laid down in the CRR, pursuant to Act No 161/2002 on Financial Undertakings, and Act no. 70/2020 on Resolution of Credit Institutions and Investment Firms, by a margin deemed necessary by the Financial Supervisory Authority.

The authority to reduce, redeem or repurchase instruments that are considered own funds is covered in greater detail in the provisions of the first Subsection of Section 2 of Chapter IV of Commission Delegated Regulation (EU) No. 241/2014, cf. Rules No. 696/2024 on the calculation of financial undertakings’ own funds and eligible liabilities.

A completed application must generally be sent to the Financial Supervisory Authority four months before the reduction, redemption or repurchase of instruments that are considered Common Equity Tier 1 is to take place. In the case of a renewal of a general application, it must have been received by the Authority three months before the measure is to take place. Under special circumstances, the Authority may authorise a financial undertaking to submit an application within a shorter time frame. The Financial Supervisory Authority processes the completed application within the same time limits.

It is pointed out that this topic is covered in greater detail in Circular No. 29/2024 on the implementation of the reduction, redemption or repurchase of instruments that are considered own funds (in Icelandic).

Attention is drawn to the fact that the above discussion does not deal with other legal provisions that may apply to the repurchase of own shares, i.a. the provisions of Chapter VIII of Act No. 2/1995 on Public Limited Companies or provisions on buy-back programmes pursuant to Regulation (EU) No. 596/2014 on Market Abuse (MAR), cf. Act no. 60/2021 on actions against market abuse.

For reference, it should be pointed out in this context that the second paragraph of Article 77 of the CRR requires financial undertakings to obtain the prior approval of the Resolution Authority of the Central Bank to effect the call, redemption, repayment or repurchase of instruments prior to the date of their contractual maturity, other than equity instruments, which are considered eligible liabilities. Paragraphs 1 and 2 of Article 78a of the CRR stipulate the conditions for the Resolution Authority to grant such an authorisation. Applications for such an authorisation are discussed in greater detail in the provisions of the second Subsection of Section 2 of Chapter IV of  Commission Delegated Regulation (EU) No. 241/2014, cf. Rules no. 696/2024 and a form (in Icelandic) issued by the Resolution Authority.