Own Funds and Eligible Liabilities (CRR)

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1

Application and Definitions

1.1

This Part applies to:

  1. (a) a firm that is a CRR firm; and
  2. (b) a CRR consolidation entity.

1.2

In this Part, the following definitions shall apply:

UK-adopted international accounting standards

has the same meaning it has in section 474(1) of the Companies Act 2006.

1.3

To the extent that the rules in this Part are not CRR rules, rule 2.13 of the Interpretation Part shall apply to the rules as if they were CRR rules.

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2

Level of Application

2.1

Title II of Part One (Level of application) of the CRR applies to Chapter 3 and 4 of this Part as that Title applies to Part Two (Own funds and eligible liabilities) of the CRR.

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3

Own Funds and Eligible Liabilities (Part Two CRR)

[Note: Articles 25 to 35 remain in the CRR]

Article 36 Deductions from Common Equity Tier 1 Items

1.

Institutions shall deduct the following from Common Equity Tier 1 items:

  1. (a) losses for the current financial year;
  2. (b) intangible assets;
  3. (c) deferred tax assets that rely on future profitability;
  4. (d) for institutions calculating risk-weighted exposure amounts using the Internal Ratings Based Approach (the IRB Approach), negative amounts resulting from the calculation of expected loss amounts laid down in Articles 158 and 159;
  5. (e) defined benefit pension fund assets on the balance sheet of the institution;
  6. (f) direct, indirect and synthetic holdings by an institution of own Common Equity Tier 1 instruments, including own Common Equity Tier 1 instruments that an institution is under an actual or contingent obligation to purchase by virtue of an existing contractual obligation;
  7. (g) direct, indirect and synthetic holdings of the Common Equity Tier 1 instruments of financial sector entities where those entities have a reciprocal cross holding with the institution that have been designed to inflate artificially the own funds of the institution;
  8. (h) the applicable amount of direct, indirect and synthetic holdings by the institution of Common Equity Tier 1 instruments of financial sector entities where the institution does not have a significant investment in those entities;
  9. (i) the applicable amount of direct, indirect and synthetic holdings by the institution of the Common Equity Tier 1 instruments of financial sector entities where the institution has a significant investment in those entities;
  10. (j) the amount of items required to be deducted from Additional Tier 1 items pursuant to Article 56 that exceeds the Additional Tier 1 items of the institution;
  11. (k) the exposure amount of the following items which qualify for a risk weight of 1,250%, where the institution deducts that exposure amount from the amount of Common Equity Tier 1 items as an alternative to applying a risk weight of 1,250%:
  12. (l) any tax charge relating to Common Equity Tier 1 items foreseeable at the moment of its calculation, except where the institution suitably adjusts the amount of Common Equity Tier 1 items insofar as such tax charges reduce the amount up to which those items may be used to cover risks or losses.
  13. (m) [deleted]

2.

[Note: Provision left blank]

3.

[Note: Provision left blank]

4.

[Note: Provision left blank]

 

[Note: This rule, except for the deletion of Article 36.1(m), corresponds to Article 36 of the CRR as it applied immediately before revocation by the Treasury.]

[Note: Articles 37 to 91 remain in the CRR]

 

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4

Rules Supplementing the CRR with regards to Own Funds Requirements (previously Regulation (EU) NO 241/2014)

Chapter II Elements of Own Funds

Section 1

Common Equity Tier 1 Capital and Instruments

Subsection 1 Foreseeable Dividends and Charges

Article 2 Meaning of ’Foreseeable’ in Foreseeable Dividend for the Purposes of Article 26(2)(B) of the CRR

1.

The amount of foreseeable dividends to be deducted by institutions from the interim or year-end profits as provided in point (b) of Article 26(2) of the CRR, shall be determined in accordance with paragraphs 2 to 4.

2.

Where an institution’s management body has formally taken a decision or proposed a decision to the institution’s relevant body regarding the amount of dividends to be distributed, this amount shall be deducted from the corresponding interim or year-end profits.

3.

Where interim dividends are paid, the residual amount of interim profit resulting from the calculation laid down in paragraph 2 which is to be added to Common Equity Tier 1 items shall be reduced, taking into account the rules laid down in paragraphs 2 and 4, by the amount of any foreseeable dividend which can be expected to be paid out from that residual interim profit with the final dividends for the full business year.

4.

Before the management body has formally taken a decision or proposed a decision to the relevant body on the distribution of dividends, the amount of foreseeable dividends to be deducted by institutions from the interim or year-end profits shall equal the amount of interim or year-end profits multiplied by the dividend payout ratio.

5.

The dividend pay-out ratio shall be determined on the basis of the dividend policy approved for the relevant period by the management body or other relevant body.

6.

Where the dividend policy contains a pay-out range instead of a fixed value, the upper end of the range is to be used for the purpose of paragraph 2.

7.

In the absence of an approved dividend policy, or when it is likely that the institution will not apply its dividend policy or this policy is not a prudent basis upon which to determine the amount of deduction, the dividend pay-out ratio shall be based on the highest of the following:

  1. (a) the average dividend pay-out ratio over the three years prior to the year under consideration; or
  2. (b) the dividend pay-out ratio of the year preceding the year under consideration.

8.

Institutions may adjust the calculation of the dividend pay-out ratio as described in points (a) and (b) of paragraph 7 to exclude exceptional dividends provided that it notifies the PRA of its intention to do so.

9.

The amount of foreseeable dividends to be deducted shall be determined taking into account any regulatory restrictions on distributions, in particular restrictions determined in accordance with the Capital Buffers Part of the PRA Rulebook. The amount of profit after deduction of foreseeable charges subject to such restrictions may be included fully in Common Equity Tier 1 items where the condition of point (a) of paragraph 2 of Article 26 of the CRR is met. When such restrictions are applicable, the foreseeable dividends to be deducted shall be based on the capital conservation plan which has been notified to the PRA in accordance with Chapter 4 of the Capital Buffers Part of the PRA Rulebook and which the institution is implementing.

10.

The amount of foreseeable dividends to be paid in a form that does not reduce the amount of Common Equity Tier 1 items, such as dividends in the form of shares, known as scrip-dividends, shall not be deducted from interim or year-end profits to be included in Common Equity Tier 1 items.

11.

All necessary deductions to the interim or year-end profits and all those related to foreseeable dividends shall be made, either under the applicable accounting framework or under any other adjustments, before including the interim or year-end profits in Common Equity Tier 1 items.

[Note: This rule corresponds to Article 2 of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the PRA.]

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Article 3 Meaning of ‘Foreseeable’ in Foreseeable Charge for the Purposes of Article 26(2)(B) of the CRR

1.

The amount of foreseeable charges to be taken into account shall comprise the following:

  1. (a) the amount of taxes;
  2. (b) the amount of any obligations or circumstances arising during the related reporting period which are likely to reduce the profits of the institution and for which the PRA is not satisfied that all necessary value adjustments, such as additional value adjustments according to Article 34 of the CRR or provisions have been made.

2.

Foreseeable charges that have not already been taken into account in the profit and loss account shall be assigned to the interim period during which they have incurred so that each interim period bears a reasonable amount of these charges. Material or non-recurrent events shall be considered in full and without delay in the interim period during which they arise.

3.

All necessary deductions to the interim or year-end profits and all those related to foreseeable charges shall be made, either under the applicable accounting framework or under any other adjustments, before including the interim or year-end profits in Common Equity Tier 1 items.

[Note: This rule corresponds to Article 3 of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the PRA.]

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Subsection 2 Co-operative Societies, Savings Institutions, Mutuals and Similar Institutions

Article 4 Type of Undertaking Recognised Under the Applicable Law of the United Kingdom (or any part of it) as a Co-operative Society for the Purposes of Article 27(1)(a)(ii) of the CRR

1.

An undertaking recognised under the applicable law of the United Kingdom (or any part of it) qualifies as a co-operative society for the purpose of Part Two of the CRR and this Part, where all of the conditions in paragraphs 2, 3 and 4 are met.

2.

To qualify as a co-operative society for the purposes of paragraph 1, an institution must be a registered society within the meaning of the Co-operative and Community Benefit Societies Act 2014 or a society registered or treated as registered under the Co-operative and Community Benefit Societies Act (Northern Ireland) 1969.

3.

With respect to Common Equity Tier 1 capital, to qualify as a co-operative society for the purposes of paragraph 1, the institution shall be able to issue, under the applicable law of the United Kingdom (or any part of it) or the society’s statutes, at the level of the legal entity, only capital instruments referred to in Article 29 of the CRR.

4.

To qualify as a co-operative society for the purposes of paragraph 1, when under the applicable law of the United Kingdom (or any part of it), the holders of the Common Equity Tier 1 instruments referred to in paragraph 3 which may be members or non-members of the institution, have the ability to resign, they may also have the right to put the capital instrument back to the institution, but only subject to the restrictions of the applicable law of the United Kingdom (or any part of it), the statutes of the institution, the CRR and of this Part. This does not prevent the institution from issuing, under the applicable law of the United Kingdom (or any part of it), or of a third country, Common Equity Tier 1 instruments complying with Article 29 of the CRR to members and non-members that do not grant a right to put the capital instrument back to the institution.

[Note: This rule corresponds to Article 4 of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the PRA.]

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Article 5 Type of Undertaking Recognised Under the Applicable Law of the United Kingdom (or any part of it) as a Savings Institution for the Purposes of Article (27(1)(A)(III) of the CRR

1.

An undertaking recognised under the applicable law of the United Kingdom (or any part of it) qualifies as a savings institution for the purpose of Part Two of the CRR and this Part, where all the conditions in paragraphs 3 and 4 are met.

2.

[Note: Provision left blank]

3.

With respect to Common Equity Tier 1 capital, to qualify as a savings institution for the purposes of paragraph 1, the institution has to be able to issue, under the applicable law of the United Kingdom (or any part of it) or the statutes of the institution, at the level of the legal entity, only capital instruments referred to in Article 29 of the CRR.

4.

To qualify as a savings institution for the purposes of paragraph 1, the sum of capital, reserves and interim or year-end profits, shall not be allowed, under the applicable law of the United Kingdom (or any part of it), to be distributed to holders of Common Equity Tier 1 instruments. Such condition is deemed to be fulfilled even where the institution issues Common Equity Tier 1 instruments that grant the holders, on a going concern basis, a right to a part of the profits and reserves, where allowed by such law, provided that this part is proportionate to their contribution to the capital and reserves or, where permitted by such law, in accordance with an alternative arrangement. The institution may issue Common Equity Tier 1 instruments that grant the holders, in the case of insolvency or liquidation of the institution, the right to reserves which do not need to be proportionate to the contribution to capital and reserves provided that the conditions of paragraphs 4 and 5 of Article 29 of the CRR are met.

[Note: This rule corresponds to Article 5 of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the PRA.]

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Article 6 Type of Undertaking Recognised Under the Applicable Law of the United Kingdom (or any part of it) as a Mutual for the Purposes of Article 27(1)(A)(I) of the CRR

1.

An undertaking recognised under the applicable law of the United Kingdom (or any part of it) qualifies as a mutual for the purpose of Part Two of the CRR and this Part, where all of the conditions in paragraphs 2, 3 and 4 are met.

2.

To qualify as a mutual for the purposes of paragraph 1, the institution must be incorporated (or deemed to be incorporated) under the Building Societies Act 1986 or registered as a savings bank within the meaning of the Savings Bank (Scotland) Act 1819.

3.

With respect to Common Equity Tier 1 capital, to qualify as a mutual for the purposes of paragraph 1, the institution is only allowed to issue, under the applicable law of the United Kingdom (or any part of it) or the statutes of the institution, at the level of the legal entity, capital instruments referred to in Article 29 of the CRR.

4.

To qualify as a mutual for the purposes of paragraph 1, the total amount or a partial amount of the sum of capital and reserves shall be owned by members of the institution, who do not, in the ordinary course of business, benefit from direct distribution of the reserves, in particular through the payment of dividends. Such conditions are deemed to be fulfilled even where the institution issues Common Equity Tier 1 instruments that grant a right on the profits and reserves, where allowed by the applicable law of the United Kingdom (or any part of it).

[Note: This rule corresponds to Article 6 of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the PRA.]

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Article 7 Type of Undertaking Recognised Under the Applicable Law of the United Kingdom (or any part of it) as a Similar Institution for the Purposes of Article 27(1)(A)(IV) of the CRR

1.

An undertaking recognised under the applicable law of the United Kingdom (or any part of it) qualifies as a similar institution to co-operatives, mutuals and savings institutions for the purpose of Part Two of the CRR and this Part, where all of the conditions in paragraphs 3 and 4 are met.

2.

[Note: Provision left blank]

3.

With respect to Common Equity Tier 1 capital, to qualify as a similar institution to co-operatives, mutuals and savings institutions for the purposes of paragraph 1, the institution shall be only able to issue, under the applicable law of the United Kingdom (or any part of it) or the statutes of the institution, at the level of the legal entity, capital instruments referred to in Article 29 of the CRR.

4.

To qualify as a similar institution to co-operatives, mutuals and savings institutions for the purposes of paragraph 1, one or more of the following conditions shall also be met:

  1. (a) where the holders, which may be members or non-members of the institution, of the Common Equity Tier 1 instruments referred to in paragraph 3 have the ability to resign under the applicable law of the United Kingdom (or any part of it), they may also have the right to put the capital instrument back to the institution, but only subject to the restrictions of that law, the statutes of the institution, the CRR and this Part. That does not prevent the institution from issuing, under the applicable law of the United Kingdom (or any part of it) or of a third country, Common Equity Tier 1 instruments complying with Article 29 of the CRR to members and non-members that do not grant a right to put the capital instrument back to the institution;
  2. (b) the sum of capital, reserves and interim or year-end profits, is not allowed, under the applicable law of the United Kingdom (or any part of it), to be distributed to holders of Common Equity Tier 1 instruments. That condition is deemed to be fulfilled even where the institution issues Common Equity Tier 1 instruments that grant the holders, on a going concern basis, a right to a part of the profits and reserves, where allowed by such law, provided that that part is proportionate to their contribution to the capital and reserves or, where permitted by law, in accordance with an alternative arrangement. The institution may issue Common Equity Tier 1 instruments that grant the holders, in the case of insolvency or liquidation of the institution, the right to reserves which do not need to be proportionate to the contribution to capital and reserves provided that the conditions of Article 29(4) and (5) of the CRR are met;
  3. (c) the total amount or a partial amount of the sum of capital and reserves is owned by members of the institution who do not, in the ordinary course of business, benefit from direct distribution of the reserves, in particular through the payment of dividends.

[Note: This rule corresponds to Article 7 of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the PRA.]

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Article 7a Multiple Distributions Constituting a Disproportionate Drag on Own Funds

1.

Distributions on Common Equity Tier 1 instruments referred to in Article 28 of the CRR shall be deemed not to constitute a disproportionate drag on capital where all of the following conditions are met:

  1. (a) the dividend multiple is a multiple of the distribution paid on the voting instruments and not a predetermined fixed amount;
  2. (b) the dividend multiple is set contractually or under the statutes of the institution;
  3. (c) the dividend multiple is not revisable;
  4. (d) the same dividend multiple applies to all instruments with a dividend multiple;
  5. (e) the amount of the distribution on one instrument with a dividend multiple does not represent more than 125% of the amount of the distribution on one voting Common Equity Tier 1 instrument.
  6. In formulaic form this shall be expressed as:
    1. l ≤ 1.25 x k
  7. where:
  8. k shall represent the amount of the distribution on one instrument without a dividend multiple;
  9. l shall represent the amount of the distribution on one instrument with a dividend multiple.
  10. (f) the total amount of the distributions paid on all Common Equity Tier 1 instruments during a one year period does not exceed 105% of the amount that would have been paid if instruments with fewer or no voting rights received the same distributions as voting instruments.
  11. In formulaic form this shall be expressed as:
    1. kX + lY ≤ (1.05) x k x (X + Y)
  12. where:
  13. k shall represent the amount of the distribution on one instrument without a dividend multiple;
  14. l shall represent the amount of the distribution on one instrument with a dividend multiple;
  15. X shall represent the number of voting instruments;
  16. Y shall represent the number of non-voting instruments.
  17. The formula shall be applied on a one-year basis.

2.

Where the condition of point (f) of paragraph 1 is not met, only the amount of the instruments with a dividend multiple that exceeds the threshold defined therein shall be deemed to cause a disproportionate drag on capital.

3.

Where any of the conditions of points (a) to (e) of paragraph 1 are not met, all outstanding instruments with a dividend multiple shall be deemed to cause a disproportionate drag on capital.

[Note: This rule corresponds to Article 7a of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the PRA.]

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Article 7b Preferential Distributions Regarding Preferential Rights to Payments of Distributions

1.

For Common Equity Tier 1 instruments referred to in Article 28 of the CRR, a distribution on a Common Equity Tier 1 instrument shall be deemed to be preferential relative to other Common Equity Tier 1 instruments where there are differentiated levels of distributions, unless the conditions of Article 7a of this Part are met.

2.

For Common Equity Tier 1 instruments with fewer or no voting rights issued by institutions referred to in Article 27 of the CRR, where distribution is a multiple of the distribution on the voting instruments and that multiple distribution is set contractually or statutorily, distributions shall be deemed not to be preferential where all of the following conditions are met:

  1. (a) the dividend multiple is a multiple of the distribution paid on the voting instruments and not a predetermined fixed amount;
  2. (b) the dividend multiple is set contractually or under the statutes of the institution;
  3. (c) the dividend multiple is not revisable;
  4. (d) the same dividend multiple applies to all instruments with a dividend multiple;
  5. (e) the amount of the distribution on one instrument with a dividend multiple does not represent more than 125% of the amount of the distribution on one voting Common Equity Tier 1 instrument.
  6. In formulaic form this shall be expressed as:
    1. l ≤ 1.25 x k
  7. where:
  8. k shall represent the amount of the distribution on one instrument without a dividend multiple;
  9. l shall represent the amount of the distribution on one instrument with a dividend multiple;
  10. (f) the total amount of the distributions paid on all Common Equity Tier 1 instruments during a one year period does not exceed 105% of the amount that would have been paid if instruments with fewer or no voting rights received the same distributions as voting instruments.
  11. In formulaic form this shall be expressed as:
    1. kX + lY ≤ (1.05) x k x (X + Y)
  12. where:
  13. k shall represent the amount of the distribution on one instrument without a dividend multiple;
  14. l shall represent the amount of the distribution on one instrument with a dividend multiple;
  15. X shall represent the number of voting instruments;
  16. Y shall represent the number of non-voting instruments;
  17. The formula shall be applied on a one-year basis.

3.

Where the condition of paragraph 2 point (f) is not met, only the amount of the instruments with a dividend multiple that exceeds the threshold defined therein shall be disqualified from Common Equity Tier 1.

4.

Where any of the conditions of points (a) to (e) of paragraph 2 are not met, all outstanding instruments with a dividend multiple shall be disqualified from Common Equity Tier 1 capital.

5.

For the purposes of paragraph 2, where the distributions of Common Equity Tier 1 instruments are expressed, for the voting or the non-voting instruments, with reference to the purchase price at issuance of the instrument, the formulas shall be adapted as follows, for the instrument or instruments that are expressed with reference to the purchase price at issuance:

  1. (a) l shall represent the amount of the distribution on one instrument without a dividend multiple divided by the purchase price at issuance of that instrument;
  2. (b) k shall represent the amount of the distribution on one instrument with a dividend multiple divided by the purchase price at issuance of that instrument.

6.

For Common Equity Tier 1 instruments with fewer or no voting rights issued by institutions referred to in Article 27 of the CRR, where the distribution is not a multiple of the distribution on the voting instruments, distributions shall be deemed not to be preferential where either of the conditions referred to in paragraph 7 and both conditions referred to in paragraph 8 are met.

7.

For the purposes of paragraph 6, either of the following conditions (a) or (b) shall apply:

  1. (a) both of the following points (i) and (ii) are met:
    1. (i) the instrument with fewer or no voting rights can only be subscribed and held by the holders of voting instruments; and
    2. (ii) the number of the voting rights of any single holder is limited;
  2. (b) the distributions on the voting instruments issued by the institutions are subject to a cap set out under the applicable law of the United Kingdom (or any part of it), or of a third country.

8.

For the purposes of paragraph 6 both of the following conditions shall apply:

  1. (a) the institution demonstrates that the average of the distributions on voting instruments during the preceding five years, is low in relation to other comparable instruments;
  2. (b) the institution demonstrates that the payout ratio is low, where a payout ratio is calculated in accordance with Article 7c. A payout ratio under 30% shall be deemed to be low.

9.

For the purposes of point (a) of paragraph 7, the voting rights of any single holder shall be deemed to be limited in the following cases:

  1. (a) where each holder only receives one voting right irrespective of the number of voting instruments for any holder;
  2. (b) where the number of voting rights is capped irrespective of the number of voting instruments held by any holder;
  3. (c) where the number of voting instruments any holder may hold is limited under the statutes of the institution or under the applicable law of the United Kingdom (or any part of it), or of a third country.

10.

For the purposes of this Article, the one year period shall be deemed to end on the date of the last financial statements of the institution.

11.

Institutions shall assess compliance with the conditions referred to in paragraphs 7 and 8, and shall inform the PRA about the result of their assessment, at least in the following situations:

  1. (a) every time a decision on the amount of distributions on Common Equity Tier 1 instruments is taken;
  2. (b) every time a new class of Common Equity Tier 1 instruments with fewer or no voting rights is issued.

12.

Where the condition of point (b) of paragraph 8 is not met, only the amount of the non-voting instruments for which distributions exceed the threshold defined therein shall be deemed to entail preferential distributions.

13.

Where the condition of point (a) of paragraph 8 is not met, the distributions on all outstanding non-voting instruments shall be deemed to be preferential unless they meet the conditions of paragraph 2.

14.

Where neither of the conditions of paragraph 7 are met, the distributions on all outstanding non-voting instruments shall be deemed to be preferential unless they meet the conditions of paragraph 2.

15.

The requirement referred to in point (i) of paragraph 7(a) or point (b) of paragraph 8, or the requirements in both points, need not be met where both of the following conditions are met:

  1. (a) an institution is in breach of or, due, inter alia, to a rapidly deteriorating financial condition, is likely in the near future to be in breach of any of the requirements of the CRR;
  2. (b) the PRA has required the institution to urgently increase its Common Equity Tier 1 capital within a specified period and has assessed that the institution is not able to rectify or avoid the breach referred to in point (a) within that specified period, without resorting to the waiver referred to in this paragraph.

[Note: This rule corresponds to Article 7b of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the PRA.]

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Article 7c Calculation of the Payout Ratio for the Purpose of Point (b) of Article 7b(8)

1.

For the purposes of point (b) of Article 7b(8), institutions shall calculate the payout ratio as the sum of distributions related to total Common Equity Tier 1 instruments over the previous five year periods, divided by the sum of profits related to the previous five year periods.

[Note: This rule corresponds to point (a) of Article 7c(1) of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the PRA.]

2.

For the purposes of paragraph 1, profits shall mean the amount reported in row 0670 of template F 02.00 of Part 1 of Annex III of the Reporting (CRR) Part of the PRA Rulebook, or, where applicable, the amount reported in row 0670 of template F 02.00 of Part 1 of Annex IV of the Reporting (CRR) Part of the PRA Rulebook, with regard to supervisory reporting of institutions according to the CRR.

[Note: This rule corresponds to Article 7c(2) of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the PRA.]

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Article 7d Preferential Distributions Regarding the Order of Distribution Payments

1.

For the purposes of Article 28 of the CRR, a distribution on a Common Equity Tier 1 instrument shall be deemed to be preferential relative to other Common Equity Tier 1 instruments and regarding the order of distribution payments where at least one of the following conditions is met:

  1. (a) distributions are decided at different times;
  2. (b) distributions are paid at different times;
  3. (c) there is an obligation on the issuer to pay the distributions on one type of Common Equity Tier 1 instruments before paying the distributions on another type of Common Equity Tier 1 instruments;
  4. (d) a distribution is paid on some Common Equity Tier 1 instruments but not on others, unless the condition of point (a) of Article 7b(7) is met.

[Note: This rule corresponds to Article 7d of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the PRA.]

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Subsection 3 Indirect Funding

Article 8 Indirect Funding of Capital Instruments for the Purposes of Article 28(1)(b), Article 52(1)(c) and Article 63(c) of the CRR

1.

Indirect funding of capital instruments under Article 28(1)(b), Article 52(1)(c) and Article 63(c) of the CRR shall be deemed funding that is not direct.

2.

For the purposes of paragraph 1, direct funding shall refer to situations where an institution has granted a loan or other funding in any form to an investor that is used for the acquisition of ownership of its capital instruments.

3.

Direct funding shall also include funding granted for other purposes than acquisition of ownership of an institution’s capital instruments, to any person who has a qualifying holding in the credit institution, as referred to in Article 4(36) of the CRR, or who is deemed to be a related party within the meaning of the definitions in paragraph 9 of International Accounting Standard 24 on Related Party Disclosures as applied under UK-adopted international accounting standards, taking into account any additional guidance issued by the PRA, if the institution is not able to demonstrate all of the following:

  1. (a) the transaction is realised at similar conditions as other transactions with third parties;
  2. (b) the person or the related party does not have to rely on the distributions or on the sale of the capital instruments held to support the payment of interest and the repayment of the funding.

[Note: This rule corresponds to Article 8 of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the PRA.]

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Article 9 Applicable Forms and Nature of Indirect Funding of Capital Instruments for the Purposes of Articles 28(1)(b) and 52(1)(c) and 63(c) of the CRR

1.

The applicable forms and nature of indirect funding of the acquisition of ownership of an institution’s capital instruments shall include the following:

  1. (a) funding of an investor’s purchase, at issuance or thereafter, of an institution’s capital instruments by any entities on which the institution has a direct or indirect control or by entities included in any of the following:
    1. (i) the scope of accounting or prudential consolidation of the institution;
    2. (ii) [Note: Provision left blank]
    3. (iii) the scope of supplementary supervision of the institution in accordance with provisions implementing Directive 2002/87/EC;
  2. (b) funding of an investor’s acquisition of ownership, at issuance or thereafter, of an institution’s capital instruments by external entities that are protected by a guarantee or by the use of a credit derivative or are secured in some other way so that the credit risk is transferred to the institution or to any entities on which the institution has a direct or indirect control or any entities included in any of the following:
    1. (i) the scope of accounting or prudential consolidation of the institution;
    2. (ii) [Note: Provision left blank]
    3. (iii) the scope of supplementary supervision of the institution in accordance with provisions implementing Directive 2002/87/EC.
  3. (c) funding of a borrower that passes the funding on to the ultimate investor for the acquisition of ownership, at issuance or thereafter, of an institution’s capital instruments.

2.

In order to be considered as indirect funding for the purposes of paragraph 1, the following conditions shall also be met, where applicable:

  1. (a) the investor is not included in any of the following:
    1. (i) the scope of accounting or prudential consolidation of the institution;
    2. (ii) [Note: Provision deleted]
    3. (iii) the scope of the supplementary supervision of the institution in accordance with provisions implementing Directive 2002/87/EC;
  2. (b) the external entity is not included in any of the following:
    1. (i) the scope of accounting or prudential consolidation of the institution;
    2. (ii) [Note: Provision left blank]
    3. (iii) the scope of the supplementary supervision of the institution in accordance with provisions implementing Directive 2002/87/EC.

3.

When establishing whether the acquisition of ownership of a capital instrument involves direct or indirect funding in accordance with Article 8, the amount to be considered shall be net of any individually assessed impairment allowance made.

4.

In order to avoid a qualification of direct or indirect funding in accordance with Article 8 and where the loan or other form of funding or guarantees is granted to any person who has a qualifying holding in the institution or who is deemed to be a related party as referred to in paragraph 3 of Article 8, the institution shall ensure on an on-going basis that it has not provided the loan or other form of funding or guarantees for the purpose of acquiring ownership directly or indirectly of capital instruments of the institution. Where the loan or other form of funding or guarantees is granted to other types of parties, the institution shall make this control on a best effort basis.

5.

With regard to mutuals, co-operative societies and similar institutions, where there is an obligation under the law of the United Kingdom (or any part of it) or the statutes of the institution for a customer to acquire ownership of capital instruments in order to receive a loan, that loan shall not be considered to be a direct or indirect funding where all of the following conditions are met:

  1. (a) the amount of the subscription is considered immaterial by the PRA;
  2. (b) the purpose of the loan is not the acquisition of ownership of capital instruments of the institution providing the loan;
  3. (c) the subscription of one or more capital instruments of the institution is necessary in order for the beneficiary of the loan to become a member of the mutual, co-operative society or similar institution.

[Note: This rule corresponds to Article 9 of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the PRA.]

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Subsection 4 Limitations on Redemption of Capital Instruments

Article 10 Limitations on Redemption of Capital Instruments Issued by Mutuals, Savings Institutions, Co-operatives Societies and Similar Institutions for the Purpose of Article 29(2)(b) and Article 78(3) of the CRR

1.

An institution may issue Common Equity Tier 1 instruments with a possibility to redeem only where such redemption is permitted under the applicable law of the United Kingdom (or any part of it), or of a third country.

2.

The ability of the institution to limit the redemption under the provisions governing capital instruments as referred to in Article 29(2)(b) and 78(3) of the CRR, shall encompass both the right to defer the redemption and the right to limit the amount to be redeemed. The institution shall be able to defer the redemption or limit the amount to be redeemed for an unlimited period of time pursuant to paragraph 3.

3.

The extent of the limitations on redemption included in the provisions governing the instruments shall be determined by the institution on the basis of the prudential situation of the institution at any time, having regard to in particular, but not limited to:

  1. (a) the overall financial, liquidity and solvency situation of the institution;
  2. (b) the amount of Common Equity Tier 1 capital, Tier 1 and total capital compared to the total risk exposure amount calculated in accordance with the requirements laid down in point (a) of Article 92(1) of the CRR, the specific own funds requirements referred to in regulation 34 of the Capital Requirements Regulations and the combined buffer requirement as defined in regulation 2(1) of the Capital Requirements (Capital Buffers and Macro-prudential Measures) Regulations 2014.

[Note: This rule corresponds to Article 10 of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the PRA.]

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Article 11 Limitations on Redemption of Capital Instruments Issued by Mutuals, Savings Institutions, Co-operative Societies and Similar Institutions for the Purposes of Article 29(2)(b) and Article 78(3) of the CRR

1.

[Note: Provision deleted]

2.

Where the instruments are governed by the applicable law of the United Kingdom (or any part of it) or of a third country in the absence of contractual provisions, the institution shall ensure that the legislation allows the institution to limit redemption as referred to in paragraphs 1 to 3 of Article 10 in order for the instruments to qualify as Common Equity Tier 1.

3.

Any decision to limit redemption shall be documented internally and reported in writing by the institution to the PRA, including the reasons why, in view of the criteria set out in paragraph 3 of Article 10, a redemption has been partially or fully refused or deferred.

4.

Where several decisions to limit redemption are taking place in the same period of time, institutions may document these decisions in a single set of documents.

[Note: This rule corresponds to Article 11(2) to (4) of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the PRA.]

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Section 2

Prudential Filters

Article 12 The Concept of Gain on Sale for the Purposes of Article 32(1)(a) of the CRR

1.

The concept of gain on sale referred to in point (a) paragraph 1 of Article 32 of the CRR shall mean any recognised gain on sale for the institution that is recorded as an increase in any element of own funds and is associated with future margin income arising from a sale of securitised assets when they are removed from the institution’s balance sheet in the context of a securitisation transaction.

2.

The recognised gain on sale shall be determined as the difference between the following points (a) and (b) as determined by applying the relevant accounting framework:

  1. (a) the net value of the assets received including any new asset obtained less any other asset given or any new liability assumed; and
  2. (b) the carrying amount of the securitised assets or of the part derecognised.

3.

The recognised gain on sale which is associated with the future margin income, shall refer, in this context, to the expected future ‘excess spread’ as defined in Article 242 of the CRR.

[Note: This rule corresponds to Article 12 of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the PRA.]

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Section 3

Deductions from Common Equity Tier 1 Items

Article 13 Deduction of Losses for the Current Financial Year for the Purposes of Article 36(1)(A) of the CRR

1.

For the purpose of calculating its Common Equity Tier 1 capital during the year, and irrespective of whether the institution closes its financial accounts at the end of each interim period, the institution shall determine its profit and loss accounts and deduct any resulting losses from Common Equity Tier 1 items as they arise.

2.

For the purpose of determining an institution's profit and loss accounts in accordance with paragraph 1, income and expenses shall be determined under the same process and on the basis of the same accounting standards as the one followed for the year-end financial report. Income and expenses shall be prudently estimated and shall be assigned to the interim period in which they incurred so that each interim period bears a reasonable amount of the anticipated annual income and expenses. Material or non-recurrent events shall be considered in full and without delay in the interim period during which they arise.

3.

Where losses for the current financial year have already reduced Common Equity Tier 1 items as a result of an interim or a year-end financial report, a deduction is not needed. For the purpose of this Article, the financial report means that the profit and losses have been determined after a closing of the interim or the annual accounts in accordance with the applicable accounting framework (as that term is defined in the CRR).

4.

Paragraphs 1 to 3 shall apply in the same manner to gains and losses included in accumulated other comprehensive income.

[Note: This rule corresponds to Article 13 of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the Treasury.]

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Article 14 Deductions of Deferred Tax Assets that Rely on Future Profitability for the Purposes of Article 36(1)(C) of the CRR

1.

The deductions of deferred tax assets that rely on future profitability under Article 36(1)(c) of the CRR shall be made according to paragraphs 2 and 3.

2.

The offsetting between deferred tax assets and associated deferred tax liabilities shall be done separately for each taxable entity. Associated deferred tax liabilities shall be limited to those that arise from the tax law of the same jurisdiction as the deferred tax assets. For the calculation of deferred tax assets and liabilities at consolidated level, a taxable entity includes any number of entities which are members of the same tax group, fiscal consolidation, fiscal unity or consolidated tax return under applicable law of the United Kingdom or of a third country.

3.

The amount of associated deferred tax liabilities which are eligible for offsetting deferred tax assets that rely on future profitability is equal to the difference between the amount in point (a) and the amount in point (b):

  1. (a) the amount of deferred tax liabilities as recognised under the applicable accounting framework;
  2. (b) the amount of associated deferred tax liabilities arising from intangible assets and from defined benefit pension fund assets.

[Note: This rule corresponds to Article 14 of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the Treasury.]

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Article 15 Deduction of Defined Benefit Pension Fund Assets for the Purposes of Article 36(1)(E) of the CRR and Article 41(1)(B) of the CRR

1.

For the purposes of an application for permission under point (b) of Article 41(1) of the CRR, the unrestricted ability to use the respective defined benefit pension fund assets entails immediate and unfettered access to the assets such as when the use of the assets is not barred by a restriction of any kind and there are no claims of any kind from third parties on these assets.

2.

Unfettered access to the assets is likely to exist when the institution is not required to request and receive specific approval from the manager of the pension funds or the pension beneficiaries each time it would access excess funds in the plan.

[Note: This rule corresponds to Article 15 of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the Treasury.]

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Article 15a Indirect Holdings for the Purposes of Article 36(1)(F), (H) and (I) of the CRR

1.

For the purposes of Articles 15c, 15d, 15e and 15i of this Chapter 4 of the Own Funds and Eligible Liabilities (CRR) Part of the PRA Rulebook, 'intermediate entity' as referred to in Article 4(1)(114) of the CRR comprises any of the following entities that hold capital instruments of financial sector entities:

  1. (a) a collective investment undertaking;
  2. (b) a pension fund other than a defined benefit pension fund;
  3. (c) a defined benefit pension fund, where the institution is supporting the investment risk and where the defined benefit pension fund is not independent from its sponsoring institution;
  4. (d) entities that are directly or indirectly under the control or under significant influence of one of the following:
    1. (1) the institution or its subsidiaries;
    2. (2) the parent undertaking of the institution or the subsidiaries of that parent undertaking; (3) the parent financial holding company of the institution or the subsidiaries of that parent financial holding company;
    3. (4) the parent mixed activity holding company of the institution or the subsidiaries of the parent mixed activity holding company;
    4. (5) the parent mixed financial holding company of the institution or the subsidiaries of the parent mixed financial holding company;
  5. (e) entities that are jointly, directly or indirectly, under the control or under significant influence of one institution, several institutions, or a network of institutions, which are members of the same institutional protection scheme, or of the institutional protection scheme or the network of institutions affiliated to a central body that are not organised as a group to which the institution belongs;
  6. (f) special purpose entities;
  7. (g) entities whose activity is to hold financial instruments of financial sector entities;
  8. (h) any other entity that is used with the intention of circumventing the rules relating to the deduction of indirect and synthetic holdings.

2.

Without prejudice to point (h) of paragraph 1, an 'intermediate entity' as referred to in Article 4(1)(114) of the CRR does not comprise:

  1. (a) mixed activity holding companies, institutions, insurance undertakings, reinsurance undertakings;
  2. (b) entities that are, by virtue of applicable law of the United Kingdom (or a part of it), subject to the requirements of the CRR and Directive 2013/36/EU UK law;
  3. (c) financial sector entities other than the ones mentioned in point (a), which are supervised and required to deduct direct and indirect holdings of their own capital instruments and holdings of capital instruments of financial sector entities from their regulatory capital.

3.

For the purposes of point (c) of paragraph 1, a defined benefit pension fund shall be deemed to be independent from its sponsoring institution where all of the following conditions are met:

  1. (a) the defined benefit pension fund is legally separate from the sponsoring institution and its governance is independent;
  2. (b) the statutes, the instruments of incorporation and the internal rules of the specific pension fund, as applicable, have been approved by an independent regulator; or the rules governing the incorporation and functioning of the defined benefit pension fund, as applicable, are established in the applicable law of the relevant country;
  3. (c) the trustees or administrators of the defined pension fund have an obligation under applicable national law to act impartially in the best interests of the scheme beneficiaries instead of those of the sponsor, to manage assets of the defined pension fund prudently and to conform to the restrictions set out in the statutes, the instruments of incorporation and the internal rules of the specific pension fund, as applicable, or statutory or regulatory framework described in point (b);
  4. (d) the statutes or the instruments of incorporation or the rules governing the incorporation and functioning of the defined benefit pension fund referred to in point (b) include restrictions on investments that the defined pension scheme can make in own funds instruments issued by the sponsoring institution.

4.

Where a defined benefit pension fund referred to in point (c) of paragraph 1 holds own funds instruments of the sponsoring institution, the sponsoring institution shall treat that holding as an indirect holding of own Common Equity Tier 1 instruments, own Additional Tier 1 instruments or own Tier 2 instruments, as applicable. The amount to be deducted from the Common Equity Tier 1 items, Additional Tier 1 items or Tier 2 items, as applicable, of the sponsoring institution, shall be calculated in accordance with Article 15c.

[Note: This rule corresponds to Article 15a of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the Treasury.]

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Article 15b Synthetic Holdings for the Purposes of Article 36(1)(F), (H) and (I) of the CRR

1.

The following financial products shall be considered synthetic holdings of capital instruments pursuant to points (f), (h) and (i) of Article 36(1) of the CRR:

  1. (a) derivative instruments that have capital instruments of a financial sector entity as their underlying or have the financial sector entity as their reference entity;
  2. (b) guarantees or credit protection provided to a third party in respect of the third party's investments in a capital instrument of a financial sector entity.

2.

The financial products provided for in paragraph 1 shall include the following:

  1. (a) investments in total return swaps on a capital instrument of a financial sector entity;
  2. (b) call options purchased by the institution on a capital instrument of a financial sector entity;
  3. (c) put options sold by the institution on a capital instrument of a financial sector entity or any other actual or contingent contractual obligation of the institution to purchase its own own funds instruments;
  4. (d) investments in forward purchase agreements on a capital instrument of a financial sector entity.

[Note: This rule corresponds to Article 15b of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the Treasury.]

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Article 15c Calculation of Indirect Holdings for the Purposes of Points (F), (H) and (I) of Article 36(1) of the CRR

The amount of indirect holdings to be deducted from Common Equity Tier 1 items as required in points (f), (h) and (i) of Article 36(1) of the CRR shall be calculated in one of the following ways:

  1. (a) according to the default approach set out in Article 15d;
  2. (b) with the permission of the PRA, and subject to the institution demonstrating that the approach used in Article 15d is excessively burdensome, according to the structure-based approach described in Article 15e. The structure-based approach described in Article 15e shall not be used by institutions for calculating the amount of those deductions in relation to investments in intermediate entities referred to in Article 15a(1)(d) and (e).

[Note: This rule corresponds to Article 15c of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the Treasury.]

[Note: Article 15c(b) is a permission under section 144G and 192XC of FSMA to which Part 8 of the Capital Requirements Regulations applies]

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Article 15d Default Approach for the Calculation of Indirect Holdings for the Purposes of Points (F), (H) and (I) of Article 36(1) of the CRR

1.

The amount of indirect holdings of Common Equity Tier 1 instruments to be deducted as required by points (f), (h) and (i) of Article 36(1) of the CRR shall be calculated as follows:

  1. (a) where the exposures of all investors to the intermediate entity rank pari passu, the amount shall be equal to the percentage of funding multiplied by the amount of Common Equity Tier 1 instruments of the financial sector entity held by the intermediate entity;
  2. (b) where the exposures of all investors to the intermediate entity do not rank pari passu, the amount shall be equal to the percentage of funding multiplied with the lower of the following amounts:
    1. (i) the amount of Common Equity Tier 1 instruments of the financial sector entity held by the intermediate entity;
    2. (ii) the institution's exposure to the intermediate entity together with all other funding provided to the intermediate entity that rank pari passu with the institution's exposure.

2.

The calculation method set out in point (b) of paragraph 1 shall be made for each tranche of funding that ranks pari passu with the funding provided by the institution.

3.

The percentage of funding for the purposes of paragraph 1 shall be the institution's exposure to the intermediate entity divided by the sum of the institution's exposure to the intermediate entity and of all other exposures to this intermediate entity that rank pari passu with the institution's exposure.

4.

The calculation laid down in paragraph 1 shall be made separately for each holding in a financial sector entity held by each intermediate entity.

5.

Where investments in Common Equity Tier 1 instruments of a financial sector entity are held indirectly through subsequent or several intermediate entities, the percentage of funding set out in paragraph 1 shall be determined by dividing the amount referred to in point (a) of this paragraph by the amount referred to in point (b) of this paragraph:

  1. (a) the result of the multiplication of amounts of funding provided by the institution to intermediate entities, by the amounts of funding provided by these intermediate entities to subsequent intermediate entities, and by amounts of funding provided by these subsequent intermediate entities to the financial sector entity;
  2. (b) the result of the multiplication of amounts of capital instruments or other instruments as relevant, issued by each intermediate entity.

6.

The percentage of funding referred to in paragraph 5 shall be calculated separately for each holding in a financial sector entity held by intermediate entities and for each tranche of funding that ranks pari passu with the funding provided by the institution and the subsequent intermediate entities.

[Note: This rule corresponds to Article 15d of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the Treasury.]

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Article 15e Structure-based Approach for the Calculation of Indirect Holdings for the Purposes of Points (F), (H) and (I) of Article 36(1) of the CRR

1.

The amount to be deducted from Common Equity Tier 1 items referred to in point (f) of Article 36(1) of the CRR shall be equal to the percentage of funding, as defined in Article 15d(3) of this Chapter 4 of the Own Funds and Eligible Liabilities (CRR) Part of the PRA Rulebook, multiplied by the amount of Common Equity Tier 1 instruments of the institution held by the intermediate entity.

2.

The amount to be deducted from Common Equity Tier 1 items referred to in points (h) and (i) of Article 36(1) of the CRR shall be equal to the percentage of funding, as defined in Article 15d(3) of this Chapter 4 of the Own Funds and Eligible Liabilities (CRR) Part of the PRA Rulebook, multiplied by the aggregate amount of Common Equity Tier 1 instruments of financial sector entities held by the intermediate entity.

3.

For the purposes of paragraphs 1 and 2, an institution shall calculate separately per intermediate entity the aggregate amount of Common Equity Tier 1 instruments of the institution that the intermediate entity holds and the aggregate amount of Common Equity Tier 1 instruments of other financial sector entities that the intermediate entity holds.

4.

The institution shall consider the amount of holdings in Common Equity Tier 1 instruments of financial sector entities calculated in accordance with paragraph 2 of this Article as a significant investment referred to in Article 43 of the CRR and shall deduct the amount in accordance with point (i) of Article 36(1) of the CRR.

5.

Where investments in Common Equity Tier 1 instruments are held indirectly through subsequent or several intermediate entities, paragraphs 5 and 6 of Article 15d shall apply.

6.

Where an institution is not able to identify the aggregate amounts that the intermediate entity holds in Common Equity Tier 1 instruments of the institution or in Common Equity Tier 1 instruments of financial sector entities, the institution shall estimate the amounts it cannot identify by using the maximum amounts that the intermediate entity is able to hold on the basis of its investment mandates.

7.

Where the institution is not able to determine, on the basis of the investment mandate, the maximum amount that the intermediate entity holds in Common Equity Tier 1 instruments of the institution or in Common Equity Tier 1 instruments of financial sector entities, the institution shall treat the amount of funding that it holds in the intermediate entity as an investment in its own Common Equity Tier 1 instruments and shall deduct them in accordance with point (f) of Article 36(1) of the CRR.

8.

By way of derogation from paragraph 7 of this Article, the institution shall treat the amount of funding that it holds in the intermediate entity as a non-significant investment and shall deduct them in accordance with point (h) of Article 36(1) of the CRR, where all of the following conditions are met:

  1. (a) the amounts of funding are less than 0.25% of the institution's Common Equity Tier 1 capital;
  2. (b) the amounts of funding are less than GBP 8.8 million;
  3. (c) the institution cannot reasonably determine the amounts of its own Common Equity Tier 1 instruments that the intermediate entity holds.

9.

Where funding to the intermediate entity is in the form of units or shares of a CIU, the institution may rely on the third parties referred to in Article 132(5) of the CRR, and under the conditions set by that Article, to calculate and report the aggregate amounts referred to in paragraph 6 of this Article.

[Note: This rule corresponds to Article 15e of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the Treasury.]

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Article 15f Calculation of Synthetic Holdings for the Purposes of Points (F), (H) and (I) of Article 36(1) of the CRR

1.

The amount of synthetic holdings to be deducted from Common Equity Tier 1 items as required by points (f), (h) and (i) of Article 36(1) of the CRR shall be as follows:

  1. (a) for holdings in the trading book:
    1. (i) for options, the delta equivalent amount of the relevant instruments calculated in accordance with Title IV of Part III of the CRR;
    2. (ii) for any other synthetic holdings, the nominal or notional amount, as applicable;
  3. (b) for holdings in the non-trading book:
    1. (i) for call options, the current market value;
    2. (ii) for any other synthetic holdings, the nominal or notional amount, as applicable.

2.

An institution shall deduct the synthetic holdings referred to in paragraph 1 from the date of signature of the contract between the institution and the counterparty.

[Note: This rule corresponds to Article 15f of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the Treasury.]

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Article 15g Calculation of Significant Investments for the Purposes of Article 36(1)(I) of the CRR

1.

For the purposes of Article 36(1)(i) of the CRR, in order to assess whether an institution owns more than 10% of the Common Equity Tier 1 instruments issued by a financial sector entity, in accordance with point (a) of Article 43 of the CRR, institutions shall add the amounts of their gross long positions in direct holdings, as well as indirect holdings of Common Equity Tier 1 instruments of this financial sector entity referred to in points (d) to (h) of Article 15a(1) of this Chapter 4 of the Own Funds and Eligible Liabilities (CRR) Part of the PRA Rulebook.

2.

Indirect and synthetic holdings shall be taken into account in order to assess whether the conditions in points (b) and (c) of Article 43 of the CRR are met.

[Note: This rule corresponds to Article 15g of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the Treasury.]

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Article 15h Holdings of Additional Tier 1 and Tier 2

The methodology referred to in Articles 15a to 15f of this Chapter 4 of the Own Funds and Eligible Liabilities (CRR) Part of the PRA Rulebook shall apply mutatis mutandis to Additional Tier 1 holdings for the purposes of points (a), (c) and (d) of Article 56 of the CRR, and to Tier 2 holdings for the purposes of points (a), (c) and (d) of Article 66 of the CRR, where references to Common Equity Tier shall be read as references to Additional Tier 1 or Tier 2, as applicable.

[Note: This rule corresponds to Article 15h of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the Treasury.]

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Article 15i Order and Maximum Amount of Deductions of Indirect Holdings of Own Funds Instruments of Financial Sector Entities

1.

Subject to the limits laid down in paragraphs 2 or 3, as applicable, where the intermediate entity holds Common Equity Tier 1 instruments, Additional Tier 1 instruments and Tier 2 instruments of financial sector entities, the Common Equity Tier 1 instruments shall be deducted first, the Additional Tier 1 instruments shall be deducted second, and the Tier 2 instruments last.

2.

Where the intermediate entity holds own funds instruments of institutions, when applying paragraph 1 to each type of holding institutions shall deduct the holdings of their own funds instruments first.

3.

Where an institution holds capital instruments of financial sector entities indirectly, the amount to be deducted from the institution's own funds shall not be higher than the lower of the following amounts:

  1. (a) the total funding provided by the institution to the intermediate entity;
  2. (b) the amount of own funds instruments held by the intermediate entity in the financial sector entity.

[Note: This rule corresponds to Article 15i of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the Treasury.]

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Article 15j Goodwill

For the application of deductions referred to in point (h) of Article 36(1) of the CRR, institutions may choose not to identify goodwill separately when determining the applicable amount to be deducted according to Article 46 of the CRR.

[Note: This rule corresponds to Article 15j of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the Treasury.]

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Article 16 Deductions of Foreseeable Tax Charges for the Purposes of Article 36(1)(L) and Article 56(F) of the CRR

1.

On the condition that the institution applies accounting framework and accounting policies that provide for the full recognition of current and deferred tax liabilities related to transactions and other events recognised in the balance sheet or the profit and loss account, the institution may consider that foreseeable tax charges have been already taken into account.

2.

When the institution is calculating its Common Equity Tier 1 capital on the basis of financial statements prepared in accordance with UK-adopted international accounting standards, the condition of paragraph 1 is deemed to be fulfilled.

3.

Where the condition of paragraph 1 is not fulfilled, the institution shall decrease its Common Equity Tier 1 items by the estimated amount of current and deferred tax charges not yet recognised in the balance sheet and profit and loss account related to transactions and other events recognised in the balance sheet or the profit and loss account. The estimated amount of current and deferred tax charges shall be determined using an approach equivalent to the one provided by UK-adopted international accounting standards. The estimated amount of deferred tax charges may not be netted against deferred tax assets that are not recognised in the financial statements.

[Note: This rule corresponds to Article 16 of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the Treasury.]

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Section 4

Other Deductions for Common Equity Tier 1, Additional Tier 1 and Tier 2 Items

Article 17 Other Deductions for Capital Instruments of Financial Institutions for the Purposes of Article 36(3) of the CRR

1.

Holdings of capital instruments of financial institutions as defined in Article 4(26) of the CRR shall be deducted according to the following calculations:

  1. (a) all instruments qualifying as capital under the company law applicable to the financial institution that issued them and, where the financial institution is subject to solvency requirements, which are included in the highest quality Tier of regulatory own funds without any limits shall be deducted from Common Equity Tier 1 items;
  2. (b) all instruments which qualify as capital under the company law applicable to the issuer and, where the financial institution is not subject to solvency requirements, which are perpetual, absorb the first and proportionately greatest share of losses as they occur, rank below all other claims in the event of insolvency and liquidation and have no preferential or predetermined distributions shall be deducted from Common Equity Tier 1 items;
  3. (c) any subordinated instruments absorbing losses on a going-concern basis, including the discretion to cancel coupon payments, shall be deducted from Additional Tier 1 items. Where the amount of these subordinated instruments exceeds the amount of Additional Tier 1 capital, the excess amount shall be deducted from Common Equity Tier 1 capital;
  4. (d) any other subordinated instruments shall be deducted from Tier 2 items. If the amount of these subordinated instruments exceeds the amount of Tier 2 capital, the excess amount shall be deducted from Additional Tier 1 items. Where the amount of Additional Tier 1 capital is insufficient, the remaining excess amount shall be deducted from Common Equity Tier 1 items;
  5. (e) any other instruments included in the financial institution's own funds pursuant to the relevant applicable prudential framework or any other instruments for which the institution is not able to demonstrate that the conditions in points (a), (b), (c) or (d) apply shall be deducted from Common Equity Tier 1 items.

2.

In the cases foreseen in paragraph 3, institutions shall apply the deductions as foreseen by the CRR for holdings of capital instruments based on a corresponding deduction approach. For the purposes of this paragraph, corresponding deduction approach shall mean an approach that applies the deduction to the same component of capital for which the capital would qualify if it was issued by the institution itself.

3.

The deductions referred to in paragraph 1 shall not apply in the following cases:

  1. (a) where the financial institution is authorised and supervised by a competent authority and subject to prudential requirements equivalent to those applied to institutions under the CRR. This approach shall be applied to third country financial institutions only where an equivalence assessment of the prudential regime of the third country concerned has been performed under the CRR and where it has been concluded that the prudential regime of the third country concerned is at least equivalent to that applied in the United Kingdom;
  2. (b) where the financial institution is an authorised electronic money institution as defined in regulation 2(1) of the Electronic Money Regulations 2011;
  3. (c) where the financial institution is an authorised payment institution as defined in regulation 2(1) of the Payment Services Regulations 2017;
  4. (d) where the financial institution is a UK AIFM as defined in regulation 2(1) of the Alternative Investment Fund Managers Regulations 2013 or a management company as defined in section 237(2) of FSMA.

[Note: This rule corresponds to Article 17 of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the Treasury.]

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Article 18 Capital Instruments of Third Country Insurance and Reinsurance Undertakings for the Purposes of Article 36(3) of the CRR

1.

Holdings of capital instruments of third country insurance and reinsurance undertakings that are subject to a solvency regime that either before IP completion day, has been assessed as non-equivalent to that laid down in Title I, Chapter VI of Directive 2009/138/EC according to the procedure set out in Article 227 of that Directive and there has not, in respect of the supervisory regime of that third country, been a later determination of equivalence by the Treasury under Article 379A of the Solvency II Delegated Regulation (EU) 2015/35 or by the PRA under regulation 19 of the Solvency 2 Regulations 2015, or that has not been assessed, shall be deducted as follows:

  1. (a) all instruments which qualify as capital under the company law applicable to the third country insurance and reinsurance undertakings that issued them, and which are included in the highest quality Tier of regulatory own funds without any limits under the third-country regime shall be deducted from Common Equity Tier 1 items;
  2. (b) any subordinated instruments absorbing losses on a going-concern basis, including the discretion to cancel coupon payments, shall be deducted from Additional Tier 1 items. Where the amount of these subordinated instruments exceeds the amount of Additional Tier 1 capital, the excess amount shall be deducted from Common Equity Tier 1 items;
  3. (c) any other subordinated instruments shall be deducted from Tier 2 items. Where the amount of these subordinated instruments exceeds the amount of Tier 2 capital, the excess amount shall be deducted from Additional Tier 1 items. Where this excess amount exceeds the amount of Additional Tier 1 capital, the remaining excess amount shall be deducted from Common Equity Tier 1 items;
  4. (d) for third country insurance and reinsurance undertakings that are subject to prudential solvency requirements, any other instruments included in the third country insurance and reinsurance undertakings' own funds pursuant to the relevant applicable solvency regime or any other instruments for which the institution is not able to demonstrate that conditions (a), (b) or (c) apply shall be deducted from Common Equity Tier 1 items.

2.

Where the solvency regime of the third country including rules on own funds, has:

  1. (a) before IP completion day, been assessed as equivalent to that laid down in Title I, Chapter VI of Directive 2009/138/EC according to the procedure set out in Article 227 of that Directive and that assessment has not, on or after IP completion day, been revoked by the Treasury; or
  2. (b) on or after IP completion day, been assessed as equivalent to that laid down in the laws of the United Kingdom that implemented Title I, Chapter VI of Directive 2009/138/EC according to the procedure set out in Article 379A of the Solvency II Delegated Regulation (EU) 2015/35, or, where assessed as equivalent by the PRA according to the procedure in regulation 19 of the Solvency 2 Regulations 2015,

holdings of capital instruments of the third-country insurance or reinsurance undertakings shall be treated as holdings of capital instruments of insurance or reinsurance undertakings within the meaning of 'insurance undertaking' and 'reinsurance undertaking' in section 417(1) of FSMA.

3.

In the cases foreseen in paragraph 2 of this Article, institutions shall apply the deductions as foreseen by point (b) of Article 44, point (b) of Article 58 and point (b) of Article 68 of the CRR, as applicable, for holdings of own funds insurance items.

[Note: This rule corresponds to Article 18 of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the Treasury.]

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Article 19 Capital Instruments of Undertakings Excluded from the Scope of Directive 2009/138/EC for the Purposes of Article 36(3) of the CRR

Holdings of capital instruments of undertakings within Article 4(1)(27)(k) of the CRR shall be deducted as follows:

  1. (a) all instruments qualifying as capital under the company law applicable to the undertaking that issued them and that are included in the highest quality Tier of regulatory own funds without any limits shall be deducted from Common Equity Tier 1 capital;
  2. (b) any subordinated instruments absorbing losses on a going-concern basis, including the discretion to cancel coupon payments, shall be deducted from Additional Tier 1 items. Where the amount of these subordinated instruments exceeds the amount of Additional Tier 1 capital, the excess amount shall be deducted from Common Equity Tier 1 items;
  3. (c) any other subordinated instruments shall be deducted from Tier 2 items. If the amount of these subordinated instruments exceeds the amount of Tier 2 capital, the excess amount shall be deducted from Additional Tier 1 items. Where this amount exceeds the amount of Additional Tier 1 capital, the remaining excess amount shall be deducted from Common Equity Tier 1 items;
  4. (d) any other instruments included in the undertaking's own funds pursuant to the relevant applicable solvency regime or any other instruments for which the institution is not able to demonstrate that conditions (a), (b) or (c) apply shall be deducted from Common Equity Tier 1 capital.

[Note: This rule corresponds to Article 19 of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the Treasury.]

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Chapter III Additional Tier 1 and Tier 2 Capital

Section 1

Form and Nature of Incentives to Redeem

Article 20 Form and Nature of Incentives to Redeem for the Purposes of Articles 52(1)(g) and 63(h) of the CRR

1.

Incentives to redeem shall mean all features that provide, at the date of issuance, an expectation that the capital instrument is likely to be redeemed.

2.

The incentives referred to in paragraph 1 shall include the following forms:

  1. (a) a call option combined with an increase in the credit spread of the instrument if the call is not exercised;
  2. (b) a call option combined with a requirement or an investor option to convert the instrument into a Common Equity Tier 1 instrument where the call is not exercised;
  3. (c) a call option combined with a change in reference rate where the credit spread over the second reference rate is greater than the initial payment rate minus the swap rate;
  4. (d) a call option combined with an increase of the redemption amount in the future;
  5. (e) a remarketing option combined with an increase in the credit spread of the instrument or a change in reference rate where the credit spread over the second reference rate is greater than the initial payment rate minus the swap rate where the instrument is not remarketed;
  6. (f) a marketing of the instrument in a way which suggests to investors that the instrument will be called.

[Note: This rule corresponds to Article 20 of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the PRA.]

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Section 2

Conversion or Write-down of the Principal Amount

Article 21 Nature of the Write-up of the Principal Amount Following a Write-down for the Purposes of Article 52(1)(n) and Article 52(2)(c)(ii) of the CRR

1.

The write-down of the principal amount shall apply on a pro rata basis to all holders of Additional Tier 1 instruments that include a similar write-down mechanism and an identical trigger level.

2.

For the write-down to be considered temporary, all of the following conditions shall be met:

  1. (a) any distributions payable after a write-down shall be based on the reduced amount of the principal;
  2. (b) write-ups shall be based on profits after the institution has taken a formal decision confirming the final profits;
  3. (c) any write-up of the instrument or payment of coupons on the reduced amount of the principal shall be operated at the full discretion of the institution subject to the constraints arising from points (d) to (f) and there shall be no obligation for the institution to operate or accelerate a write-up under specific circumstances;
  4. (d) a write-up shall be operated on a pro rata basis among similar Additional Tier 1 instruments that have been subject to a write-down;
  5. (e) the maximum amount to be attributed to the sum of the write-up of the instrument together with the payment of coupons on the reduced amount of the principal shall be equal to the profit of the institution multiplied by the amount obtained by dividing the amount determined in point (1) by the amount determined in point (2):
    1. (i) the sum of the nominal amount of all Additional Tier 1 instruments of the institution before write-down that have been subject to a write-down;
    2. (ii) the total Tier 1 capital of the institution; and
  6. (f) the sum of any write-up amounts and payments of coupons on the reduced amount of the principal shall be treated as a payment that results in a reduction of Common Equity Tier 1 and shall be subject, together with other distributions on Common Equity Tier 1 instruments, to the restrictions relating to the Maximum Distributable Amount as referred to in provisions implementing Article 141(2) of the CRD.

3.

For the purposes of point (e) of paragraph 2, the calculation shall be made at the moment when the write-up is operated.

[Note: This rule corresponds to Article 21 of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the PRA.]

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Article 22 Procedures and Timing for Determining that a Trigger Event has Occurred for the Purposes of Article 52(1)(n) of the CRR

1.

Where the institution has established that the Common Equity Tier 1 ratio has fallen below the level that activates conversion or write-down of the instrument at the level of application of the requirements provided in Title II of Part One of the CRR, the management body or any other relevant body of the institution shall without delay determine that a trigger event has occurred and there shall be an irrevocable obligation to write-down or convert the instrument.

2.

The amount to be written-down or converted shall be determined as soon as possible and within a maximum period of one month from the time it is determined that the trigger event has occurred pursuant to paragraph 1.

3.

[Note: Provision left blank]

4.

Where an independent review of the amount to be written down or converted is required according to the provisions governing the Additional Tier 1 instrument, or where the PRA requires an independent review for the determination of the amount to be written down or converted, the management body or any other relevant body of the institution shall see that this is done immediately. That independent review shall be completed as soon as possible and shall not create impediments for the institution to write-down or convert the Additional Tier 1 instrument and to meet the requirements of paragraphs 2 and 3.

[Note: This rule corresponds to Article 22(1), (2) and (4) of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the PRA.]

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Section 3

Features of Instruments That Could Hinder Recapitalisation

Article 23 Features of Instruments That Could Hinder Recapitalisation for the Purposes of Article 52(1)(o) of the CRR

1.

Features that could hinder the recapitalisation of an institution shall include provisions that require the institution to compensate existing holders of capital instruments where a new capital instrument is issued.

[Note: This rule corresponds to Article 23 of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the PRA.]

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Section 4

Use of Special Purposes Entities for Indirect Issuance of Own Funds Instruments

Article 24 Use of Special Purpose Entities for Indirect Issuance of Own Funds Instruments for the Purposes of Article 52(1)(p) and Article 63(n) of the CRR

1.

Where the institution or an entity within the consolidation pursuant to Chapter 2 of Title II of Part One of the CRR issues a capital instrument that is subscribed by a special purpose entity, this capital instrument shall not, at the level of the institution or of the above-mentioned entity, receive recognition as capital of a higher quality than the lowest quality of the capital issued to the special purpose entity and the capital issued to third parties by the special purpose entity. That requirement shall apply at the consolidated, sub-consolidated and individual levels of application of prudential requirements.

2.

The rights of the holders of the instruments issued by a special purpose entity shall be no more favourable than if the instrument was issued directly by the institution or an entity within the consolidation pursuant to Chapter 2 of Title II of Part One of the CRR.

[Note: This rule corresponds to Article 24 of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the PRA.]

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Article 24A Distribution on Own Funds Instruments - Broad Market Indices

1.

An interest rate index shall be deemed to be a broad market index if it fulfils all of the following conditions:

  1. (a) it is used to set interbank lending rates in one or more currencies;
  2. (b) it is used as a reference rate for floating rate debt issued by the institution in the same currency, where applicable;
  3. (c) it is calculated as an average rate by a body independent of the institutions that are contributing to the index (‘panel’);
  4. (d) each of the rates set under the index is based on quotes submitted by a panel of institutions active in that interbank market;
  5. (e) the composition of the panel referred to in point (c) ensures a sufficient level of representativeness of institutions present in the United Kingdom.

2.

For the purposes of point (e) of paragraph 1, a sufficient level of representativeness shall be deemed to be achieved in either of the following cases:

  1. (a) where the panel referred to in point (c) of paragraph 1 includes at least 6 different contributors before any discount of quotes is applied for the purposes of setting the rate;
  2. (b) where all of the following conditions are met:
    1. (i) the panel referred to in point (c) of paragraph 1 includes at least 4 different contributors before any discount of quotes is applied for the purposes of setting the rate;
    2. (ii) the contributors to the panel referred to in point (c) of paragraph 1 represent at least 60% of the related market.

3.

The related market referred to in point (b)(ii) of paragraph 2 shall be the sum of assets and liabilities of the effective contributors to the panel in the domestic currency divided by the sum of assets and liabilities in the domestic currency of credit institutions in the United Kingdom, including branches established in the United Kingdom, and money market funds in the United Kingdom.

4.

A stock index shall be deemed to be a broad market index where it is appropriately diversified in accordance with Article 344 of the CRR.

[Note: This rule corresponds to Article 24a of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the PRA.]

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Chapter IV General Requirements

Section 1

Indirect Holdings Arising from Index Holdings

Article 25 Extent of Conservatism Required in Estimates for Calculating Exposures Used as an Alternative to the Underlying Exposures for the Purposes of Article 76(2) of the CRR

1.

An estimate is sufficiently conservative when either of the following conditions is met:

  1. (a) where the investment mandate of the index specifies that an own funds instrument of a financial sector entity which is part of the index cannot exceed a maximum percentage of the index, the institution uses that percentage as an estimate for the value of the holdings that is deducted from its Common Equity Tier 1, Additional Tier 1 or Tier 2 items, as applicable in accordance with paragraph 2 of Article 17 of this Part or from Common Equity Tier 1 items in situations where the institution cannot determine the precise nature of the holding;
  2. (b) where the institution is unable to determine the maximum percentage referred to in point (a) and where the index, as evidenced by its investment mandate or other relevant information, includes own funds instruments of financial sector entities, the institution deducts the full amount of the index holdings from its Common Equity Tier 1, Additional Tier 1 or Tier 2 items, as applicable in accordance with paragraph 2 of Article 17 of this Part or from Common Equity Tier 1 items in situations where the institution cannot determine the precise nature of the holding.

2.

For the purposes of paragraph 1, the following shall apply:

  1. (a) an indirect holding arising from an index holding comprises the proportion of the index invested in the Common Equity Tier 1, Additional Tier 1 and Tier 2 instruments of financial sector entities included in the index;
  2. (b) an index includes, but is not limited to, index funds, equity or bond indices or any other scheme where the underlying instrument is an own funds instrument issued by a financial sector entity.

[Note: This rule corresponds to Article 25 of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the PRA.]

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Article 26 Meaning of Operationally Burdensome in Article 76(3) of the CRR

1.

For the purpose of Article 76(3) of the CRR, operationally burdensome shall mean situations under which look-through approaches to capital instruments holdings in financial sector entities on an ongoing basis are unjustified. In its assessment of the nature of operationally burdensome situations, the institution shall take into account the low materiality and short holding period of such positions. A holding period of short duration shall require the strong liquidity of the index to be evidenced by the institution.

2.

For the purpose of paragraph 1, a position shall be deemed to be of low materiality where all of the following conditions are met:

  1. (a) the individual net exposure arising from index holdings measured before any look-through is performed does not exceed 2% of Common Equity Tier 1 items as calculated in point (a) of Article 46(1) of the CRR;
  2. (b) the aggregated net exposure arising from index holdings measured before any look-through is performed does not exceed 5% of Common Equity Tier 1 items as calculated in point (a) of Article 46(1) of the CRR;
  3. (c) the sum of the aggregated net exposure arising from index holdings measured before any look-through is performed and of any other holdings that shall be deducted pursuant to point (h) of Article 36(1) of the CRR does not exceed 10% of Common Equity Tier 1 items as calculated in point (a) of Article 46(1) of the CRR.

[Note: This rule corresponds to Article 26 of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the PRA.]

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Section 2

Supervisory Permission for Reduction of Own Funds

Article 27 Meaning of Sustainable for the Income Capacity of the Institution for the Purposes of Articles 78(1) and 78(4)(d) of the CRR

1.

Sustainable for the income capacity of the institution under point (a) of Article 78(1) and under point (d) of Article 78(4) of the CRR shall mean that the profitability of the institution, continues to be sound or does not see any negative change after the replacement of the instruments or the related share premium accounts referred to in Article 77(1) of the CRR with own funds instruments of equal or higher quality, at that date and for the foreseeable future. In this, the institution shall take into account its institution’s profitability in stress situations.

[Note: This rule corresponds to Article 27 of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the PRA.]

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Article 28 Process Requirements Including Limits and Procedures for an Application by an Institution to Reduce Own Funds Pursuant to Article 77 of the CRR

1.

Redemptions, reductions and repurchases of own funds instruments shall not be announced to holders of the instruments before the institution has obtained the prior permission of the PRA.

2.

Where the actions listed in Article 77(1) of the CRR are expected to take place with sufficient certainty, and once the prior permission of the PRA has been obtained, the institution shall deduct the corresponding amounts to be redeemed, reduced, repurchased, repaid or called or the amounts of the related share premium accounts to be reduced, distributed or reclassified, as applicable, from corresponding elements of its own funds before the effective redemptions, reductions, repurchases, distributions, repayments, reclassifications or calls occur. Sufficient certainty is deemed to exist in particular when the institution has publicly announced its intention to redeem, reduce, repurchase, repay, reclassify or call an own funds instrument.

3.

[Note: Provision left blank]

4.

When applying for a general prior permission for actions listed in Article 77(1) of the CRR, institutions shall inform the PRA where the related own funds instruments are purchased for the purposes of being passed on to employees of the institution as part of their remuneration and deduct these instruments from own funds on a corresponding deduction approach for the time they are held by the institution. A deduction on a corresponding basis is no longer required, where the expenses related to any action according to this paragraph are already included in own funds as a result of an interim or a year-end financial report.

[Note: This rule corresponds to Article 28(1) to (3) of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the PRA.]

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Article 29 Submission of Application by the Institution to Reduce Own Funds Pursuant to Article 77(1) of the CRR

1.

An institution shall submit an application for prior permission, including general prior permission, to the PRA before taking an action referred to in Article 77(1) of the CRR.

[Note: This rule corresponds to Article 29(1) of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the PRA.]

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Article 30 Content of the Application to be Submitted by the Institution for the Purposes of Article 77(1) of the CRR

1.

The application referred to in Article 29 shall be accompanied by the following information:

  1. (a) a well-founded explanation of the rationale for performing any of the actions referred to in Article 77(1) of the CRR;
  2. (b) whether the permission sought is based on point (a) or (b) of the first subparagraph of Article 78(1) of the CRR or whether it is a general prior permission pursuant to the second subparagraph of Article 78(1) of the CRR;
  3. (c) where the institution seeks to call, redeem or repurchase Additional Tier 1 or Tier 2 instruments or related share premium accounts during the five years following their date of issuance pursuant to Article 78(4) of the CRR, how the conditions of that article are met;
  4. (d) present and forward-looking information, that shall cover at least a three year period, on the amounts and percentages corresponding to the following requirements for own funds and eligible liabilities, including the level and composition of own funds before and after the performing of the action and the impact on regulatory requirements:
    1. (i) the Common Equity Tier 1 capital requirement laid down in point (a) of Article 92(1) of the CRR, the Tier 1 capital requirement laid down in Article 92(1)(b) of the CRR, and the own funds requirement laid down in point (c) of Article 92(1) of the CRR;
    2. (ii) the additional Common Equity Tier 1 capital, the additional Tier 1 capital, and the additional own funds that the institution is required to hold by the PRA pursuant to Regulation 34 of the Capital Requirements Regulations, where applicable;
    3. (iii) the combined buffer requirement referred to in regulation 2(1) of the Capital Requirements (Capital Buffers and Macro-prudential Measures) Regulations 2014;
    4. (iv) the minimum leverage ratio requirement laid down in Chapter 3 of the Leverage Ratio – Capital Requirements and Buffers Part of the PRA Rulebook, where applicable;
    5. (v) the countercyclical leverage ratio buffer laid down in Chapter 4 of the Leverage Ratio – Capital Requirements and Buffers Part of the PRA Rulebook, where applicable;
    6. (vi) any additional leverage ratio buffer requirements implemented under sections 55M and 192C of FSMA, where applicable;
    7. (vii) the risk-based requirement for own funds and eligible liabilities under point (a) of Articles 92a(1), or Article 92b of the CRR, where applicable, as well as the non-risk based requirement for own funds and eligible liabilities under point (b) Articles 92a(1), or Article 92b of the CRR, where applicable;
    8. (viii) the minimum requirement for own funds and eligible liabilities that the institution is required to hold by the Bank of England pursuant to directions made under sub-sections 3A(4) and (4B) of the Banking Act 2009, as applicable, calculated as the amount of own funds and eligible liabilities, and expressed as percentages of:
      1. (1) the total risk exposure amount of the institution, calculated in accordance with Article 92(3) of the CRR; and
      2. (2) the amount of own funds and eligible liabilities expressed as percentages of the total exposure measure of the relevant entity;
  5. (e) present and forward-looking information on the level and composition of own funds and the level and composition of own funds and eligible liabilities held to ensure compliance, respectively, with the requirements referred to in point (d)(i) to (viii) above before and after performing any of the actions listed in Article 77(1) of the CRR. The information shall cover at least a three year period;
  6. (f) the institution’s summary assessment on the impact of the action that the institution has planned to take in accordance with Article 77(1) of the CRR, and any such action that the institution additionally envisages to undertake within a three year period, on compliance with the requirements referred to in point (d)(i) to (viii) above;
  7. (g) where the institution seeks to replace own funds instruments or the related share premium accounts pursuant to point (a) of Article 78(1) or point (d) of Article 78(4) of the CRR:
    1. (i) information on the residual maturity of the replaced own funds instruments, if any, and the maturity of the own funds instruments replacing them;
    2. (ii) the ranking in insolvency hierarchy of the replaced own funds instruments and of the own funds instruments replacing them;
    3. (iii) the cost of the own funds instruments replacing the instruments or the shared premium accounts referred to in Article 77(1) of the CRR;
    4. (iv) the planned timing of the issuance of the own funds instruments replacing the instruments or share premium accounts referred to in Article 77(1) of the CRR;
    5. (v) the impact on the profitability of the institution of a replacement of a capital instrument as specified in pursuant to point (a) of Article 78(1) or point (d) of Article 78(4) of the CRR;
  8. (h) an evaluation of the risks to which the institution is or might be exposed and whether the level of own funds and eligible liabilities ensures an appropriate coverage of such risks, including outcomes of stress tests on main risks evidencing potential losses;
  9. (i) coverage in terms of own funds of the level and composition of any additional own funds that the institution is expected to hold by the PRA, in excess of the requirements set out in point (d)(i) to (viii) above, before and after performing any of the actions listed in Article 77(1) of the CRR, covering a three year period;
  10. (j) any other information considered necessary by the PRA for evaluating the appropriateness of granting a permission in accordance with Article 78 of the CRR.

2.

An institution is not required to submit the information listed in paragraph 1 where the PRA already has the information.

3.

[Note: Provision left blank]

[Note: This rule corresponds to Article 30(2) of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the PRA.]

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Article 30a Additional Information to be Submitted with an Application for a General Prior Permission for Action Listed in Article 77(1) of the CRR

1.

Where a general prior permission pursuant to the second subparagraph of Article 78(1) of the CRR for an action under Article 77(1)(a) of the CRR is sought, the application shall specify the amount of each relevant Common Equity Tier 1 issue subject to the request.

2.

Where a general prior permission for an action under Article 77(1)(c) of the CRR is sought, the institution shall specify in the application:

  1. (a) the amount of each relevant outstanding issue subject to the request; and
  2. (b) the total carrying amount of outstanding instruments in each relevant tier of capital.

3.

An application for a general prior permission for an action under point (a) and (d) of Article 77(1) of the CRR for market making purposes may include own funds instruments still to be issued, subject to specification of the information referred to in points (a) and (b) of paragraph 2, as applicable, to be provided to the PRA following the relevant issuance.

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Article 30b Information to be Submitted with an Application for a Renewal of a General Prior Permission for Actions Listed in Article 77(1) of the CRR

1.

Before the expiry of a general prior permission granted pursuant to the second subparagraph of Article 78(1) of the CRR, an institution may submit an application for its renewal for a period of up to one additional year each time, provided that the institution does not request an increase in the predetermined amount set when the general prior permission was granted and does not change the rationale as referred to in point (a) of Article 30(1) when the general prior permission was initially requested.

2.

When applying for the renewal of a general prior permission referred to in paragraph 1, the institution shall be exempted from the obligation to provide the information referred to in points (a) to (d), (f), (g) and (i) of Article 30(1).

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Article 31 Timing of the Application to be Submitted by the Institution for the Purposes of Article 77(1) of the CRR

1.

For a prior permission, other than a general prior permission referred to in the second subparagraph of Article 78(1) of the CRR, the institution shall transmit a complete application and the information referred to in Article 30 to the PRA at least three months before the date when one of the actions listed in Article 77(1) of the CRR will be announced to the holders of the instruments.

2.

For a general prior permission referred to in the second subparagraph of Article 78(1) of the CRR, the institution shall transmit a complete application and the information referred to in Articles 30 and 30a to the PRA at least three months before the date when any of the actions listed in Article 77(1) of the CRR will be carried out.

3.

Similarly, where a renewal of a general prior permission pursuant to the second subparagraph of Article 78(1) of the CRR and Article 30b is sought, the institution shall transmit the application and the information required under Articles 30, 30a and 30b to the PRA at least three months before the expiration of the period for which the general prior permission was granted.

4.

Where there are exceptional circumstances which may make it impracticable to transmit the application referred to in paragraphs 1 to 3 within a time frame set out in those paragraphs, the institution must submit the application as soon as is practicable.

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Article 32 Applications for Redemptions, Reductions and Repurchases by Mutuals, Co-operative Societies, Savings Institutions or Similar Institutions for the Purposes of Article 77(1) of the CRR

1.

With regard to the redemption of Common Equity Tier 1 instruments of mutuals, co-operative societies, savings institutions or similar institutions, the application referred to in Article 29(1) and the information referred to in Article 30(1) shall be submitted to the PRA at least three months before the date when any of the actions listed in Article 77 of the CRR will be carried out.

2.

An institution may apply for a permission under Article 77 of the CRR in advance to an action listed in Article 77(1) of the CRR for a certain predetermined amount to be redeemed, net of the amount of the subscription of new paid in Common Equity Tier 1 instruments during a period up to one year. That predetermined amount may go up to 2% of Common Equity Tier 1 capital, if the institution demonstrates to the PRA that this action will not pose a danger to the current or future solvency situation of the institution.

[Note: This rule corresponds to Article 32 of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the PRA.]

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Section 3

Temporary Waiver from Deduction from Own Funds

Article 33 Temporary Waiver from Deduction of Own Funds for the Purposes of Article 79(1) of the CRR

1.

A temporary waiver shall be of a duration that does not exceed the timeframe envisaged under the financial assistance operation plan. That waiver shall not be granted for a period longer than 5 years.

2.

If granted by the PRA, a temporary waiver shall apply only in relation to new holdings of own funds instruments in a financial sector entity subject to the financial assistance operation.

3.

For the purposes of providing a temporary waiver for deduction from own funds, the PRA may deem the holdings referred to in Article 79(1) of the CRR to be held for the purposes of a financial assistance operation designed to reorganise and save a financial sector entity where the operation is carried out under a plan and approved by the PRA, and where the plan clearly states phases, timing and objectives and specifies the interaction between the holdings and the financial assistance operation.

[Note: This rule corresponds to Article 33 of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the PRA.]

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Chapter V Minority Interest and Additional Tier 1 and Tier 2 Instruments Issued by Subsidiaries

Article 34a Minority Interests Included in Consolidated Common Equity Tier 1 Capital

1.

For the purpose of specifying the sub-consolidation calculation required in accordance with Articles 84(2), 85(2) and 87(2) of the CRR, the qualifying minority interests of a subsidiary referred to in Article 81 of the CRR that is itself a parent undertaking of an entity referred to in Article 81(1) of the CRR shall be calculated as described in paragraphs 2 to 4 of this Article.

2.

Where the PRA has exercised the discretion referred to in Article 9(1) of the CRR, the calculation to be undertaken in accordance with paragraphs 3 and 4 of this Article shall be made on the basis of the situation of the institution as if the discretion had not been exercised.

3.

Where the subsidiary complies with the provisions of Part Three of the CRR on the basis of its consolidated situation the following treatment shall apply:

  1. (a) the Common Equity Tier 1 capital of that subsidiary on its consolidated basis referred to in point (a) of Article 84(1) of the CRR shall include the eligible minority interests that arise from its own subsidiaries calculated pursuant to Article 84 of the CRR and the provisions laid down in this Part;
  2. (b) for the purpose of the sub-consolidation calculation, the amount of Common Equity Tier 1 capital required according to point (i) of Article 84(1)(a) of the CRR shall be the amount required to meet the Common Equity Tier 1 requirements of that subsidiary at the level of its consolidated situation calculated in accordance with point (a) of Article 84(1) of the CRR. The specific own funds requirements referred to shall be the ones set by the competent authority of the subsidiary under regulation 34 of the Capital Requirements Regulations;
  3. (c) the amount of consolidated Common Equity Tier 1 capital required, according to point (ii) of Article 84(1)(a) of the CRR, shall be the contribution of the subsidiary on the basis of its consolidated situation to the Common Equity Tier 1 own funds requirements of the institution for which the eligible minority interests are calculated on a consolidated basis. For the purpose of calculating the contribution, all intra-group transactions between undertakings included in the prudential scope of consolidation of the institution shall be eliminated.

4.

When performing the consolidation referred to in point (c) of paragraph 3, the subsidiary shall not include capital requirements arising from its subsidiaries which are not included in the prudential scope of consolidation of the institution for which the eligible minority interests are calculated.

5.

Where the waiver referred to in Article 84(3) of the CRR applies to a subsidiary, any parent undertaking of the subsidiary benefiting from the waiver may include in its Common Equity Tier 1 capital minority interests arising from subsidiaries of the subsidiary itself benefiting from the waiver, provided that the calculations referred to in Article 84(1) of the CRR and in this Part have been made for each of those subsidiaries. The amount of Common Equity Tier 1 included in the own funds at the level of the parent undertaking shall not exceed the amount that would be included if no waiver had been granted to the subsidiary.

6.

Where a parent institution has an intermediate subsidiary which is not referred to in Article 81(1) of the CRR and where this intermediate subsidiary itself has subsidiaries which are referred to in Article 81(1) of the CRR, the parent institution may include in its Common Equity Tier 1 capital the amount of minority interest arising from those subsidiaries calculated according to Article 84(1) of the CRR. The parent institution cannot, however, include in its Common Equity Tier 1 capital any minority interests arising from an intermediate subsidiary which is not referred to in Article 81(1) of the CRR.

7.

The methodology set out in paragraphs 2, 3 and 4 shall also apply mutatis mutandis for the calculation of the amount of qualifying Tier 1 instruments under Article 85 of the CRR and the amount of qualifying own funds under Article 87 of the CRR, where references to Common Equity Tier 1 shall be read as references to Tier 1 or own funds.

[Note: This rule corresponds to Article 34A of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the PRA.]

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