Own Funds (CRR)

The Tier 1 capital of an institution consists of the sum of the Common Equity Tier 1 capital and Additional Tier 1 capital of the institution.

[Note: This rule corresponds to Article 25 of CRR as it applied immediately before its revocation]

1.

Common Equity Tier 1 items of institutions consist of the following:

1. (a) subject to paragraph 3, capital instruments, provided that the conditions laid down in Article 28 or, where applicable, Article 29 are met;
2. (b) share premium accounts related to the instruments referred to in point (a);
3. (c) retained earnings;
4. (d) accumulated other comprehensive income;
5. (e) other reserves.

The items referred to in points (c) to (e) shall be recognised as Common Equity Tier 1 only where they are available to the institution for unrestricted and immediate use to cover risks or losses as soon as these occur.

2.

For the purposes of point (c) of paragraph 1, institutions shall not include interim or year-end profits in Common Equity Tier 1 capital  before the institution has taken a formal decision confirming the final profit or loss of the institution for the year unless:

1. (a) those profits have been verified by persons independent of the institution that are responsible for the auditing of the accounts of that institution; and
2. (b) the institution has ensured that any foreseeable charge or dividend has been deducted from the amount of those profits.

A verification of the interim or year-end profits of the institution shall provide an adequate level of assurance that those profits have been evaluated in accordance with the principles set out in the applicable accounting framework.

Where the institution includes, pursuant to this paragraph, profits in Common Equity Tier 1 capital , it shall notify the PRA as soon as reasonably practicable thereafter.

3.

Institutions shall not classify issuances of capital instruments as Common Equity Tier 1 instruments unless a 138BA permission has been granted by the PRA and the conditions laid down in Article 28 or, where applicable, Article 29 are met. By way of derogation, institutions may classify as Common Equity Tier 1 instruments subsequent issuances of a form of Common Equity Tier 1 instruments for which they have already received a 138BA permission, provided that the provisions governing those subsequent issuances are identical to or substantially the same as the provisions governing those issuances for which the institutions have already received a 138BA permission.

[Note 1: This rule corresponds to Article 26 of CRR as it applied immediately before its revocation]

[Note 2: Related provisions in rule 7A Pre-issuance Notification (PIN) Regime for Common Equity Tier 1 Instrument in the Definition of Capital Part, and Articles 2 and 3 of Chapter 4 of the Own Funds (CRR) Part]

1.

Common Equity Tier 1 items shall not include any capital instrument issued by an institution of a type referred to below unless the conditions laid down in Article 28 or, where applicable, Article 29 are met.

The type of institution referred to above is defined under the applicable law of the United Kingdom, or any part of it, as any of the following:

1. (a) a mutual;
2. (b) a co-operative society;
3. (c) a savings institution;
4. (d) a similar institution;
5. (e) a credit institution which is wholly owned by one of the institutions referred to in sub-paragraphs (a) to (d) provided that, and for as long as, 100% of the ordinary shares in issue in the credit institution are held directly or indirectly by an institution referred to in those points.

2.

Those mutuals, co-operative societies or savings institutions recognised as such under the applicable law of the United Kingdom, or any part of it, prior to 31 December 2012 shall continue to be classified as such for the purposes of this Part, provided that they continue to meet the criteria that determined such recognition.

[Note 1: This rule corresponds to Article 27 of CRR as it applied immediately before its revocation]

[Note 2: Related provisions are contained in Articles 4 to 7 of Chapter 4 of the Own Funds (CRR) Part]

1.

Capital instruments shall qualify as Common Equity Tier 1 instruments only if all the following conditions are met:

1. (a) the instruments are issued directly by the institution with the prior approval of the owners of the institution or, where permitted under applicable national law of the United Kingdom, or any part of it, or of a third country, the management body of the institution;
2. (b) the instruments are fully paid up and the acquisition of ownership of those instruments is not funded directly or indirectly by the institution, and for this purpose only the part of a capital instrument that is fully paid up shall be eligible to qualify as a Common Equity Tier 1 instrument;
3. (c) the instruments meet all the following conditions as regards their classification:
   1. (i) they qualify as capital, which for these purposes comprises all amounts, regardless of their actual designations, which, in accordance with the legal structure of the institution concerned, are regarded under the applicable law of the United Kingdom, or any part of it, or of a third country, as equity capital subscribed by the shareholders or other proprietors;
   2. (ii) they are classified as equity within the meaning of the applicable accounting framework;
   3. (iii) they are classified as equity capital for the purposes of determining balance sheet insolvency, where applicable under national insolvency law of the United Kingdom, or any part of it, or of a third country;
4. (d) the instruments are clearly and separately disclosed on the balance sheet in the financial statements of the institution;
5. (e) the instruments are perpetual;
6. (f) the principal amount of the instruments may not be reduced or repaid, except in either of the following cases:
   1. (i) the liquidation of the institution;
   2. (ii) discretionary repurchases of the instruments or other discretionary means of reducing capital, where the institution has received the prior 138BA permission of the PRA in accordance with Article 77;
7. (g) the provisions governing the instruments do not indicate expressly or implicitly that the principal amount of the instruments would be reduced, redeemed, repurchased or repaid (other than in the circumstances described in points (f)(i) and (f)(ii) above), and the institution does not otherwise provide such an indication prior to or at issuance of the instruments, except in the case of instruments referred to in Article 27 where the refusal by the institution to redeem such instruments is prohibited under applicable national law of the United Kingdom, or any part of it, or of a third country;
8. (h) the instruments meet the following conditions as regards distributions:
   1. (i) there is no preferential distribution treatment regarding the order of distribution payments, including in relation to other Common Equity Tier 1 instruments, and the terms governing the instruments do not provide preferential rights to payment of distributions;
   2. (ii) distributions to holders of the instruments may be paid only out of distributable items;
   3. (iii) the conditions governing the instruments do not include a cap or other restriction on the maximum level of distributions, except in the case of the instruments referred to in Article 27;
   4. (iv) the level of distributions is not determined on the basis of the amount for which the instruments were purchased at issuance, except in the case of the instruments referred to in Article 27;
   5. (v) the conditions governing the instruments do not include any obligation on the institution to make distributions to their holders and the institution is not otherwise subject to such an obligation;
   6. (vi) non-payment of distributions does not constitute an event of default of the institution;
   7. (vii) the cancellation of distributions imposes no restrictions on the institution;
9. (i) compared to all the own funds instruments issued by the institution, the instruments absorb the first and proportionately greatest share of losses as they occur, and each instrument absorbs losses to the same degree as all other Common Equity Tier 1 instruments;
10. (j) the instruments rank below all other claims in the event of insolvency or liquidation of the institution, except claims from holders of ordinary shares which rank pari passu with the instruments;
11. (k) the instruments entitle their owners to a claim on the residual assets of the institution, which, in the event of its liquidation and after the payment of all senior claims, is proportionate to the amount of such instruments issued and is not fixed or subject to a cap, except in the case of the capital instruments referred to in Article 27; and, for the purposes of this point, a claim that is specified in terms of a percentage does not constitute a fixed or capped claim;
12. (l) the instruments are neither secured nor subject to a guarantee that enhances the seniority of the claim by any of the following:
    1. (i) the institution or its subsidiaries;
    2. (ii) the parent undertaking of the institution or its subsidiaries;
    3. (iii) the parent financial holding company of the institution or its subsidiaries;
    4. (iv) the mixed activity holding company of the institution or its subsidiaries;
    5. (v) the mixed financial holding company of the institution or its subsidiaries;
    6. (vi) any undertaking that has close links with the entities referred to in points (i) to (v);
13. (m) the instruments are not subject to any arrangement, contractual or otherwise, that enhances the seniority of claims under the instruments in insolvency or liquidation.

2.

The conditions laid down in point (i) of paragraph 1 shall be deemed to be met notwithstanding a write down on a permanent basis of the principal amount of Additional Tier 1 or Tier 2 instruments.

The condition laid down in point (f) of paragraph 1 shall be deemed to be met notwithstanding the reduction of the principal amount of the capital instrument within a resolution procedure or as a consequence of a write down of capital instruments required by the resolution authority responsible for the institution.

The condition laid down in point (g) of paragraph 1 shall be deemed to be met notwithstanding the provisions governing the capital instrument indicating expressly or implicitly that the principal amount of the instrument would be reduced within a resolution procedure or as a consequence of a write down of capital instruments required by the resolution authority responsible for the institution.

3.

The condition laid down in point (h)(iii) of paragraph 1 shall be deemed to be met notwithstanding the instrument paying a dividend multiple, provided that such a dividend multiple does not result in a distribution that causes a disproportionate drag on own funds.

4.

For the purposes of point (h)(i) of paragraph 1, differentiated distributions shall only reflect differentiated voting rights. In this respect, higher distributions shall only apply to Common Equity Tier 1 instruments with fewer or no voting rights.

[Note 1: This rule corresponds to Article 28 of CRR as it applied immediately before its revocation]

[Note 2: Related provisions in Articles 8 and 9 of Chapter 4 of the Own Funds (CRR) Part]

1.

Capital instruments issued by mutuals, co-operative societies, savings institutions and similar institutions shall qualify as Common Equity Tier 1 instruments only if the conditions laid down in Article 28 with modifications resulting from the application of this Article are met.

2.

The following conditions shall be met as regards redemption of the capital instruments:

1. (a) except where prohibited under applicable national law of the United Kingdom, or any part of it, or of a third country, the institution shall be able to refuse the redemption of the instruments;
2. (b) where the refusal by the institution of the redemption of instruments is prohibited under applicable national law of the United Kingdom, or any part of it, or of a third country, the provisions governing the instruments shall give the institution the ability to limit their redemption;
3. (c) refusal to redeem the instruments, or the limitation of the redemption of the instruments where applicable, may not constitute an event of default of the institution.

3.

The capital instruments may include a cap or restriction on the maximum level of distributions only where that cap or restriction is set out under applicable national law of the United Kingdom, or any part of it, or of a third country, or the statute of the institution.

4.

Where the capital instruments provide the owner with rights to the reserves of the institution in the event of insolvency or liquidation that are limited to the nominal value of the instruments, such a limitation shall apply to the same degree to the holders of all other Common Equity Tier 1 instruments issued by that institution. The condition laid down in the first subparagraph is without prejudice to the possibility for a mutual, co-operative society, savings institution or a similar institution to recognise within Common Equity Tier 1 instruments that do not afford voting rights to the holder and that meet all the following conditions:

1. (a) the claim of the holders of the non-voting instruments in the insolvency or liquidation of the institution is proportionate to the share of the total Common Equity Tier 1 instruments that those non-voting instruments represent;
2. (b) the instruments otherwise qualify as Common Equity Tier 1 instruments.

5.

Where the capital instruments entitle their owners to a claim on the assets of the institution in the event of its insolvency or liquidation that is fixed or subject to a cap, such a limitation shall apply to the same degree to all holders of all Common Equity Tier 1 instruments issued by the institution.

[Note 1: This rule corresponds to Article 29 of CRR as it applied immediately before its revocation]

[Note 2: Related provisions in Articles 10 and 11 of Chapter 4 of the Own Funds (CRR) Part]

The following shall apply where, in the case of a Common Equity Tier 1 instrument, the conditions laid down in Article 28 or, where applicable, Article 29 cease to be met:

1. (a) that instrument shall immediately cease to qualify as a Common Equity Tier 1 instrument;
2. (b) the share premium accounts that relate to that instrument shall immediately cease to qualify as Common Equity Tier 1 items.

[Note 1: This rule corresponds to Article 30 of CRR as it applied immediately before its revocation]

[Note 2: Article 31 of CRR has been revoked by the Financial Services and Markets Act 2023 and not replaced in these rules]

1.

An institution shall exclude from any element of own funds any increase in its equity under the applicable accounting framework that results from securitised assets, including the following:

1. (a) such an increase associated with future margin income that results in a gain on sale for the institution;
2. (b) where the institution is the originator of a securitisation, net gains that arise from the capitalisation of future income from the securitised assets that provide credit enhancement to positions in the securitisation.

[Note 1: This rule corresponds to Article 32 of CRR as it applied immediately before its revocation except there is no corresponding rule for Article 32(2) CRR]

[Note 2: Related provisions in Article 12 of Chapter 4 of Own Funds (CRR) Part]

1.

Institutions shall not include the following items in any element of own funds:

1. (a) the fair value reserves related to gains or losses on cash flow hedges of financial instruments that are not valued at fair value, including projected cash flows;
2. (b) gains or losses on liabilities of the institution that are valued at fair value that result from changes in the own credit standing of the institution;
3. (c) fair value gains and losses on derivative liabilities of the institution that result from changes in the own credit risk of the institution.

2.

For the purposes of point (c) of paragraph 1, institutions shall not offset the fair value gains and losses arising from the institution's own credit risk with those arising from its counterparty credit risk.

3.

Without prejudice to point (b) of paragraph 1, institutions may include the amount of gains and losses on their liabilities in own funds where all the following conditions are met:

1. (a) the liabilities are CRR covered bonds;
2. (b) the changes in the value of the institution's assets and liabilities are due to the same changes in the institution's own credit standing;
3. (c) there is a close correspondence between the value of the bonds referred to in point (a) and the value of the institution's assets;
4. (d) it is possible to redeem the mortgage loans by buying back the bonds financing the mortgage loans at market or nominal value.
   

[Note 1: This rule corresponds to Article 33 of CRR as it applied immediately before its revocation except there is no corresponding rule for Article 33(4) of CRR]

[Note 2: Related provisions in Regulation (EU) No 523/2014]

Institutions shall apply the requirements of Article 105 of the Trading Book (CRR) Part to all their assets measured at fair value when calculating the amount of their own funds and shall deduct from Common Equity Tier 1 capital  the amount of any additional value adjustments necessary.

[Note: This rule corresponds to Article 34 of CRR as it applied immediately before its revocation]

Except in the case of the items referred to in Article 33, institutions shall not make adjustments to remove from their own funds unrealised gains or losses on their assets or liabilities measured at fair value.

[Note: This rule corresponds to Article 35 of CRR as it applied immediately before its revocation]

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. 1. (i) qualifying holdings outside the financial sector;
    2. (ii) securitisation positions, in accordance with point (b) of Article 244(1), point (b) of Article 245(1) and Article 253;
    3. (iii) free deliveries, in accordance with Article 379(3);
    4. (iv) positions in a basket for which an institution cannot determine the risk weight under the IRB Approach, in accordance with Article 153(8);
    5. (v) equity exposures under an internal models approach, in accordance with Article 155(4);
13. (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.
14. (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.]

Institutions shall determine the amount of intangible assets to be deducted in accordance with the following:

1. (a) the amount to be deducted shall be reduced by the amount of associated deferred tax liabilities that would be extinguished if the intangible assets became impaired or were derecognised under the applicable accounting framework;
2. (b) the amount to be deducted shall include goodwill included in the valuation of significant investments of the institution;
3. (c) the amount to be deducted shall be reduced by the amount of the accounting revaluation of the subsidiaries' intangible assets derived from the consolidation of subsidiaries attributable to persons other than the undertakings included in the consolidation pursuant to Chapter 2 of Title II of Part One of CRR.

[Note: This rule corresponds to Article 37 of CRR as it applied immediately before its revocation]

1.

Institutions shall determine the amount of deferred tax assets that rely on future profitability that require deduction in accordance with this Article.

2.

Except where the conditions laid down in paragraph 3 are met, the amount of deferred tax assets that rely on future profitability shall be calculated without reducing it by the amount of the associated deferred tax liabilities of the institution.

3.

The amount of deferred tax assets that rely on future profitability may be reduced by the amount of the associated deferred tax liabilities of the institution, provided the following conditions are met:

1. (a) the entity has a legally enforceable right under applicable national law of the United Kingdom, or any part of it, or of a third country to set off those current tax assets against current tax liabilities; and
2. (b) the deferred tax assets and the deferred tax liabilities relate to taxes levied by the same tax authority and on the same taxable entity.

4.

Associated deferred tax liabilities of the institution used for the purposes of paragraph 3 may not include deferred tax liabilities that reduce the amount of intangible assets or defined benefit pension fund assets required to be deducted.

5.

The amount of associated deferred tax liabilities referred to in paragraph 4 shall be allocated between the following:

1. (a) deferred tax assets that rely on future profitability and arise from temporary differences that are not deducted in accordance with Article 48(1);
2. (b) all other deferred tax assets that rely on future profitability.

Institutions shall allocate the associated deferred tax liabilities according to the proportion of deferred tax assets that rely on future profitability that the items referred to in points (a) and (b) represent.

[Note: This rule corresponds to Article 38 of CRR as it applied immediately before its revocation]

1.

The following items shall not be deducted from own funds and shall be subject to a risk weight in accordance with Chapter 2 or 3 of Title II of Part Three CRR, as applicable:

1. (a) overpayments of tax by the institution for the current year;
2. (b) current year tax losses of the institution carried back to previous years that give rise to a claim on, or a receivable from, a central government, regional government or local tax authority.

2.

Deferred tax assets that do not rely on future profitability shall be limited to deferred tax assets which were created before 23 November 2016 and which arise from temporary differences, where all the following conditions are met:

1. (a) they are automatically and mandatorily replaced without delay with a tax credit in the event that the institution reports a loss when the annual financial statements of the institution are formally approved, or in the event of liquidation or insolvency of institution;
2. (b) the institution is able under the applicable national tax law of the United Kingdom, or any part of it, or of a third country to offset a tax credit referred to in point (a) against any tax liability of the institution or any other undertaking included in the same consolidation as the institution for tax purposes under that law or any other undertaking subject to the supervision on a consolidated basis in accordance with Chapter 2 of Title II of Part One CRR;
3. (c) where the amount of tax credits referred to in point (b) exceeds the tax liabilities referred to in that point, any such excess is replaced without delay with a direct claim on the government of the United Kingdom.

Institutions shall apply a risk weight of 100% to deferred tax assets where the conditions laid down in points (a), (b) and (c) are met.

[Note: This rule corresponds to Article 39 of CRR as it applied immediately before its revocation]

The amount to be deducted in accordance with point (d) of Article 36(1) shall not be reduced by a rise in the level of deferred tax assets that rely on future profitability, or other additional tax effects, that could occur if provisions were to rise to the level of expected losses referred to in section 3 of Chapter 3 of Title II of Part Three CRR.

[Note: This rule corresponds to Article 40 of CRR as it applied immediately before its revocation]

1.

For the purposes of point (e) of Article 36(1), the amount of defined benefit pension fund assets to be deducted shall:

1. (a) be reduced by the amount of any associated deferred tax liability which could be extinguished if the assets became impaired or were derecognised under the applicable accounting framework;
2. (b) not be reduced by the amount of assets in the defined benefit pension fund which the institution has an unrestricted ability to use, unless the institution has received the prior 138BA permission of the PRA.

Those assets used to reduce the amount to be deducted shall receive a risk weight in accordance with Chapter 2 or 3 of Title II of Part Three CRR, as applicable.

[Note: This rule corresponds to Article 41 of CRR as it applied immediately before its revocation]

For the purposes of point (f) of Article 36(1), institutions shall calculate holdings of own Common Equity Tier 1 instruments on the basis of gross long positions subject to the following exceptions:

1. (a) institutions may calculate the amount of holdings of own Common Equity Tier 1 instruments on the basis of the net long position provided that both the following conditions are met:
   1. (i) the long and short positions are in the same underlying exposure and the short positions involve no counterparty risk;
   2. (ii)   either both the long and the short positions are held in the trading book or both are held in the non-trading book;
2. (b) institutions shall determine the amount to be deducted for direct, indirect and synthetic holdings of index securities by calculating the underlying exposure to own Common Equity Tier 1 instruments included in those indices;
3. (c) institutions may net gross long positions in own Common Equity Tier 1 instruments resulting from holdings of index securities against short positions in own Common Equity Tier 1 instruments resulting from short positions in the underlying indices, including where those short positions involve counterparty risk, provided that both the following conditions are met:
   1. (i) the long and short positions are in the same underlying indices;
   2. (ii) either both the long and the short positions are held in the trading book or both are held in the non-trading book.

[Note: This rule corresponds to Article 42 of CRR as it applied immediately before its revocation]

For the purposes of deduction, a significant investment of an institution in a financial sector entity shall arise where any of the following conditions is met:

1. (a) the institution owns more than 10% of the Common Equity Tier 1 instruments issued by that entity;
2. (b) the institution has close links with that entity and owns Common Equity Tier 1 instruments issued by that entity;
3. (c) the institution owns Common Equity Tier 1 instruments issued by that entity and the entity is not included in consolidation pursuant to Chapter 2 of Title II of Part One CRR but is included in the same accounting consolidation as the institution for the purposes of financial reporting under the applicable accounting framework.

[Note: This rule corresponds to Article 43 of CRR as it applied immediately before its revocation]

Institutions shall make the deductions referred to in points (g), (h) and (i) of Article 36(1) in accordance with the following:

1. (a) holdings of Common Equity Tier 1 instruments and other capital instruments of financial sector entities shall be calculated on the basis of the gross long positions;
2. (b) Tier 1 own-fund insurance items shall be treated as holdings of Common Equity Tier 1 instruments for the purposes of deduction.

[Note: This rule corresponds to Article 44 of CRR as it applied immediately before its revocation]

Institutions shall make the deductions required by points (h) and (i) of Article 36(1) in accordance with the following provisions:

1. (a) they may calculate direct, indirect and synthetic holdings of Common Equity Tier 1 instruments of the financial sector entities on the basis of the net long position in the same underlying exposure provided that both the following conditions are met:
   1. (i) the maturity date of the short position is either the same as, or later than the maturity date of the long position or the residual maturity of the short position is at least one year;
   2. (ii) either both the long position and the short position are held in the trading book or both are held in the non-trading book;
2. (b) they shall determine the amount to be deducted for direct, indirect and synthetic holdings of index securities by calculating the underlying exposure to the capital instruments of the financial sector entities in those indices.

[Note: This rule corresponds to Article 45 of CRR as it applied immediately before its revocation]

1.

For the purposes of point (h) of Article 36(1), institutions shall calculate the applicable amount to be deducted by multiplying the amount referred to in point (a) of this paragraph by the factor derived from the calculation referred to in point (b) of this paragraph:

1. (a) the aggregate amount by which the direct, indirect and synthetic holdings by the institution of the Common Equity Tier 1, Additional Tier 1 and Tier 2 instruments of financial sector entities in which the institution does not have a significant investment exceeds 10% of the aggregate amount of Common Equity Tier 1 items of the institution calculated after applying the following to Common Equity Tier 1 items:
   1. (i) Articles 32 to 35;
   2. (ii) the deductions referred to in points (a) to (g), points (k)(ii) to (iv) and point (l) of Article 36(1), excluding the amount to be deducted for deferred tax assets that rely on future profitability and arise from temporary differences;
   3. (iii) Articles 44 and 45;
2. (b) the amount of direct, indirect and synthetic holdings by the institution of the Common Equity Tier 1 instruments of those financial sector entities in which the institution does not have a significant investment divided by the aggregate amount of direct, indirect and synthetic holdings by the institution of the Common Equity Tier 1, Additional Tier 1 and Tier 2 instruments of those financial sector entities.

2.

Institutions shall exclude underwriting positions held for five working days or fewer from the amount referred to in point (a) of paragraph 1 and from the calculation of the factor referred to in point (b) of paragraph 1.

3.

The amount to be deducted pursuant to paragraph 1 shall be apportioned across all Common Equity Tier 1 instruments held. Institutions shall determine the amount of each Common Equity Tier 1 instrument that is deducted pursuant to paragraph 1 by multiplying the amount specified in point (a) of this paragraph by the proportion specified in point (b) of this paragraph:

1. (a) the amount of holdings required to be deducted pursuant to paragraph 1;
2. (b) the proportion of the aggregate amount of direct, indirect and synthetic holdings by the institution of the Common Equity Tier 1 instruments of financial sector entities in which the institution does not have a significant investment represented by each Common Equity Tier 1 instrument held.

4.

The amount of holdings referred to in point (h) of Article 36(1) that is equal to or less than 10% of the Common Equity Tier 1 items of the institution after applying the provisions laid down in points (a)(i) to (iii) of paragraph 1 shall not be deducted and shall be subject to the applicable risk weights in accordance with Chapter 2 or 3 of Title II of Part Three CRR, Articles 132a to 132c of Chapter 3 of the Standardised Approach and Internal Ratings Approach to Credit Risk (CRR) Part, and the requirements laid down in Title IV of Part Three CRR, as applicable.

5.

1. (a) the amount of holdings required to be risk weighted pursuant to paragraph 4;
2. (b) the proportion resulting from the calculation in point (b) of paragraph 3.

[Note: This rule corresponds to Article 46 of CRR as it applied immediately before its revocation]

For the purposes of point (i) of Article 36(1), the applicable amount to be deducted from Common Equity Tier 1 items shall exclude underwriting positions held for five working days or fewer and shall be determined in accordance with Articles 44, 45 and 48.

[Note 1: This rule corresponds to Article 47 of CRR as it applied immediately before its revocation]

[Note 2: Article 47(a) (1) and (2) and 47(c) of CRR have been revoked and not replaced in these rules]

1.

In making the deductions required pursuant to points (c) and (i) of Article 36(1), institutions are not required to deduct the amounts of the items listed in points (a) and (b) of this paragraph which in aggregate are equal to or less than the threshold amount referred to in paragraph 2:

1. (a) deferred tax assets that are dependent on future profitability and arise from temporary differences, and in aggregate are equal to or less than 10% of the Common Equity Tier 1 items of the institution calculated after applying the following:
   1. (i) Articles 32 to 35;
   2. (ii) points (a) to (h), points (k)(ii) to (iv) and point (l) of Article 36(1), excluding deferred tax assets that rely on future profitability and arise from temporary differences;
2. (b) where an institution has a significant investment in a financial sector entity, the direct, indirect and synthetic holdings of that institution of the Common Equity Tier 1 instruments of those entities that in aggregate are equal to or less than 10% of the Common Equity Tier 1 items of the institution calculated after applying the following:
   1. (i) Articles 32 to 35;
   2. (ii) points (a) to (h), points (k)(ii) to (iv) and point (l), of Article 36(1) excluding deferred tax assets that rely on future profitability and arise from temporary differences.

2.

For the purposes of paragraph 1, the threshold amount shall be equal to the amount referred to in point (a) of this paragraph multiplied by the percentage referred to in point (b) of this paragraph:

1. (a) the residual amount of Common Equity Tier 1 items after applying the adjustments and deductions in Articles 32 to 36 in full and without applying the threshold exemptions specified in this Article;
2. (b) 17.65%.

3.

For the purposes of paragraph 1, an institution shall determine the portion of deferred tax assets in the total amount of items that is not required to be deducted by dividing the amount specified in point (a) of this paragraph by the amount specified in point (b) of this paragraph:

1. (a) the amount of deferred tax assets that are dependent on future profitability and arise from temporary differences, and in aggregate are equal to or less than 10% of the Common Equity Tier 1 items of the institution;
2. (b) the sum of the following:
   1. (i) the amount referred to in point (a);
   2. (ii) the amount of direct, indirect and synthetic holdings by the institution of the own funds instruments of financial sector entities in which the institution has a significant investment, and in aggregate are equal to or less than 10% of the Common Equity Tier 1 items of the institution.

The proportion of significant investments in the total amount of items that is not required to be deducted is equal to one minus the proportion referred to in the first subparagraph.

4.

The amounts of the items that are not deducted pursuant to paragraph 1 shall be risk weighted at 250%.

[Note: This rule corresponds to Article 48 of CRR as it applied immediately before its revocation]

1.

[Note: Provision left blank]

2.

[Note: Provision left blank]

3.

[Note: Provision left blank]

4.

[Note: Provision left blank]

5.

Where an institution applies method 1, 2 or 3 of Annex 2 of the Financial Conglomerates Part, the institution shall disclose the supplementary own funds requirement and capital adequacy ratio of the financial conglomerate as calculated in accordance with Chapter 3 and Annex 2 of the Financial Conglomerates Part.

[Note: This rule corresponds to Article 49(5) of CRR as it applied immediately before its revocation]

6.

[Note: Provision left blank]

The Common Equity Tier 1 capital of an institution shall consist of Common Equity Tier 1 items after the application of the adjustments required by Articles 32 to 35, the deductions required pursuant to Article 36 and the exemptions and alternatives laid down in Articles 48 and 79.

[Note: This rule corresponds to Article 50 of CRR as it applied immediately before its revocation]

Additional Tier 1 items shall consist of the following:

1. (a) capital instruments, where the conditions laid down in Article 52(1) are met;
2. (b) the share premium accounts related to the instruments referred to in point (a). Instruments included under point (a) shall not qualify as Common Equity Tier 1 or Tier 2 items.

[Note: This rule corresponds to Article 51 of CRR as it applied immediately before its revocation]

1.

Capital instruments shall qualify as Additional Tier 1 instruments only if the following conditions are met:

1. (a) the instruments are directly issued by an institution and fully paid up, and for this purpose only the part of a capital instrument that is fully paid up shall be eligible to qualify as an Additional Tier 1 instrument;
2. (b) the instruments are not owned by any of the following:
   1. (i) the institution or its subsidiaries;
   2. (ii) an undertaking in which the institution has a participation in the form of ownership, direct or by way of control, of 20% or more of the voting rights or capital of that undertaking;
3. (c) the acquisition of ownership of the instruments is not funded directly or indirectly by the institution;
4. (d) the instruments rank below Tier 2 instruments in the event of the insolvency of the institution;
5. (e) the instruments are neither secured nor subject to a guarantee that enhances the seniority of the claims by any of the following:
   1. (i) the institution or its subsidiaries;
   2. (ii) the parent undertaking of the institution or its subsidiaries;
   3. (iii) the parent financial holding company of the institution or its subsidiaries;
   4. (iv) the mixed activity holding company of the institution or its subsidiaries;
   5. (v) the mixed financial holding company of the institution or its subsidiaries;
   6. (vi) any undertaking that has close links with entities referred to in points (i) to (v);
6. (f) the instruments are not subject to any arrangement, contractual or otherwise, that enhances the seniority of the claim under the instruments in insolvency or liquidation;
7. (g) the instruments are perpetual and the provisions governing them include no incentive for the institution to redeem them;
8. (h) where the instruments include one or more early redemption options including call options, the options are exercisable at the sole discretion of the issuer;
9. (i) the instruments may be reduced, called, redeemed or repurchased only where the conditions laid down in Article 77 are met;
10. (j) the provisions governing the instruments do not indicate explicitly or implicitly that the instruments would be reduced, called, redeemed or repurchased, as applicable, by the institution other than early redemption options referred to in point (h) or in the case of the insolvency or liquidation of the institution and the institution does not otherwise provide such an indication;
11. (k) the institution does not indicate explicitly or implicitly that the PRA would consent to a request to reduce, call, redeem or repurchase the instruments;
12. (l) distributions under the instruments meet the following conditions:
    1. (i) they are paid out of distributable items;
    2. (ii) the level of distributions made on the instruments will not be amended on the basis of the credit standing of the institution or its parent undertaking;
    3. (iii) the provisions governing the instruments give the institution full discretion at all times to cancel the distributions on the instruments for an unlimited period and on a non-cumulative basis, and the institution may use such cancelled payments without restriction to meet its obligations as they fall due;
    4. (iv) cancellation of distributions does not constitute an event of default of the institution;
    5. (v) the cancellation of distributions imposes no restrictions on the institution;
13. (m) the instruments do not contribute to a determination that the liabilities of an institution exceed its assets, where such a determination constitutes a test of insolvency under applicable national law of the United Kingdom, or any part of it, or of a third country;
14. (n) the provisions governing the instruments require that, upon the occurrence of a trigger event, the principal amount of the instruments be written down on a permanent or temporary basis or the instruments be converted to Common Equity Tier 1 instruments;
15. (o) the provisions governing the instruments include no feature that could hinder the recapitalisation of the institution;
16. (p) where:
    1. (i) the issuer is established in a third country and has been designated by the Bank of England as part of a resolution group the resolution entity of which is established in the United Kingdom or where the issuer is established in the United Kingdom, the law or contractual provisions governing the instruments require that, upon a decision by the resolution authority to exercise the write-down and conversion powers referred to in section 6B of the Banking Act 2009, the principal amount of the instruments is to be written down on a permanent basis or the instruments are to be converted to Common Equity Tier 1 instruments;
    2. (ii) the issuer is established in a third country and has not been designated by the Bank of England as part of a resolution group the resolution entity of which is established in the United Kingdom, the law or contractual provisions governing the instruments require that, upon a decision by the relevant third-country authority, the principal amount of the instruments is to be written down on a permanent basis or the instruments are to be converted into Common Equity Tier 1 instruments;
17. (q) where the issuer is established in a third country and has been designated by the Bank of England as part of a resolution group the resolution entity of which is established in the United Kingdom or where the issuer is established in the United Kingdom, the instruments may only be issued under, or be otherwise subject to the laws of a third country where, under those laws, the exercise of the write-down and conversion powers referred to in section 6B of the Banking Act 2009 is effective and enforceable on the basis of statutory provisions or legally enforceable contractual provisions that recognise resolution or other write-down or conversion actions;
18. (r) the instruments are not subject to set-off or netting arrangements that would undermine their capacity to absorb losses.

[Note 1: This rule corresponds to Article 52(1) of CRR as it applied immediately before its revocation]

[Note 2: Related provisions in Articles 20 to 23 of Chapter 4 of the Own Funds (CRR) Part]

For the purposes of points (l)(v) and (o) of Article 52(1), the provisions governing Additional Tier 1 instruments shall, in particular, not include the following:

1. (a) a requirement for distributions on the instruments to be made in the event of a distribution being made on an instrument issued by the institution that ranks to the same degree as, or more junior than, an Additional Tier 1 instrument, including a Common Equity Tier 1 instrument;
2. (b) a requirement for the payment of distributions on Common Equity Tier 1, Additional Tier 1 or Tier 2 instruments to be cancelled in the event that distributions are not made on those Additional Tier 1 instruments;
3. (c) an obligation to substitute the payment of interest or dividend by a payment in any other form. The institution shall not otherwise be subject to such an obligation.

[Note: This rule corresponds to Article 53 of CRR as it applied immediately before its revocation]

1.

For the purposes of point (n) of Article 52(1), the following provisions shall apply to Additional Tier 1 instruments:

1. (a) a trigger event occurs when the Common Equity Tier 1 capital ratio of the institution referred to in point (a) of Article 92(1) of CRR falls below either of the following:
   1. (i) 5.125%;
   2. (ii) a level higher than 5.125%, where determined by the institution and specified in the provisions governing the instrument;
2. (b) institutions may specify in the provisions governing the instrument one or more trigger events in addition to that referred to in point (a);
3. (c) where the provisions governing the instruments require them to be converted into Common Equity Tier 1 instruments upon the occurrence of a trigger event, those provisions shall specify either of the following:
   1. (i) the rate of such conversion and a limit on the permitted amount of conversion;
   2. (ii) a range within which the instruments will convert into Common Equity Tier 1 instruments;
4. (d) where the provisions governing the instruments require their principal amount to be written down upon the occurrence of a trigger event, the write down shall reduce all the following:
   1. (i) the claim of the holder of the instrument in the insolvency or liquidation of the institution;
   2. (ii) the amount required to be paid in the event of the call or redemption of the instrument;
   3. (iii) the distributions made on the instrument;
5. (e) where the Additional Tier 1 instruments have been issued by a subsidiary undertaking established in a third country, the 5.125% or higher trigger referred to in point (a) shall be calculated in accordance with the national law of that third country or contractual provisions governing the instruments, provided that those provisions are at least equivalent to the requirements set out in this Article.

2.

Write down or conversion of an Additional Tier 1 instrument must, under the applicable accounting framework, generate items that qualify as Common Equity Tier 1 items.

3.

The amount of Additional Tier 1 instruments recognised in Additional Tier 1 items is limited to the minimum amount of Common Equity Tier 1 items that would be generated if the principal amount of the Additional Tier 1 instruments were fully written down or converted into Common Equity Tier 1 instruments.

4.

The aggregate amount of Additional Tier 1 instruments that is required to be written down or converted upon the occurrence of a trigger event shall be no less than the lower of the following:

1. (a) the amount required to restore fully the Common Equity Tier 1 ratio of the institution to 5.125%;
2. (b) the full principal amount of the instrument.

5.

When a trigger event occurs institutions shall do the following:

1. (a) immediately inform the PRA;
2. (b) inform the holders of the Additional Tier 1 instruments;
3. (c) write down the principal amount of the instruments, or convert the instruments into Common Equity Tier 1 instruments without delay, but no later than within one month, in accordance with the requirement laid down in this Article.

6.

An institution issuing Additional Tier 1 instruments that convert to Common Equity Tier 1 on the occurrence of a trigger event shall ensure that its authorised share capital is at all times sufficient, for converting all such convertible Additional Tier 1 instruments into shares if a trigger event occurs. All necessary authorisations shall be obtained at the date of issuance of such convertible Additional Tier 1 instruments. The institution shall maintain at all times the necessary prior authorisation to issue the Common Equity Tier 1 instruments into which such Additional Tier 1 instruments would convert upon occurrence of a trigger event.

7.

An institution issuing Additional Tier 1 instruments that convert to Common Equity Tier 1 on the occurrence of a trigger event shall ensure that there are no procedural impediments to that conversion by virtue of its incorporation or statutes or contractual arrangements.

[Note: This rule corresponds to Article 54 of CRR as it applied immediately before its revocation]

The following shall apply where, in the case of an Additional Tier 1 instrument, the conditions laid down in Article 52(1) cease to be met:

1. (a) that instrument shall immediately cease to qualify as an Additional Tier 1 instrument;
2. (b) the part of the share premium accounts that relates to that instrument shall immediately cease to qualify as an Additional Tier 1 item.

[Note 1: This rule corresponds to Article 55 of CRR as it applied immediately before its revocation]

[Note 2: Related provisions in Article 16 of Chapter 4 of the Own Funds (CRR) Part]

Institutions shall deduct the following from Additional Tier 1 items:

1. (a) direct, indirect and synthetic holdings by an institution of own Additional Tier 1 instruments, including own Additional Tier 1 instruments that an institution could be obliged to purchase as a result of existing contractual obligations;
2. (b) direct, indirect and synthetic holdings of the Additional 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;
3. (c) the applicable amount determined in accordance with Article 60 of direct, indirect and synthetic holdings of the Additional Tier 1 instruments of financial sector entities, where an institution does not have a significant investment in those entities;
4. (d) direct, indirect and synthetic holdings by the institution of the Additional Tier 1 instruments of financial sector entities where the institution has a significant investment in those entities, excluding underwriting positions held for five working days or fewer;
5. (e) the amount of items required to be deducted from Tier 2 items pursuant to Article 66 that exceeds the Tier 2 items of the institution;
6. (f) any tax charge relating to Additional Tier 1 items foreseeable at the moment of its calculation, except where the institution suitably adjusts the amount of Additional Tier 1 items insofar as such tax charges reduce the amount up to which those items may be applied to cover risks or losses.

[Note: This rule corresponds to Article 56 of CRR as it applied immediately before its revocation]

For the purposes of point (a) of Article 56, institutions shall calculate holdings of own Additional Tier 1 instruments on the basis of gross long positions subject to the following exceptions:

1. (a) institutions may calculate the amount of holdings of own Additional Tier 1 instruments on the basis of the net long position provided that both the following conditions are met:
   1. (i) the long and short positions are in the same underlying exposure and the short positions involve no counterparty risk;
   2. (ii) either both the long and the short positions are held in the trading book or both are held in the non-trading book;
2. (b) institutions shall determine the amount to be deducted for direct, indirect or synthetic holdings of index securities by calculating the underlying exposure to own Additional Tier 1 instruments in those indices;
3. (c) institutions may net gross long positions in own Additional Tier 1 instruments resulting from holdings of index securities against short positions in own Additional Tier 1 instruments resulting from short positions in the underlying indices, including where those short positions involve counterparty risk, provided that both the following conditions are met:
   1. (i) the long and short positions are in the same underlying indices;
   2. (ii) either both the long and the short positions are held in the trading book or both are held in the non-trading book.

[Note: This rule corresponds to Article 57 of CRR as it applied immediately before its revocation]

Institutions shall make the deductions required by points (b), (c) and (d) of Article 56 in accordance with the following:

1. (a) holdings of Additional Tier 1 instruments shall be calculated on the basis of the gross long positions;
2. (b) Additional Tier 1 own-fund insurance items shall be treated as holdings of Additional Tier 1 instruments for the purposes of this deduction requirement.

[Note: This rule corresponds to Article 58 of CRR as it applied immediately before its revocation]

Institutions shall make the deductions required by points (c) and (d) of Article 56 in accordance with the following:

1. (a) they may calculate direct, indirect and synthetic holdings of Additional Tier 1 instruments of the financial sector entities on the basis of the net long position in the same underlying exposure provided that both the following conditions are met:
   1. (i) the maturity date of the short position is either the same as, or later than the maturity date of the long position or the residual maturity of the short position is at least one year;
   2. (ii) either both the short position and the long position are held in the trading book or both are held in the non-trading book;
2. (b) they shall determine the amount to be deducted for direct, indirect and synthetic holdings of index securities by calculating the underlying exposure to the capital instruments of the financial sector entities in those indices.

[Note: This rule corresponds to Article 59 of CRR as it applied immediately before its revocation]

1.

For the purposes of point (c) of Article 56, institutions shall calculate the applicable amount to be deducted by multiplying the amount referred to in point (a) of this paragraph by the factor derived from the calculation referred to in point (b) of this paragraph:

1. (a) the aggregate amount by which the direct, indirect and synthetic holdings by the institution of the Common Equity Tier 1, Additional Tier 1 and Tier 2 instruments of financial sector entities in which the institution does not have a significant investment exceeds 10% of the Common Equity Tier 1 items of the institution calculated after applying the following:
   1. (i) Articles 32 to 35;
   2. (ii) points (a) to (g), points (k)(ii) to (iv) and point (l) of Article 36(1), excluding deferred tax assets that rely on future profitability and arise from temporary differences;
   3. (iii) Articles 44 and 45;
2. (b) the amount of direct, indirect and synthetic holdings by the institution of the Additional Tier 1 instruments of those financial sector entities in which the institution does not have a significant investment divided by the aggregate amount of all direct, indirect and synthetic holdings by the institution of the Common Equity Tier 1, Additional Tier 1 and Tier 2 instruments of those financial sector entities.

2.

Institutions shall exclude underwriting positions held for five working days or fewer from the amount referred to in point (a) of paragraph 1 and from the calculation of the factor referred to in point (b) of paragraph 1.

3.

The amount to be deducted pursuant to paragraph 1 shall be apportioned across all Additional Tier 1 instruments held. Institutions shall determine the amount of each Additional Tier 1 instrument to be deducted pursuant to paragraph 1 by multiplying the amount specified in point (a) of this paragraph by the proportion specified in point (b) of this paragraph:

1. (a) the amount of holdings required to be deducted pursuant to paragraph 1;
2. (b) the proportion of the aggregate amount of direct, indirect and synthetic holdings by the institution of the Additional Tier 1 instruments of financial sector entities in which the institution does not have a significant investment represented by each Additional Tier 1 instrument held.

4.

The amount of holdings referred to in point (c) of Article 56 that is equal to or less than 10% of the Common Equity Tier 1 items of the institution after applying the provisions laid down in points (a)(i), (ii) and (iii) of paragraph 1 shall not be deducted and shall be subject to the applicable risk weights in accordance with Chapter 2 or 3 of Title II of Part Three CRR, Articles 132a to 132c of Chapter 3 of the Standardised Approach and Internal Ratings Based Approach to Credit Risk (CRR) Part, and the requirements laid down in Title IV of Part Three CRR, as applicable.

5.

Institutions shall determine the amount of each Additional Tier 1 instrument that is risk weighted pursuant to paragraph 4 by multiplying the amount specified in point (a) of this paragraph by the amount specified in point (b) of this paragraph:

1. (a) the amount of holdings required to be risk weighted pursuant to paragraph 4;
2. (b) the proportion resulting from the calculation in point (b) of paragraph 3.

[Note: This rule corresponds to Article 60 of CRR as it applied immediately before its revocation]

The Additional Tier 1 capital of an institution shall consist of Additional Tier 1 items after the deduction of the items referred to in Article 56 and the application of Article 79.

[Note: This rule corresponds to Article 61 of CRR as it applied immediately before its revocation]

Tier 2 items shall consist of the following:

1. (a) capital instruments where the conditions set out in Article 63 are met, and to the extent specified in Article 64;
2. (b) the share premium accounts related to instruments referred to in point (a);
3. (c) for institutions calculating risk-weighted exposure amounts in accordance with Chapter 2 of Title II of Part Three CRR and Articles 132a to 132c of Chapter 3 of the Standardised Approach and Internal Ratings Based Approach to Credit Risk (CRR) Part, general credit risk adjustments, gross of tax effects, of up to 1.25% of risk-weighted exposure amounts calculated in accordance with Chapter 2 of Title II of Part Three CRR and Articles 132a to 132c of Chapter 3 of the Standardised Approach and Internal Ratings Based Approach to Credit Risk (CRR) Part;
4. (d) for institutions calculating risk-weighted exposure amounts under Chapter 3 of Title II of Part Three CRR, positive amounts, gross of tax effects, resulting from the calculation laid down in Articles 158 and 159 of CRR up to 0,6% of risk-weighted exposure amounts calculated under Chapter 3 of Title II of Part Three CRR.

Items included under point (a) shall not qualify as Common Equity Tier 1 or Additional Tier 1 items.

[Note: This rule corresponds to Article 62 of CRR]

[Note: This rule corresponds to Article 62 of CRR as it applied immediately before its revocation]

Capital instruments shall qualify as Tier 2 instruments, provided that the following conditions are met:

1. (a) the instruments are directly issued by an institution and fully paid up, and for this purpose only the part of the capital instrument that is fully paid up shall be eligible to qualify as a Tier 2 instrument;
2. (b) the instruments are not owned by any of the following:
   1. (i) the institution or its subsidiaries;
   2. (ii) an undertaking in which the institution has participation in the form of ownership, direct or by way of control, of 20% or more of the voting rights or capital of that undertaking;
3. (c) the acquisition of ownership of the instruments is not funded directly or indirectly by the institution;
4. (d) the claim on the principal amount of the instruments under the provisions governing the instruments ranks below any claim from eligible liabilities instruments;
5. (e) the instruments are not secured or are not subject to a guarantee that enhances the seniority of the claim by any of the following:
   1. (i) the institution or its subsidiaries;
   2. (ii) the parent undertaking of the institution or its subsidiaries;
   3. (iii) the parent financial holding company of the institution or its subsidiaries;
   4. (iv) the mixed activity holding company of the institution or its subsidiaries;
   5. (v) the mixed financial holding company of the institution or its subsidiaries;
   6. (vi) any undertaking that has close links with entities referred to in points (i) to (v);
6. (f) the instruments are not subject to any arrangement that otherwise enhances the seniority of the claim under the instruments;
7. (g) the instruments have an original maturity of at least five years;
8. (h) the provisions governing the instruments do not include any incentive for their principal amount to be redeemed or repaid, as applicable, by the institution prior to their maturity;
9. (i) where the instruments include one or more early repayment options, including call options, the options are exercisable at the sole discretion of the issuer;
10. (j) the instruments may be reduced, called, redeemed, repaid or repurchased early only where the conditions set out in Article 77 are met;
11. (k) the provisions governing the instruments do not indicate explicitly or implicitly that the instruments would be reduced, called, redeemed, repaid or repurchased early, as applicable, by the institution other than in the case of the insolvency or liquidation of the institution and the institution does not otherwise provide such an indication;
12. (l) the provisions governing the instruments do not give the holder the right to accelerate the future scheduled payment of interest or principal, other than in the case of the insolvency or liquidation of the institution;
13. (m) the level of interest or dividends payments, as applicable, due on the instruments will not be amended on the basis of the credit standing of the institution or its parent undertaking;
14. (n) where:
    1. (i) the issuer is established in a third country and has been designated by the Bank of England as part of a resolution group the resolution entity of which is established in the United Kingdom or where the issuer is established in the United Kingdom, the law or contractual provisions governing the instruments require that, upon a decision by the resolution authority to exercise the write-down and conversion powers referred to in section 6B of the Banking Act 2009, the principal amount of the instruments is to be written down on a permanent basis or the instruments are to be converted to Common Equity Tier 1 instruments;
    2. (ii) the issuer is established in a third country and has not been designated by the Bank of England as a part of a resolution group the resolution entity of which is established in the United Kingdom, the law or contractual provisions governing the instruments require that, upon a decision by the relevant third-country authority, the principal amount of the instruments is to be written down on a permanent basis or the instruments are to be converted into Common Equity Tier 1 instruments;
15. (o) where the issuer is established in a third country and has been designated by the Bank of England as part of a resolution group the resolution entity of which is established in the United Kingdom or where the issuer is established in the United Kingdom, the instruments may only be issued under, or be otherwise subject to the laws of a third country where, under those laws, the exercise of the write-down and conversion powers referred to in section 6B of the Banking Act 2009 is effective and enforceable on the basis of statutory provisions or legally enforceable contractual provisions that recognise resolution or other write-down or conversion actions;
16. (p) the instruments are not subject to set-off or netting arrangements that would undermine their capacity to absorb losses.

[Note 1: This rule corresponds to Article 63 of CRR with modifications to Article 63(j)]

[Note 2: Related provisions in Article 20 of Chapter 4 of the Own Funds (CRR) Part]

1.

The full amount of Tier 2 instruments with a residual maturity of more than five years shall qualify as Tier 2 items.

2.

The extent to which Tier 2 instruments qualify as Tier 2 items during the final five years of maturity of the instruments is calculated by multiplying the result derived from the calculation referred to in point (a) by the amount referred to in point (b) as follows:

1. (a) the carrying amount of the instruments on the first day of the final five-year period of their contractual maturity divided by the number of days in that period;
2. (b) the number of remaining days of contractual maturity of the instruments.

[Note: This rule corresponds to Article 64 of CRR as it applied immediately before its revocation]

Where in the case of a Tier 2 instrument the conditions laid down in Article 63 cease to be met, the following shall apply:

1. (a) that instrument shall immediately cease to qualify as a Tier 2 instrument;
2. (b) the part of the share premium accounts that relate to that instrument shall immediately cease to qualify as Tier 2 items.

[Note: This rule corresponds to Article 65 of CRR as it applied immediately before its revocation]

The following shall be deducted from Tier 2 items:

1. (a) direct, indirect and synthetic holdings by an institution of own Tier 2 instruments, including own Tier 2 instruments that an institution could be obliged to purchase as a result of existing contractual obligations;
2. (b) direct, indirect and synthetic holdings of the Tier 2 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;
3. (c) the applicable amount determined in accordance with Article 70 of direct, indirect and synthetic holdings of the Tier 2 instruments of financial sector entities, where an institution does not have a significant investment in those entities;
4. (d) direct, indirect and synthetic holdings by the institution of the Tier 2 instruments of financial sector entities where the institution has a significant investment in those entities, excluding underwriting positions held for fewer than five working days;
5. (e) the amount of items to be deducted from eligible liabilities items that exceeds the eligible liabilities items of the institution.

[Note: This rule corresponds to Article 66 of CRR as it applied immediately before its revocation]

For the purposes of point (a) of Article 66, institutions shall calculate holdings on the basis of the gross long positions subject to the following exceptions:

1. (a) institutions may calculate the amount of holdings on the basis of the net long position provided that both the following conditions are met:
   1. (i) the long and short positions are in the same underlying exposure and the short positions involve no counterparty risk;
   2. (ii) either both the long and the short positions are held in the trading book or both are held in the non-trading book;
2. (b) institutions shall determine the amount to be deducted for direct, indirect and synthetic holdings of index securities by calculating the underlying exposure to own Tier 2 instruments in those indices;
3. (c) institutions may net gross long positions in own Tier 2 instruments resulting from holdings of index securities against short positions in own Tier 2 instruments resulting from short positions in the underlying indices, including where those short positions involve counterparty risk, provided that both the following conditions are met:
   1. (i) the long and short positions are in the same underlying indices;
   2. (ii) either both the long and the short positions are held in the trading book or both are held in the non-trading book.

[Note: This rule corresponds to Article 67 of CRR as it applied immediately before its revocation]

Institutions shall make the deductions required by points (b), (c) and (d) of Article 66 in accordance with the following provisions:

1. (a) holdings of Tier 2 instruments shall be calculated on the basis of the gross long positions;
2. (b) holdings of Tier 2 own-fund insurance items and Tier 3 own-fund insurance items shall be treated as holdings of Tier 2 instruments for the purposes of this deduction requirement.

[Note: This rule corresponds to Article 68 of CRR as it applied immediately before its revocation]

Institutions shall make the deductions required by points (c) and (d) of Article 66 in accordance with the following:

1. (a) they may calculate direct, indirect and synthetic holdings of Tier 2 instruments of the financial sector entities on the basis of the net long position in the same underlying exposure provided that both the following conditions are met:
   1. (i) the maturity date of the short position is either the same as, or later than the maturity date of the long position or the residual maturity of the short position is at least one year;
   2. (ii) either both the long position and the short position are held in the trading book or both are held in the non-trading book;
2. (b) they shall determine the amount to be deducted for direct, indirect and synthetic holdings of index securities by looking through to the underlying exposure to the capital instruments of the financial sector entities in those indices.

[Note: This rule corresponds to Article 69 of CRR as it applied immediately before its revocation]

1.

For the purposes of point (c) of Article 66, institutions shall calculate the applicable amount to be deducted by multiplying the amount referred to in point (a) of this paragraph by the factor derived from the calculation referred to in point (b) of this paragraph:

1. (a) the aggregate amount by which the direct, indirect and synthetic holdings by the institution of the Common Equity Tier 1, Additional Tier 1 and Tier 2 instruments of financial sector entities in which the institution does not have a significant investment exceeds 10% of the Common Equity Tier 1 items of the institution calculated after applying the following:
   1. (i) Articles 32 to 35;
   2. (ii) points (a) to (g), points (k)(ii) to (iv) and point (l) of Article 36(1), excluding the amount to be deducted for deferred tax assets that rely on future profitability and arise from temporary differences;
   3. (iii) Articles 44 and 45;
2. (b) the amount of direct, indirect and synthetic holdings by the institution of the Tier 2 instruments of financial sector entities in which the institution does not have a significant investment divided by the aggregate amount of all direct, indirect and synthetic holdings by the institution of the Common Equity Tier 1, Additional Tier 1 and Tier 2 instruments of those financial sector entities.

2.

Institutions shall exclude underwriting positions held for five working days or fewer from the amount referred to in point (a) of paragraph 1 and from the calculation of the factor referred to in point (b) of paragraph 1.

3.

The amount to be deducted pursuant to paragraph 1 shall be apportioned across each Tier 2 instrument held. Institutions shall determine the amount to be deducted from each Tier 2 instrument that is deducted pursuant to paragraph 1 by multiplying the amount specified in point (a) of this paragraph by the proportion specified in point (b) of this paragraph:

1. (a) the total amount of holdings required to be deducted pursuant to paragraph 1;
2. (b) the proportion of the aggregate amount of direct, indirect and synthetic holdings by the institution of the Tier 2 instruments of financial sector entities in which the institution does not have a significant investment represented by each Tier 2 instrument held.

4.

The amount of holdings referred to in point (c) of Article 66 that is equal to or less than 10% of the Common Equity Tier 1 items of the institution after applying the provisions laid down in points (a)(i) to (iii) of paragraph 1 shall not be deducted and shall be subject to the applicable risk weights in accordance with Chapter 2 or 3 of Title II of Part Three CRR, Articles 132a to 132c of Chapter 3 of the Standardised Approach and Internal Ratings Based Approach to Credit Risk (CRR) Part, and the requirements laid down in Title IV of Part Three CRR, as applicable.

5.

Institutions shall determine the amount of each Tier 2 instrument that is risk weighted pursuant to paragraph 4 by multiplying the amount specified in point (a) of this paragraph by the amount specified in point (b) of this paragraph:

1. (a) the amount of holdings required to be risk weighted pursuant to paragraph 4;
2. (b) the proportion resulting from the calculation in point (b) of paragraph 3.

[Note: This rule corresponds to Article 70 of CRR as it applied immediately before its revocation]

The Tier 2 capital of an institution shall consist of the Tier 2 items of the institution after the deductions referred to in Article 66 and the application of Article 79.

[Note: This rule corresponds to Article 71 of CRR as it applied immediately before its revocation]

The own funds of an institution shall consist of the sum of its Tier 1 capital and Tier 2 capital.

[Note 1: This rule corresponds to Article 72 of CRR as it applied immediately before its revocation]

1.

Capital instruments and liabilities for which an institution has the sole discretion to decide to pay distributions in a form other than cash or own funds instruments shall not be eligible to qualify as Common Equity Tier 1, Additional Tier 1, or Tier 2 instruments, unless the institution has received the prior 138BA permission from the PRA.

2.

[Note: Provision left blank]

3.

Capital instruments and liabilities for which a legal person other than the institution issuing them has the discretion to decide or require that the payment of distributions on those instruments or liabilities shall be made in a form other than cash or own funds instruments shall not be eligible to qualify as Common Equity Tier 1, Additional Tier 1, or Tier 2 instruments.

4.

Institutions may use a broad market index as one of the bases for determining the level of distributions on Additional Tier 1 and Tier 2 instruments.

5.

Paragraph 4 shall not apply where the institution is a reference entity in that broad market index unless both the following conditions are met:

1. (a) the institution considers movements in that broad market index not to be significantly correlated to the credit standing of the institution, its parent institution or parent financial holding company or parent mixed financial holding company or parent mixed activity holding company;
2. (b) the PRA has not reached a different determination from that referred to in point (a).

6.

Institutions shall report and disclose the broad market indices on which their capital instruments rely.

[Note 1: This rule corresponds to Article 73 of CRR as it applied immediately before its revocation except that there is no corresponding rule for Article 73(7) of CRR]

[Note 2: Related provisions in Article 24A of Chapter 4 of the Own Funds (CRR) Part]

Institutions shall not deduct from any element of own funds direct, indirect or synthetic holdings of capital instruments issued by a regulated financial sector entity that do not qualify as regulatory capital of that entity. Institutions shall apply risk weights to such holdings in accordance with Chapter 2 or 3 of Title II of Part Three CRR and Articles 132a to 132c of Chapter 3 of the Standardised Approach and Internal Ratings Based Approach to Credit Risk (CRR) Part, as applicable.

[Note: This rule corresponds to Article 74 of CRR as it applied immediately before its revocation]

The maturity requirements for short positions referred to in point (a) of Article 45, point (a) of Article 59, and point (a) of Article 69 shall be considered to be met in respect of positions held where all the following conditions are met:

1. (a) the institution has the contractual right to sell on a specific future date to the counterparty providing the hedge the long position that is being hedged;
2. (b) the counterparty providing the hedge to the institution is contractually obliged to purchase from the institution on that specific future date the long position referred to in point (a).

[Note: This rule corresponds to Article 75 of CRR as it applied immediately before its revocation]

1.

For the purposes of point (a) of Article 42, point (a) of Article 45, point (a) of Article 57, point (a) of Article 59, point (a) of Article 67 and point (a) of Article 69, institutions may reduce the amount of a long position in a capital instrument by the portion of an index that is made up of the same underlying exposure that is being hedged, provided that all the following conditions are met:

1. (a) either both the long position being hedged and the short position in an index used to hedge that long position are held in the trading book or both are held in the non-trading book;
2. (b) the positions referred to in point (a) are held at fair value on the balance sheet of the institution;
3. (c) the short position referred to in point (a) qualifies as an effective hedge under the internal control processes of the institution;
4. (d) the internal control processes referred to in point (c) are adequate.

2.

An institution shall not use a conservative estimate of the underlying exposure of the institution to instruments included in indices as an alternative to an institution calculating its exposure to the items referred to in one or more of the following points:

1. (a) own Common Equity Tier 1, Additional Tier 1, and Tier 2 included in indices;
2. (b) Common Equity Tier 1, Additional Tier 1 and Tier 2 instruments of financial sector entities, included in indices;

unless the institution has the prior 138BA permission from the PRA.

[Note 1: This rule corresponds to Article 76 of CRR as it applied immediately before its revocation, except that Article 76(3) and 76(4) of CRR have been revoked and not replaced in these rules]

[Note 2: Related provisions in Articles 25 and 26 of Chapter 4 of the Own Funds (CRR) Part]

1.

An institution shall not:

1. (a) in any way reduce, redeem, repurchase, call, repay or reclassify own funds instruments; or
2. (b) reduce, distribute or reclassify as another own funds item the share premium accounts related to own funds instruments;

unless the institution has received the prior 138BA permission from the PRA.

2.

The requirement in paragraph 1 does not apply where own funds instruments:

1. (a) reach contractual maturity; or
2. (b) are converted or cancelled under their contractual terms.

[Note 1: This rule corresponds in relation to own funds to Article 77 of CRR as it applied immediately before its revocation]

[Note 2: Article 78 of CRR has been revoked and is not replaced in these rules]

[Note 3: Related provisions in Articles 28 to 32 of Chapter 4 of the Own Funds (CRR) Part]

1.

Where an institution holds capital instruments or liabilities that qualify as own funds instruments in a financial sector entity or in an institution and where the PRA considers those holdings to be for the purposes of a financial assistance operation designed to reorganise and restore the viability of that entity or that institution, the PRA may by a 138BA permission waive or modify on a temporary basis the provisions on deduction that would otherwise apply to those instruments.

[Note 1: This rule corresponds in relation to own funds to Article 79 of CRR as it applied immediately before its revocation]

[Note 2: Related provisions in Article 33 of Chapter 4 of the Own Funds (CRR) Part]

Institutions shall have regard to the substantial features of instruments and not only their legal form when assessing compliance with the requirements laid down in Chapter 3 of this Part. The assessment of the substantial features of an instrument shall take into account all arrangements related to the instruments, even where those are not explicitly set out in the terms and conditions of the instruments themselves, for the purpose of determining that the combined economic effects of such arrangements are compliant with the objective of the relevant provisions.

[Note 1: This rule corresponds in relation to own funds to Article 79a of CRR as it applied immediately before its revocation]

[Note 2: Article 80 was repealed by the Capital Requirements (Amendment) (EU Exit) Regulations 2018/1401]

1.

Minority interests shall comprise the sum of Common Equity Tier 1 items of a subsidiary where the following conditions are met:

1. (a) the subsidiary is one of the following:
   1. (i) an institution;
   2. (ii) a CRR firm;
   3. (iia) an intermediate financial holding company or intermediate mixed financial holding company that is subject to the requirements of CRR on a sub-consolidated basis;
   4. (iib) an intermediate investment holding company that is subject to the requirements of rules made under Part 9C FSMA on a consolidated basis;
   5. (iic) an FCA investment firm;
2. (b) the subsidiary is included fully in the consolidation pursuant to Chapter 2 of Title II of Part One of CRR;
3. (c) the Common Equity Tier 1 items, referred to in the introductory part of this paragraph, are owned by persons other than the undertakings included in the consolidation pursuant to Chapter 2 of Title II of Part One of CRR.

2.

Minority interests that are funded directly or indirectly, through a special purpose entity or otherwise, by the parent undertaking of the institution, or its subsidiaries shall not qualify as consolidated Common Equity Tier 1 capital.

[Note: This rule corresponds to Article 81 of CRR as it applied immediately before its revocation except there is no corresponding rule for Article 81(1)(a)(iii)]

Qualifying Additional Tier 1, Tier 1, Tier 2 capital and qualifying own funds shall comprise the minority interest, Additional Tier 1 or Tier 2 instruments, as applicable, plus the related retained earnings and share premium accounts, of a subsidiary where the following conditions are met:

1. (a) the subsidiary is either of the following:
   1. (i) an institution;
   2. (ii) a CRR firm;
   3. (iia) an intermediate financial holding company or intermediate mixed financial holding company that is subject to the requirements of CRR on a sub-consolidated basis;
   4. (iib) an intermediate investment holding company that is subject to the requirements of rules made under Part 9C FSMA on a consolidated basis;
   5. (iic) an FCA investment firm;
2. (b) the subsidiary is included fully in the scope of consolidation pursuant to Chapter 2 of Title II of Part One of CRR;
3. (c) those instruments are owned by persons other than the undertakings included in the consolidation pursuant to Chapter 2 of Title II of Part One of CRR.

[Note 1: This rule corresponds to Article 82 of CRR as it applied immediately before its revocation except that there is no corresponding rule for Article 82(a)(iii)]

[Note 2: Article 83 of CRR has been revoked and not replaced in these rules]

1.

Institutions shall determine the amount of minority interests of a subsidiary that is included in consolidated Common Equity Tier 1 capital by subtracting from the minority interests of that undertaking the result of multiplying the amount referred to in point (a) by the percentage referred to in point (b):

1. (a) the Common Equity Tier 1 capital of the subsidiary minus the lower of the following:
   1. (i) the amount of Common Equity Tier 1 capital of that subsidiary required to meet the following:
      1. A the sum of the requirement laid down in point (a) of Article 92(1) of CRR, the requirements referred to in Articles 458 and 459 of CRR, the specific own funds requirements referred to in regulation 34 of the Capital Requirements Regulations 2013, the combined buffer defined in the Capital Buffers Part, and the requirements referred to in any additional local supervisory regulations in third countries insofar as those requirements are to be met by Common Equity Tier 1 capital; or
      2. B  where the subsidiary is an FCA investment firm, the sum of the own funds requirements set out in rules made under Part 9C FSMA which apply to the subsidiary and any requirements set out in additional local supervisory regulations in third countries insofar as those requirements are to be met by Common Equity Tier 1 capital;
   2. (ii) the amount of consolidated Common Equity Tier 1 capital that relates to that subsidiary that is required on a consolidated basis to meet the sum of the requirement laid down in point (a) of Article 92(1) of CRR, the requirements referred to in Articles 458 and 459 of CRR, the specific own funds requirements referred to in regulation 34 of the Capital Requirements Regulations 2013, the  combined buffer defined in the Capital Buffers Part, and the requirements referred to in any additional local supervisory regulations in third countries insofar as those requirements are to be met by Common Equity Tier 1 capital;
2. (b) the minority interests of the subsidiary expressed as a percentage of all Common Equity Tier 1 instruments of that undertaking plus the related share premium accounts, retained earnings and other reserves.

2.

The calculation referred to in paragraph 1 shall be undertaken on a sub-consolidated basis for each subsidiary referred to in Article 81(1).

An institution may choose not to undertake this calculation for a subsidiary referred to in Article 81(1). Where an institution takes such a decision, the minority interest of that subsidiary may not be included in consolidated Common Equity Tier 1 capital.

3.

Where the PRA derogates from the application of prudential requirements on an individual basis, as laid down in Article 7 of CRR, minority interests within the subsidiaries to which the waiver is applied shall not be recognised in own funds at the sub-consolidated or at the consolidated level, as applicable.

3A.

Where rules made under Part 9C FSMA provide that, in relation to any subsidiaries which are FCA investment firms, the calculation referred to in paragraph 1 is to be undertaken on a consolidated basis so as to include those subsidiaries, minority interests within those subsidiaries shall not be recognised in own funds at the sub-consolidated or consolidated level, as applicable.

4.

[Note: Provision left blank]

5.

The PRA may grant a 138BA permission to waive the application of this Article to:

1. (a) a parent financial holding company; and
2. (b) a parent mixed financial holding company.

[Note 1: This rule corresponds to Article 84 of CRR as it applied immediately before its revocation except that there is no corresponding rule for Article 84(4)]

[Note 2: Related provisions in Article 34a of Chapter 4 of the Own Funds (CRR) Part]

1.

Institutions shall determine the amount of qualifying Tier 1 capital of a subsidiary that is included in consolidated own funds by subtracting from the qualifying Tier 1 capital of that undertaking the result of multiplying the amount referred to in point (a) by the percentage referred to in point (b):

1. (a) the Tier 1 capital of the subsidiary minus the lower of the following:
   1. (i) the amount of Tier 1 capital of the subsidiary required to meet the following:
      1. A   the sum of the requirement laid down in point (b) of Article 92(1) of CRR, the requirements referred to in Articles 458 and 459 of CRR, the specific own funds requirements referred to in regulation 34 of the Capital Requirements Regulations 2013, the combined buffer defined in the Capital Buffers Part, and the requirements referred to in any additional local supervisory regulations in third countries insofar as those requirements are to be met by Tier 1 capital; or
      2. B   where the subsidiary is an FCA investment firm, the sum of the own funds requirements set out in rules made under Part 9C FSMA which apply to the subsidiary and any requirements set out in additional local supervisory regulations in third countries insofar as those requirements are to be met by Tier 1 capital;
   2. (ii) the amount of consolidated Tier 1 capital that relates to the subsidiary that is required on a consolidated basis to meet the sum of the requirement laid down in point (b) of Article 92(1) of CRR, the requirements referred to in Articles 458 and 459 of CRR, the specific own funds requirements referred to in regulation 34 of the Capital Requirements Regulations 2013, the combined buffer defined in the Capital Buffers Part, and the requirements referred to in any additional local supervisory regulations in third countries insofar as those requirements are to be met by Tier 1 capital;
2. (b) the qualifying Tier 1 capital of the subsidiary expressed as a percentage of all Tier 1 instruments of that undertaking plus the related share premium accounts, retained earnings and other reserves.

2.

The calculation referred to in paragraph 1 shall be undertaken on a sub-consolidated basis for each subsidiary referred to in Article 81(1).

An institution may choose not to undertake this calculation for a subsidiary referred to in Article 81(1). Where an institution takes such a decision, the qualifying Tier 1 capital of that subsidiary may not be included in consolidated Tier 1 capital.

3.

Where the PRA derogates from the application of prudential requirements on an individual basis, as laid down in Article 7 of CRR, Tier 1 instruments within the subsidiaries to which the waiver is applied shall not be recognised as own funds at the sub-consolidated or at the consolidated level, as applicable.

3A.

Where rules made under Part 9C FSMA provide that, in relation to any subsidiaries which are FCA investment firms, the calculation referred to in paragraph 1 is to be undertaken on a consolidated basis so as to include those subsidiaries, Tier 1 instruments within those subsidiaries shall not be recognised in own funds at the sub-consolidated or consolidated level, as applicable.

[Note 1: This rule corresponds to Article 85 of CRR as it applied immediately before its revocation]

[Note 2: Related provisions in Article 34a of Chapter 4 of the Own Funds (CRR) Part]

Without prejudice to Article 84(5), institutions shall determine the amount of qualifying Tier 1 capital of a subsidiary that is included in consolidated Additional Tier 1 capital by subtracting from the qualifying Tier 1 capital of that undertaking included in consolidated Tier 1 capital the minority interests of that undertaking that are included in consolidated Common Equity Tier 1 capital.

[Note: This rule corresponds to Article 86 of CRR as it applied immediately before its revocation]

1.

Institutions shall determine the amount of qualifying own funds of a subsidiary that is included in consolidated own funds by subtracting from the qualifying own funds of that undertaking the result of multiplying the amount referred to in point (a) by the percentage referred to in point (b):

1. (a) the own funds of the subsidiary minus the lower of the following:
   1. (i) the amount of own funds of the subsidiary required to meet the following:
      1. A the sum of the requirement laid down in point (c) of Article 92(1) of CRR, the requirements referred to in Articles 458 and 459 of CRR, the specific own funds requirements referred to in regulation 34 of the Capital Requirements Regulations 2013, the combined buffer defined in the Capital Buffers Part, and any additional local supervisory regulations in third countries; or
      2. B  where the subsidiary is an FCA investment firm, the sum of the own funds requirements set out in rules made under Part 9C FSMA which apply to the subsidiary and any requirements set out in additional local supervisory regulations in third countries;
   2. (ii) the amount of own funds that relates to the subsidiary that is required on a consolidated basis to meet the sum of the requirement laid down in point (c) of Article 92(1) of CRR, the requirements referred to in Articles 458 and 459 of CRR, the specific own funds requirements referred to in regulation 34 of the Capital Requirements Regulations 2013, the combined buffer defined in the Capital Buffers Part, and any additional local supervisory own funds requirement in third countries;
2. (b) the qualifying own funds of the undertaking, expressed as a percentage of all own funds instruments of the subsidiary that are included in Common Equity Tier 1, Additional Tier 1 and Tier 2 items and the related share premium accounts, the retained earnings and other reserves.

2.

The calculation referred to in paragraph 1 shall be undertaken on a sub-consolidated basis for each subsidiary referred to in Article 81(1). An institution may choose not to undertake this calculation for a subsidiary referred to in Article 81(1). Where an institution takes such a decision, the qualifying own funds of that subsidiary may not be included in consolidated own funds.

3.

Where the PRA derogates from the application of prudential requirements on an individual basis, as laid down in Article 7 of CRR, own funds instruments within the subsidiaries to which the waiver is applied shall not be recognised as own funds at the sub-consolidated or at the consolidated level, as applicable.

3A.

Where rules made under Part 9C FSMA provide that, in relation to any subsidiaries which are FCA investment firms, the calculation referred to in paragraph 1 is to be undertaken on a consolidated basis so as to include those subsidiaries, own funds instruments within those subsidiaries shall not be recognised in own funds at the sub-consolidated or consolidated level, as applicable.

[Note 1: This rule corresponds to Article 87 of CRR as it applied immediately before its revocation]

[Note 2: Related provisions in Article 34a of Chapter 4 of the Own Funds (CRR) Part]

Without prejudice to Article 84(5), institutions shall determine the amount of qualifying own funds of a subsidiary that is included in consolidated Tier 2 capital by subtracting from the qualifying own funds of that undertaking that are included in consolidated own funds the qualifying Tier 1 capital of that undertaking that is included in consolidated Tier 1 capital.

[Note: This rule corresponds to Article 88 of CRR as it applied immediately before its revocation]

1.

A qualifying holding, the amount of which exceeds 15% of the eligible capital of the institution, in an undertaking which is not one of the following shall be subject to the provisions laid down in paragraph 3:

1. (a) a financial sector entity;
2. (b) an undertaking, that is not a financial sector entity, carrying on activities which the PRA considers to be any of the following:
   1. (i) a direct extension of banking;
   2. (ii) ancillary to banking;
   3. (iii) leasing, factoring, the management of unit trusts, the management of data processing services or any other similar activity.

2.

The total amount of the qualifying holdings of an institution in undertakings other than those referred to in points (a) and (b) of paragraph 1 that exceeds 60% of its eligible capital shall be subject to the provisions laid down in paragraph 3.

3.

For the purpose of calculating the capital requirement in accordance with Part Three CRR and Articles 132a to 132c of Chapter 3 of the Standardised Approach and Internal Ratings Based Approach to Credit Risk (CRR) Part, institutions shall apply a risk weight of 1250% to the greater of the following:

1. (a) the amount of qualifying holdings referred to in paragraph 1 in excess of 15% of eligible capital;
2. (b) the total amount of qualifying holdings referred to in paragraph 2 that exceed 60% of the eligible capital of the institution.

[Note: This rule corresponds to Article 89 of CRR as it applied immediately before its revocation]

As an alternative to applying a 1250% risk weight to the amounts in excess of the limits specified in Article 89(1) and (2), institutions may deduct those amounts from Common Equity Tier 1 items in accordance with point (k) of Article 36(1).

[Note: This rule corresponds to Article 90 of CRR as it applied immediately before its revocation]

1.

Shares of undertakings not referred to in points (a) and (b) of Article 89(1) shall not be included in calculating the eligible capital limits specified in that Article where any of the following conditions is met:

1. (a) those shares are held temporarily during a financial assistance operation as referred to in Article 79;
2. (b) the holding of those shares is an underwriting position held for five working days or fewer;
3. (c) those shares are held in the own name of the institution and on behalf of others.

2.

Shares which are not participating interests, shares in affiliated undertakings or securities intended for use on a continuing basis in the normal course of an undertaking's activities shall not be included in the calculation specified in Article 89.

[Note 1: This rule corresponds to Article 91 of CRR as it applied immediately before its revocation]

[Note 2: Articles 465 and 466 of CRR were revoked by the Financial Services and Markets Act 2023]

1.

This Article shall apply only to instruments that were issued prior to 31 December 2010.

2.

Share premium accounts related to capital, which for these purposes comprises all amounts, regardless of their actual designations, which, in accordance with the legal structure of the institution concerned, are regarded under the applicable law of the United Kingdom, or any part of it, or of a third country, as equity capital subscribed by the shareholders or other proprietors that qualified as original own funds under measures implementing point (a) of Article 57 of Directive 2006/48/EC shall qualify as Common Equity Tier 1 items if they meet the conditions laid down in points (i) and (j) of Article 28.

[Note: This rule corresponds to Article 485 of CRR as it applied immediately before its revocation]

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.]

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.]

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.]

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.]

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.]

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.]

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.]

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.]

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.]

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.]

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.]

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.]

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) of Chapter 3 of this Part, 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 as defined in the Capital Buffers Part.

[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]

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.]

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.]

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.]

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.]

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.]

1.

For the purposes of Articles 15c, 15d, 15e and 15i of this Chapter 4 of this Part, 'intermediate entity' as referred to in Article 4(1)(114) of 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.]

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.]

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]

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:
3. 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.]

1.

The amount to be deducted from Common Equity Tier 1 items referred to in point (f) of Article 36(1) of Chapter 3 of this Part shall be equal to the percentage of funding, as defined in Article 15d(3) of this Chapter 4 of this Part, 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 Chapter 3 of this Part shall be equal to the percentage of funding, as defined in Article 15d(3) of this Chapter 4 of this Part, 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.]

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:
2. 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:
4. 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.]

1.

For the purposes of Article 36(1)(i) of Chapter 3 of this Part, 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 Chapter 3 of this Part, 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 this Part.

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]

The methodology referred to in Articles 15a to 15f of this Chapter 4 of this Part shall apply mutatis mutandis to Additional Tier 1 holdings for the purposes of points (a), (c) and (d) of Article 56 of Chapter 3 of this Part, and to Tier 2 holdings for the purposes of points (a), (c) and (d) of Article 66 of Chapter 3 of this Part, where references to Common Equity Tier 1 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]

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.]

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.]

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.]

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.]

1.

Holdings of capital instruments of third country insurance and reinsurance undertakings that are situated in a third country which is not an overseas jurisdiction designated under regulation 11 in relation to regulation 13 of the IRPR regulations in respect of the insurance group capital requirements calculation 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 third country is an overseas jurisdiction designated under regulation 11 in relation to regulation 13 of the IRPR regulations in respect of the insurance group capital requirements calculation, including the third country’s rules on own funds,

1. (a) [deleted]
2. (b) [deleted]

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.]

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.]

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.]

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.]

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.]

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.]

1.

[Deleted]

2.

[Deleted]