The own funds of a financial conglomerate shall be calculated on the basis of the consolidated accounts according to the relevant accounting framework applied to the scope of supplementary supervision under the laws of the United Kingdom that implemented Directive 2002/87/EC and shall take paragraph 5 into account where applicable.

With regard to banking and investment services conglomerates the following treatments shall be applied to unconsolidated investments when calculating the own funds of the financial conglomerate:

1. (a)

   unconsolidated significant investments held in a financial sector entity, within the meaning of Article 43 of Regulation (EU) No 575/2013, which belongs to the insurance sector, shall be fully deducted from the conglomerate's own funds;

2. (b)

   unconsolidated investments, other than those referred to in point (a), held in a financial sector entity which belongs to the insurance sector shall be fully deducted from the conglomerate's own funds in accordance with Article 46 of Regulation (EU) No 575/2013.

Subject to paragraph 2, any own funds issued by an entity in a financial conglomerate and held by another entity in that financial conglomerate shall be deducted from the conglomerate's own funds if not already eliminated in the accounting consolidation process.

An undertaking which is a jointly controlled entity for the purpose of the relevant accounting framework shall be treated in accordance with sectoral rules on proportional consolidation or the inclusion of proportional shares.

Where an insurance undertaking or reinsurance undertaking within the meaning of section 417 FSMA forms part of a financial conglomerate, the calculation of the supplementary capital adequacy requirements at the level of the financial conglomerate shall be based on the valuation of assets and liabilities calculated in accordance with the Valuation and Technical Provisions Parts of PRA Rulebook.

Where asset or liability values are subject to prudential filters and deductions in accordance with Title I of Part 2 of Regulation (EU) No 575/2013, the asset or liability values used for the purpose of the calculation of the supplementary capital adequacy requirements shall be those attributable to the relevant entities under that Regulation, excluding assets and liabilities attributable to other entities of the financial conglomerate.

Where calculation of a threshold or limit is required by sectoral rules, the threshold or limit at conglomerate level shall be calculated on the basis of the consolidated data of the financial conglomerate and after deductions required by paragraphs 2 and 3.

For the purposes of calculating thresholds or limits, regulated entities in a financial conglomerate which fall within the scope of an institution’s consolidated situation pursuant to Section 1 of Chapter 2 of Title II of Part One of Regulation (EU) No 575/2013, or to MIFIDPRU 2 (as applicable)1, shall be considered together.

For the purpose of calculating thresholds or limits, regulated entities in a financial conglomerate which fall within the scope of group supervision according to the Group Supervision Part of the PRA Rulebook and Part 3 of the Solvency 2 Regulations 2015 shall be considered together.

For the purposes of calculating thresholds or limits at the regulated entity level, regulated entities in a financial conglomerate to which neither paragraph 8 nor paragraph 9 applies, shall calculate their respective thresholds and limits on an individual basis according to the sectoral rules of the regulated entity.

When summing the relevant sectoral solvency requirements there shall be no adjustment other than as required by Article 11 or as a result of adjustments to sectoral thresholds and limits pursuant to paragraph 7.

Where the own funds of a regulated entity are subject to a prudential filter pursuant to the relevant sectoral rules, one of the following treatments shall apply:

1. (a)

   the filtered amount, being the net amount that shall be taken into account in the calculation of own funds of participations, shall be added to the book value of participations in accordance with Annex 2 of the Financial Conglomerates Part of the PRA Rulebook and Annex 1R of Chapter 3 of the FCA General Prudential sourcebook, if the filtered amount increases regulatory capital;

2. (b)

   the filtered amount referred to in point (a) shall be deducted from the book value of participations in accordance with Annex 2 of the Financial Conglomerates Part of the PRA Rulebook and Annex 1R of Chapter 3 of the FCA General Prudential sourcebook, if the filtered amount decreases regulatory capital.

For banking-led or investment-led financial conglomerates, significant investment in a financial sector entity within the meaning of Article 43 of Regulation (EU) No 575/2013, which belongs to the insurance sector and which is not a participation shall be fully deducted from the own funds items of the entity holding the instrument, in accordance with sectoral rules applicable to that entity.

Intra-group investments in any capital instruments that are eligible as own funds in accordance with sectoral rules, taking into account relevant sectoral limits, shall be deducted or excluded from the own funds calculation.

The calculation of supplementary capital requirements shall be carried out in accordance with the formula in the Annex.

Competent authorities may only allow the application of a combination of method 1 and method 2 as referred to in the Financial Conglomerates Part of the PRA Rulebook and method 3 as referred to in section 3.1 of the FCA General Prudential sourcebook in either of the following circumstances:

1. (a)

   it is not reasonably feasible to apply either method 1 as referred to in Annex 2 (Table 1) of the Financial Conglomerates Part of the PRA Rulebook and Annex 1R (Table 1) of Chapter 3 of the FCA General Prudential sourcebook to all entities or method 2 as referred to in Annex 2 (Table 2) of the Financial Conglomerates Part of the PRA Rulebook and Annex 1R (Table 2) of Chapter 3 of the FCA General Prudential sourcebook to all entities within a financial conglomerate, in particular because method 1 cannot be used for one or more entities because they are outside the scope of consolidation, or because a regulated entity is established in a third country and it is not possible to obtain sufficient information to apply one of the methods to that entity;

2. (b)

   the entities which would apply one of the methods are collectively of negligible interest with respect to the objectives of supervision of regulated entities in a financial conglomerate.

Either method 1 or method 2 shall be used by all regulated entities in a financial conglomerate which are not referred to in paragraph 1.

The application of a combination of method 1 and method 2 in relation to a financial conglomerate shall be consistent over time.