Prudential Regulation Authority Rulebook

1.

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

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

2.

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

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

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