# Commission Delegated Regulation (EU) No 342/2014Show full title

Commission Delegated Regulation (EU) No 342/2014 of 21 January 2014 supplementing Directive 2002/87/EC of the European Parliament            and of the Council and Regulation (EU) No 575/2013 of the European Parliament and of the Council with regard to regulatory            technical standards for the application of the calculation methods of capital adequacy requirements for financial conglomerates            (Text with EEA relevance)         

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U.K.

# Commission Delegated Regulation (EU) No 342/2014                     

# of 21 January 2014

# supplementing Directive 2002/87/EC of the European Parliament and of the Council and Regulation (EU) No 575/2013 of the European                        Parliament and of the Council with regard to regulatory technical standards for the application of the calculation methods                        of capital adequacy requirements for financial conglomerates                     

# (Text with EEA relevance)

THE EUROPEAN COMMISSION,

Having regard to the Treaty on the Functioning of the European Union,

Having regard to Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements                           for credit institutions and investment firms and amending Regulation (EU) No 648/2012(1) and in particular Article 49(6) thereof,                        

Having regard to Directive 2002/87/EC of the European Parliament and of the Council of 16 December 2002 on the supplementary                           supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate and amending Council                           Directives 73/239/EEC, 79/267/EEC, 92/49/EEC, 92/96/EEC, 93/6/EEC and 93/22/EEC, and Directives 98/78/EC and 2000/12/EC of                           the European Parliament and of the Council(2) and in particular to Article 21a(3) thereof,                        

Whereas:

(1)For financial conglomerates which include significant banking or investment business and insurance business, multiple use                              of elements eligible for the calculation of own funds at the level of the financial conglomerate that is to say, multiple                              gearing as well as any inappropriate intra-group creation of own funds should be eliminated in order to accurately reflect                              the availability of conglomerates' own funds to absorb losses and to ensure supplementary capital adequacy at the level of                              the financial conglomerate.

(2)It is important to ensure that own funds in excess of sectoral solvency requirements are only included at conglomerate level                              if there are no impediments to the transfer of assets or repayment of liabilities across different conglomerate entities,                              including across sectors.

(3)A financial conglomerate should only include own funds that exceed sectoral solvency requirements in the calculation of its                              own funds if those funds are transferable across entities within the financial conglomerate.

(4)Appropriate rules should take into account that sector-specific own funds requirements are designed to cover risks relating                              to that sector, and are not intended to cover risks outside that sector.

(5)To ensure consistent application of the supplementary capital adequacy calculation the sectoral requirements which comprise                              solvency requirements for this purpose should be listed. Those requirements should be without prejudice to the sectoral provisions                              concerning the measures to be taken following a breach of sectoral solvency requirements. In particular, where a deficit arises                              at the level of a financial conglomerate due to a breach in the combined buffer requirement under Chapter 4 of Title VII of                              Directive 2013/36/EU of the European Parliament and of the Council(3), the necessary measures required should be based on those set out in that Chapter.

(6)When calculating the supplementary capital adequacy requirement of a financial conglomerate, both a notional solvency requirement                              and a notional level of own funds should be calculated for non-regulated financial entities within the financial conglomerate.

(7)Part II of Annex I to Directive 2002/87/EC sets out three technical methods for calculating capital adequacy requirements                              at the level of the financial conglomerate: ‘Accounting consolidation method’ (method 1), ‘Deduction and aggregation method’                              (method 2) and ‘Combination method’ (method 3), allowing the combination of method 1 and method 2. The technical calculation                              methods 1 and 2 should be specified to ensure their consistent application. In addition, the circumstances for the use of                              method 3 should be specified and it should be ensured that the competent authorities permit the use of that method in similar                              circumstances, apply common criteria and require that method to be applied in a way which is consistent across financial conglomerates.                              The competent authorities should only allow the application of method 3 where a financial conglomerate can demonstrate that                              the application of method 1 or 2 alone would not be reasonably feasible. The use of method 3 should be consistent over time                              to ensure equivalent conditions. As the technical calculation methods are carried out in accordance with the technical principles                              referred to in Part I of Annex I to Directive 2002/87/EC, it is necessary to specify those principles as well.

(8)Method 1 for calculating group solvency, as set out in Directive 2009/138/EC of the European Parliament and of the Council(4) and method 1 for calculating supplementary capital adequacy requirements, as set out in Directive 2002/87/EC should be considered                              equivalent since both methods are consistent with the main objectives of supplementary supervision. Both methods ensure the                              elimination of intra-group creation of own funds and the calculation of own funds in accordance with the definitions and limits                              established in the relevant sectoral rules.

(9)The empowerment to adopt regulatory technical standards in Article 49(6) of Regulation (EU) No 575/2013 is closely linked                              with the empowerment in Article 21a(3) of Directive 2002/87/EC, since both deal with consistent application of the methods                              of calculation laid down in the Annex to that Directive. To ensure coherence in the methods of calculation specified for the                              purpose of those legislative acts and to facilitate a comprehensive view and compact access to them by persons subject to                              those obligations it is desirable to lay down the regulatory technical standards adopted pursuant to those empowerments in                              a single Regulation.

(10)This Regulation should be based on the new sectoral solvency regimes that have been established in the Union in order to ensure                              the most consistent application of the calculation methods. This Regulation should therefore not apply before the date of                              application of Regulation (EU) No 575/2013. The rules dependent on the application of Directive 2009/138/EC should begin to                              apply from the date of application of that Directive. Existing national implementation of the calculation of supplementary                              capital adequacy requirements should therefore continue to be used in those areas that have not been harmonised by this Regulation                              in the period before it applies in full, and underlying calculations that are based on insurance sectoral rules should be                              based on the insurance sectoral rules that apply at the time of that calculation.

(11)This Regulation is based on the draft regulatory technical standards submitted jointly by the European Supervisory Authority                              (European Banking Authority) (EBA), European Supervisory Authority (European Insurance and Occupational Pensions Authority)                              (EIOPA) and European Supervisory Authority (European Securities and Markets Authority) (ESMA) to the Commission.

(12)The EBA, EIOPA and ESMA have conducted open public consultations on the draft regulatory technical standards on which this                              Regulation is based, analysed the potential related costs and benefits, in accordance with Article 10 of Regulation (EU) No                              1093/2010 of the European Parliament and of the Council(5), Article 10 of Regulation (EU) No 1094/2010 of the European Parliament and of the Council(6) and Article 10 of Regulation (EU) No 1095/2010 of the European Parliament and of the Council(7), and requested the opinion of the Banking Stakeholder Group established in accordance with Article 37 of Regulation (EU)                              No 1093/2010, Insurance and Reinsurance Stakeholder Group established in accordance with Article 37 of Regulation (EU) No                              1094/2010 and Securities and Markets Stakeholder Group established in accordance with Article 37 of Regulation (EU) No 1095/2010,

HAS ADOPTED THIS REGULATION:

## CHAPTER IU.K.SUBJECT MATTER AND DEFINITIONS

### Article 1U.K.Subject matter

This Regulation specifies the technical principles and technical calculation methods listed in Annex I to Directive 2002/87/EC                     for the purposes of the alternatives to deduction referred to Article 49(1) of Regulation (EU) No 575/2013 and for the purposes                     of calculating own funds and supplementary capital adequacy requirement as provided for in Article 6(2) of Directive 2002/87/EC.                  

### Article 2U.K.Definitions

For the purposes of this Regulation, the following definitions shall apply:

‘insurance-led financial conglomerate’ means a financial conglomerate the most important financial sector of which is insurance,                              in accordance with Article 3(2) of Directive 2002/87/EC;                           

‘banking-led or investment-led financial conglomerate’ means a financial conglomerate the most important financial sector                              of which is either the banking sector or the investment services sector, in accordance with Article 3(2) of Directive 2002/87/EC.                           

## CHAPTER IIU.K.TECHNICAL PRINCIPLES

### Article 3U.K.Elimination of multiple gearing and the intra-group creation of own funds

Own funds which result directly or indirectly from intra-group transactions shall not be included when calculating the supplementary                     capital adequacy requirements at the level of a financial conglomerate.                  

### Article 4U.K.Transferability and availability of own funds

1.Own funds recognised at the level of a regulated entity, that exceed those needed to meet sectoral solvency requirements as                        specified in Article 9, shall not be included in the calculation of the own funds of a financial conglomerate, or of the sum                        of the own funds of each regulated and non-regulated financial sector entity in a financial conglomerate, unless there is                        no current or foreseen practical or legal impediment to the transfer of the funds between entities in the financial conglomerate.                  

2.The entity referred to in the fifth subparagraph of Article 6(2) of Directive 2002/87/EC shall, when submitting the results                        of the calculation and the relevant data for the calculation referred to in that subparagraph to the coordinator, confirm                        and provide evidence to the coordinator that paragraph 1 is complied with.                  

### Article 5U.K.Sector specific own funds

1.Own funds referred to in paragraph 2 which are available at the level of a regulated entity shall be eligible for the coverage                        of risks arising from the sector that recognises those own funds, and shall not be taken into account as eligible for the                        coverage of risks of other financial sectors.                  

2.The own funds referred to in paragraph 1 are own funds that are not the following:                  

(a)Common Equity Tier 1, Additional Tier 1 or Tier 2 items within the meaning of Regulation (EU) No 575/2013;                  

(b)basic own-fund items of undertakings subject to the requirements of Directive 2009/138/EC where those items are classified                        in Tier 1 or in Tier 2 in accordance with Article 94(1) and (2) of that Directive.                  

### Article 6U.K.Deficit of own funds at the financial conglomerate level

1.Where there is a deficit of own funds at the financial conglomerate level, only own fund items that are eligible under the                        sectoral rules for both the banking sector and the insurance sector shall be used to meet that deficit.                  

2.The own funds referred to in paragraph 1 are the following:                  

(a)Common Equity Tier 1 capital as defined in Article 50 of Regulation (EU) No 575/2013;                  

(b)basic own-fund items where those items are classified in Tier 1 in accordance with Article 94(1) of Directive 2009/138/EC                        and the inclusion of those items is not limited by the delegated acts adopted in accordance with Article 99 of that Directive;                  

(c)Additional Tier 1 capital as defined in Article 61 of Regulation (EU) No 575/2013;                  

(d)basic own-fund items where those items are classified in Tier 1 in accordance with Article 94(1) of Directive 2009/138/EC                        and the inclusion of those items is limited by the delegated acts adopted in accordance with Article 99 of that Directive;                  

(e)Tier 2 capital as defined in Article 71 of Regulation (EU) No 575/2013; and                  

(f)basic own-fund items where those items are classified in Tier 2 in accordance with Article 94(2) of Directive 2009/138/EC.                  

3.Own funds items that are used to meet the deficit shall comply with Article 4(1).                  

### Article 7U.K.Consistency

The regulated entities or the mixed financial holding company in a financial conglomerate shall apply the calculation method                     in a consistent manner over time.                  

### Article 8U.K.Consolidation

In relation to insurance-led financial conglomerates, method 1 for calculating the group solvency of insurance and reinsurance                     undertakings, as laid down in Articles 230, 231 and 232 of Directive 2009/138/EC, shall be considered as equivalent to method                     1 for calculating the supplementary capital adequacy requirements of the regulated entities in a financial conglomerate, as                     laid down in Annex I to Directive 2002/87/EC, provided that the scope of group supervision under Title III of Directive 2009/138/EC                     is not materially different from the scope of supplementary supervision under Chapter II of Directive 2002/87/EC.                  

### Article 9U.K.Solvency requirement

1.Where the rules for the insurance sector are to be applied, the Solvency Capital Requirement referred to in Articles 100 and                        218 of Directive 2009/138/EC including any capital add-on applied in accordance with Article 37 of that Directive, following                        from Article 216(4), Article 231(7), Article 232, Article 233(6), Article 238(2) and (3) of that Directive shall be considered                        to be the solvency requirements; for the purpose of the calculation of the supplementary capital adequacy requirements.                  

2.Where the rules for the banking or investment services sector are to be applied, own funds requirements as laid down in Chapter                        1 of Title I of Part Three of Regulation (EU) No 575/2013 and requirements pursuant to that Regulation or to Directive 2013/36/EU                        to hold own funds in excess of those requirements, including a requirement arising from the internal capital adequacy assessment                        process in Article 73 of that Directive, any requirement imposed by a competent authority pursuant to Article 104(1)(a) of                        that Directive, the combined buffer requirement as defined in Article 128(6) of that Directive, and measures adopted pursuant                        to Articles 458 or 459 of Regulation (EU) No 575/2013 shall be considered to be the solvency requirements for the purpose                        of the calculation of the supplementary capital adequacy requirements.                  

### Article 10U.K.The financial conglomerate's own funds and solvency requirements

1.Subject to paragraphs 7, 8 and 9 of Article 14, the financial conglomerate's own funds and solvency requirements shall be                        calculated in accordance with the definitions and limits established in the relevant sectoral rules.                  

2.The own funds of asset management companies shall be calculated in accordance with Article 2(1)(l) of Directive 2009/65/EC of                        the European Parliament and of the Council(8). The solvency requirements of asset management companies shall be the requirements set out in Article 7(1)(a) of that Directive.                  

3.The own funds of alternative investment fund managers shall be calculated in accordance with Article 4(1)(ad) of Directive                        2011/61/EU of the European Parliament and of the Council(9). The solvency requirements of alternative investment fund managers shall be the requirements set out in Article 9 of that                        Directive.                  

### Article 11U.K.Treatment of cross sector holdings

1.Where an entity in a banking- or investment-led financial conglomerate has a holding in a financial sector entity which belongs                        to the insurance sector and which is deducted pursuant to Articles 14(3) or 15(3) no supplementary capital adequacy requirement                        shall arise in respect of that holding at the level of the financial conglomerate.                  

2.Where the application of paragraph 1 results in a direct change in the expected loss amount under the Internal Ratings Based                        approach within the meaning of Chapter 3 of Title II of Part Three of Regulation (EU) No 575/2013, an amount equivalent to                        that change shall be added to the own funds of the financial conglomerate.                  

### Article 12U.K.Notional own funds and notional solvency requirements for non-regulated financial sector entities

1.Where a mixed financial holding company has a holding in a non-regulated financial sector entity, the notional own funds and                        the notional solvency requirements for that entity shall be calculated in accordance with the sectoral rules of the most important                        sector in the financial conglomerate.                  

2.For a non-regulated financial sector entity other than one referred to in paragraph 1, the notional own funds and the notional                        solvency requirements shall be calculated in accordance with the sectoral rules of the closest financial sector of the non-regulated                        financial sector entity. The determination of the closest financial sector shall be based on the range of activities of the                        relevant entity and the extent to which it carries out those activities. If it is not possible to clearly identify the closest                        financial sector, the sectoral rules of the most important sector in the financial conglomerate shall be used.                  

### Article 13U.K.Sectoral transitional and grandfathering arrangements

The sectoral rules applied in the calculation of the supplementary capital adequacy requirements shall include any transitional                     or grandfathering provisions that apply at sectoral level.                  

## CHAPTER IIIU.K.TECHNICAL CALCULATION METHODS

### Article 14U.K.Specification of technical calculation under method 1 pursuant to Directive 2002/87/EC

1.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 Directive 2002/87/EC and shall take paragraph                        5 into account where applicable.                  

2.With regard to banking-led or investment-led financial conglomerates the following treatments shall be applied to unconsolidated                        investments when calculating the own funds of the financial conglomerate:                  

(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;                  

(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.                  

3.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.                  

4.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.                  

5.Where an entity within the scope of Directive 2009/138/EC 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 Section 1 and 2 of Chapter VI of Title I of Directive 2009/138/EC.                  

6.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.                  

7.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.                  

8.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 shall be considered together.                  

9.For the purpose of calculating thresholds or limits, regulated entities in a financial conglomerate which fall within the                        scope of group supervision according to Title III of Directive 2009/138/EC shall be considered together.                  

10.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.                  

11.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.                  

### Article 15U.K.Specification of technical calculation under method 2 pursuant to Directive 2002/87/EC

1.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:                  

(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 subparagraph 2 of Article 6(4) of Directive 2002/87/EC,                        if the filtered amount increases regulatory capital;                  

(b)the filtered amount referred to in point (a) shall be deducted from the book value of participations in accordance with subparagraph                        2 of Article 6(4) of Directive 2002/87/EC, if the filtered amount decreases regulatory capital.                  

2.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.                  

3.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.                  

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

### Article 16U.K.Specification of circumstances for the use of Method 3 pursuant to Directive 2002/87/EC

1.Competent authorities may only allow the application of method 3 as referred to in Annex I to Directive 2002/87/EC in either                        of the following circumstances:                  

(a)it is not reasonably feasible to apply either method 1 as referred to in Annex I to Directive 2002/87/EC to all entities or                        method 2 as referred to in Annex I to Directive 2002/87/EC 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;                  

(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.                  

2.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.                  

3.The application of method 3 allowed by a competent authority in relation to a financial conglomerate shall be consistent over                        time.                  

## CHAPTER IVU.K.FINAL PROVISIONS

### Article 17U.K.Entry into force

This Regulation shall enter into force on the twentieth day following that of its publication in the *Official Journal of the European Union.*                   

Article 5, Article 6(2), Article 8, Article 9(1) and Article 14(5) and (9) shall apply from the date of application referred                     to in Article 309(1) of Directive 2009/138/EC.                  

This Regulation shall be binding in its entirety and directly applicable in all Member States.

Done at Brussels, 21 January 2014.

*For the Commission*                            

*The President*                            

José Manuel Barroso                            

## ANNEXU.K.Calculation methodology for Method 2 pursuant to Directive 2002/87/ECDeduction and aggregation method

The calculation of supplementary capital adequacy requirements under method 2 shall be carried out on the basis of the applicable                     accounting framework of each of the entities in the group following the formulaic expression below:                  

where own funds (*OFi*) exclude intra-group capital instruments that are eligible as own funds in accordance with sectoral rules.                  

The supplementary capital adequacy requirements (*scar*) shall thus be calculated as the difference between:                  

the sum of the own funds (*OFi*) of each regulated and non-regulated financial sector entity (*i*) in the financial conglomerate; the elements eligible are those which qualify in accordance with the relevant sectoral rules;                              and                           

the sum of the solvency requirements (REQi) for each regulated and non-regulated financial sector entity (i) in the group                              (G); the solvency requirements shall be calculated in accordance with the relevant sectoral rules; and the book value (BVj)                              of the participations in other entities (j) of the group.                           

In the case of non-regulated financial sector entities, a notional solvency requirement shall be calculated in accordance                     with Article 12. Own funds and solvency requirements shall be taken into account for their proportional share (*x*) as provided for in Article 6(4) of Directive 2002/87/EC and in accordance with Annex I to that Directive.                  

The difference shall not be negative.

1

OJ L 176, 27.6.2013, p. 1.                           

2

OJ L 35, 11.2.2003, p. 1.                           

3

Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions                              and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives                              2006/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, p. 338).                           

4

Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the                              business of Insurance and Reinsurance (Solvency II) (OJ L 335, 17.12.2009, p. 1).                           

5

Regulation (EU) No 1093/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory                              Authority (European Banking Authority), amending Decision No716/2009/EC and repealing Commission Decision 2009/78/EC (OJ L 331, 15.12.2010, p. 12).                           

6

Regulation (EU) No 1094/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory                              Authority (European Insurance and Occupational Pensions Authority), amending Decision No 716/2009/EC and repealing Commission                              Decision 2009/79/EC (OJ L 331, 15.12.2010, p. 48).                           

7

Regulation (EU) No 1095/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory                              Authority (European Securities and Markets Authority), amending Decision No 716/2009/EC and repealing Commission Decision                              2009/77/EC (OJ L 331, 15.12.2010, p. 84).                           

8

Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations                              and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) (OJ L 302, 17.11.2009, p. 32).                           

9

Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers                              and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010 (OJ L 174, 1.7.2011, p. 1).