Investment in Tier 2 capital by subsidiary

Article 63(b) of Regulation (EU) No 575/2013 (CRR) provides that capital instruments and subordinated loans shall qualify as Tier 2 instruments provided in particular that the instruments are not purchased or the subordinated loans are not granted owned , as applicable, by any of the following: (i) the institution or , its subsidiaries , (ii) or 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.   Therefore, a capital instrument or a subordinated loan held by a subsidiary of an institution issuing such capital instrument or subordinated loan cannot qualify (in whole or in part, as applicable) as Tier 2 capital at the level of the institution at inception.   Where the holding of such capital instrument by a subsidiary of an institution would happen subsequently in the context of market making operations performed by the subsidiary on capital instruments issued by the institution, the second subparagraph of Article 29(3) 78(1) of the CRR Regulation(EU) No 241/2014 (RTS on own funds) applies. The predetermined amount for which the competent authority has given its permission under this Article 29(3) of the RTS on own funds to the subsidiary to perform market making on the capital instruments of the institution should be deducted from the own funds of the institution at consolidated and individual level from the moment the authorisation is granted pursuant to Article 28(3) of Delegated Regulation (EU) No 241/2014 and as also clarified in  (see Q&A 2014_1352 and 2017_3277 ) . The amount of the capital instruments which is not subject to the predetermined amount to be deducted continues to qualify as Tier 2 capital at the level of the institution and at consolidated level.   For the sake of completeness, the above answer applies in an identical manner in the context of eligible liabilities in accordance with Article 72b(2)(b) CRR and Article 32b(3) of Delegated Regulation (EU) No 241/2014, as well.