Scope of applicability of the permission to non-deduct holdings of a financial sector entity under Article 49(1) CRR

Is Article 49(1) CRR applicable to holdings of all own funds instruments or is it applicable only to holdings of CET1 instruments?

Article 49(1) CRR grants the competent authority the discretion to permit institutions – on the conditions listed in points (a) to (e) of that paragraph – not to deduct the holdings of own funds instruments of a financial sector entity in which the parent institution, parent financial holding company or parent mixed financial holding company or institution has a significant investment. As the provision of Article 49(1) CRR refers explicitly to “own funds instruments”, this casts the impression that Article 49(1) CRR shall be applicable to all holdings of CET1, AT1 and T2 equivalent instruments of a financial sector entity in which the parent institution, parent financial holding company or parent mixed financial holding company or institution has a significant investment. However, as Article 49 CRR is embedded under Sub-Section 2 “Exemptions from and alternatives to deduction from Common Equity Tier 1 items”, the provision of Article 49(1) CRR could be interpreted as being limited to only CET1 instruments. According to this reading, holdings of AT1 and T2 instruments are excluded from the scope of this provision and cannot benefit from the exemption.