According to Article 78(1)(a) CRR the competent authority shall grant the permission for an institution to reduce, call, redeem, repay or repurchase Common Equity Tier 1, Additional Tier 1 or Tier 2 instruments or to reduce, distribute or reclassify related share premium accounts if, before or at the same time as any of the actions referred to in Article 77(1) CRR, the institution replaces the instruments or the related share premium accounts referred to Article 77(1) CRR (the ‘’replaced instrument’’) with own funds instruments of equal or higher quality at terms  that are sustainable for the income capacity of the institution (the ‘’replacing instrument’’).

Some institutions apply to reduce own funds with replacement according to Article 78(1)(a) CRR having already issued the replacing instrument and included it in their own funds so that both the replaced instrument and replacing instrument are included in the own funds. Such inclusion of both replaced and replacing instruments means that once the reduction is performed and the related amount is deducted according to Article 28(2) Commission Delegated Regulation 241/2014, there would be a decrease of the own funds.