1.   When using the prudential boundary approach for calculating the financial component, institutions shall adjust the items referred to in Articles 10 and 11 of this Regulation in accordance with Part Three, Title I, Chapter 3, of Regulation (EU) No 575/2013.

2.   Institutions shall apply the prudential boundary approach consistently with their strategies, policies, procedures, systems and controls, as set out in Part Three, Title I, Chapter 3, of Regulation (EU) No 575/2013.

3.   Institutions may use the prudential boundary approach in combination with the accounting approach.

For the purposes of the first subparagraph, institutions may apply the prudential boundary approach to certain entities within the same group or certain types of operations. In that case, institutions shall demonstrate that the selection of the scope of the prudential boundary approach is not made to engage in regulatory arbitrage. Institutions shall apply the accounting approach to the remaining part of the balance sheet. Institutions shall notify competent authorities of any material change to the scope of the prudential boundary approach in accordance with Article 13.

4.   Institutions shall apply the prudential boundary approach to all three financial years envisaged for the calculation of the financial component.

5.   Where institutions apply the prudential boundary approach, competent authorities shall verify whether the conditions referred to in Article 9, point (b), are met.