(b)the ‘prudential boundary approach’ under which they calculate the financial component in accordance with Article 12 of this Regulation on the basis of the prudential boundary set out in Part Three, Title I, Chapter 3, of Regulation (EU) No 575/2013, provided that all of the following conditions are met:
(i)certain types of operations performed, or accounting choices adopted, including the economic hedging of fair value through profit and loss positions or the bifurcation of derivatives embedded in host hybrid or in structured financial instruments, result in an unwarranted increase of the financial component when using the accounting approach;
(ii)the institution has in place policies, procedures, systems and controls to:
(1)identify the profit and loss of hedged instruments and related hedges, connecting those related hedges to the hedged risks;
(2)properly calculate the profits and losses of the prudential trading book and the prudential non-trading book;
(iii)the internal policies, procedures, systems and controls allow for documenting the hedging relationship and its changes over time based on risk management objectives and choices;
(iv)the adjustments to the financial component are restricted to the amount of profit and loss related to risks effectively covered by the hedge and materially offsetting the accounting profit and loss of the hedged items.