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Summary of Feedback on CP 41

Introduction

• Date of Submission: The Committee of European Banking Supervisors (CEBS) submitted its draft guidelines for the convergence of supervisory practices on the application of revised Article 3 of Directive 2006/48/EC for public consultation on 13 July 2010.
• Consultation Period: The consultation period ended on 27 August 2010.
• Responses Received: Six responses from European trade associations were received and published on CEBS's website.
• Feedback Table: This document includes a feedback table summarizing the key points from the responses and CEBS's views on those aspects.

General Comments

• Support for Guidelines: Most respondents supported the objective of the guidelines, which is to enhance convergence of supervisory practices across the EU.
• Clarifications Requested: Some respondents requested clarifications or amendments, particularly regarding:
  • The scope of application of the guidelines.
  • The concept of affiliation.
  • The approach to the use of the EU passport.
• Concerns on Scope Expansion: A few respondents expressed strong concerns that the guidelines might expand the scope of Article 3 to affiliated institutions that meet prudential requirements on a solo basis and do not use the derogations in Article 3.

Key Feedback and CEBS Responses

A) Concept of 'Permanently Affiliated to a Central Body'

• Respondents' Views:
  • Some agreed that a common understanding of "permanently affiliated" is necessary to clarify the Group's stability and obligations to creditors.
  • Others requested further clarification on the definition of "permanently affiliated," including time-limits and the use of integrated liquidity management and centralized treasury functions.
• CEBS Response:
  • CEBS confirmed that paragraph 13 of CP41 provides illustrative examples, not additional prudential requirements.
  • CEBS noted that the guidance is sufficient for harmonized practices without altering the existing structure of Groups.
  • CEBS added an explicit reference to 'cross-border activities' in paragraph 29.i) of CP41.

B) Guarantee

• Respondents' Views:
  • One respondent appreciated the description of guarantee systems and suggested adding a footnote to clarify that guarantees may result from legal provisions or contractual arrangements.
  • Others requested clarification on the level of commitment and guarantees, such as whether they need to cover 100% of capital and profits.
• CEBS Response:
  • CEBS believes that the current wording already accounts for different guarantee arrangements.
  • It considers it out of scope to take a position on limitations of mutual commitments.
  • CEBS emphasized that all elements should be read in the context of a level playing field between Groups and credit institutions with many branches.

C) Relation of Requirements and Exemptions in Article 3 (1) and (2)

• Respondents' Views:
  • Most respondents appreciated the clarifications on requirements and exemptions under Article 3, especially after the modification by CRD II.
• CEBS Response:
  • CEBS acknowledged the support for its proposals.

D) Consolidated Financial Statements vs. Consolidated Prudential Reporting

• Respondents' Views:
  • One respondent asked whether audit-trail accounting from top to bottom of the Group would be necessary.
• CEBS Response:
  • CEBS clarified that accounting matters are governed by IAS or Directive 86/635/EC.
  • Competent supervisory authorities have the power to define prudential reporting requirements.

E) Instructions from the Central Body

• Respondents' Views:
  • One respondent noted that in cooperatives, the definition of policies may not be exclusively the competence of the central body and suggested that the list in paragraph 28 should be non-exhaustive.
  • Another respondent argued that the central body should not lose the affiliated institutions' autonomy in day-to-day management.
• CEBS Response:
  • CEBS considered the feedback and changed the wording of paragraph 28 to reflect that the list is non-exhaustive.
  • It emphasized that the central body should issue instructions to ensure compliance with regulatory requirements, and that the central body is the entity with the power to do so.
  • CEBS added an explicit reference to 'cross-border activities' in paragraph 29.i).

F) Use of the EU Passport

• Respondents' Views:
  • One respondent suggested that affiliated institutions under Article 3 should be treated similarly to those under Article 69(1) of the CRD and should not be restricted from using the EU passport for cross-border services.
• CEBS Response:
  • CEBS redrafted Section F on the use of the EU passport to align with the feedback.
  • It clarified that the EU passport can only be used by the Group as a whole, and that the central body must notify the competent authority for any cross-border establishment.
  • CEBS added that the central body can make use of the EU passport on behalf of the Group.

Summary of Amendments

• Paragraph 7 (new): Clarifies the scope of the guidelines, stating they apply only to institutions using the derogations in Article 3.
• Paragraph 18: Added a reference to Directive 2006/48/EC to avoid misunderstandings regarding exit procedures.
• Paragraph 29.e) and 29.c): Revised wording to reflect that affiliated institutions may have different strategic purposes and that the fit and proper test is not applicable to all senior managers.
• Section 'F) Use of the EU passport' (redrafted): Updated to align with the feedback on cross-border activities and EU passport usage.
• Paragraph 31.d): Clarified that the central body can make use of the EU passport on behalf of the Group.
• Paragraphs 32 and 33: Made clear that affiliated institutions not using the derogations can use the EU passport on their own.