EBA欧洲银行-Public-hearing-on-8-July-2009_FCD_12页_255kb

Financial Conglomerates Directive (FCD) Review Summary

Core Content

The Financial Conglomerates Directive (FCD) review was initiated by the Joint Committee on Financial Conglomerates (JCFC) to assess the implementation of the directive across Member States. The review aimed to identify issues and propose policy options for improvement, focusing on key areas such as definitions, scope, and internal control requirements. The process involved industry input through questionnaires, hearings, and consultations, with the final recommendations published in July 2009.

Main Issues and Recommendations

Issue 1: Definitions of Holding Companies

• Issue: A Mixed Financial Holding Company (MFHC) cannot simultaneously be a Financial Holding Company (FHC) or an Insurance Holding Company (IHC), leading to inconsistencies in the application of sectoral group supervision.
• Recommendation: Amend the definitions of IHC and FHC to allow them to also be classified as MFHC.

Issue 2: Inclusion of Asset Management Companies (AMCs)

• Issue: There is ambiguity in how AMCs should be included in the identification process and whether the threshold conditions are sufficiently risk-sensitive.
• Recommendation:
  • Legal change to ensure AMCs are included in the identification process.
  • Level 3 guidance on how to treat AMCs, including the use of "off-balance sheet" and "income structure" concepts.
  • Legal change to allow supervisors to waive small and heterogeneous groups if their risk profile justifies exemption, with consistent application through level 3 guidance.

Issue 3: Interpretation of "Durable Link" and Treatment of Participations

• Issue: Different interpretations of the "durable link" criterion affect the identification of financial conglomerates. There is also confusion on how participations are included in sector size calculations when a group has only one non-controlled cross-sector holding.
• Recommendation:
  • Level 3 guidance to clarify the interpretation and application of the "durable link" criterion.
  • Legal change to introduce supervisory discretion not to treat a group as a conglomerate if it has only one non-controlled cross-sector holding.
  • Level 3 guidance to clarify the basis for including participations in sector size calculations.

Issue 4: Weighting of Participations and Information Access

• Issue: Challenges exist in accessing information from non-controlled participations and in weighting them for reporting on Risk Concentration (RC) and Intra-Group Transactions (IGT). Additionally, implementing risk management in such participations is difficult.
• Recommendation:
  • Level 3 guidance to clarify how participations should be weighted for RC and IGT reporting.
  • Guidance on addressing issues related to information access and risk management in non-controlled participations.

Key Information

• Consultation Period: The review process included a consultation period from May to August 2009, during which industry responses were invited.
• Industry Participation: Firms and trade associations participated in a qualitative questionnaire in September 2008 and attended industry hearings in December and July 2009.
• Final Advice: The final JCFC advice was expected to be published in September or October 2009.
• Recommendations: The recommendations include both legislative amendments and level 3 guidance to enhance clarity, consistency, and effectiveness in the application of the FCD.

Timeline of Key Events

Annexes

Annex I: Legislative Amendments

• Clarify that IHC and FHC can also be MFHC.
• Include AMCs in the identification process.
• Allow supervisors to waive small and heterogeneous groups based on risk profile.
• Introduce supervisory discretion not to treat a group as a conglomerate if it has only one non-controlled cross-sector holding.

Annex II: Level 3 Guidance

• Treatment of AMCs in identification and use of "off-balance sheet" and "income structure" concepts.
• Criteria for consistent application of waivers.
• Interpretation of the "durable link" criterion.
• Weighting of participations for sector size calculations.
• Weighting of participations for RC and IGT reporting.
• Addressing information access and risk management in non-controlled participations.

Conclusion

The FCD review aimed to improve the clarity and effectiveness of the directive's application across the EU. The recommendations focus on harmonizing definitions, ensuring risk-sensitive inclusion of AMCs, and providing clear guidance on the treatment of participations. These changes are intended to enhance the supervision of financial conglomerates and address the complexities of cross-sector group structures.