Table of Contents:
Financial conglomerates
Outline of the Community (European Union) legislation about Financial conglomerates
Topics
These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.
Internal market > Financial services: general framework
Financial conglomerates
Document or Iniciative
European Parliament and Council Directive 2002/87/EC of 16 December 2002 on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate and amending Council Directives 73/239/EEC, 79/267/EEC, 92/49/EEC, 92/96/EEC, 93/6/EEC, 93/22/EEC, 98/78/EC and 2000/12/EC [See amending acts].
Summary
This Directive provides for supervision of the conglomerate and promotes closer coordination between the supervisory authorities for the individual sectors and the exchange of information between them.
Characteristic thresholds of a financial conglomerate
The Directive considers that the activities of a group occur mainly in the financial sector where the balance sheet total of the regulated and non-regulated financial sector entities in the group exceeds 40 % of the group’s balance sheet total.
The most important financial sector in a financial conglomerate is the sector with the highest average. The Directive regards the group as a conglomerate where it has significant activities in another financial sector.
Target entities for supplementary supervision at the level of a financial conglomerate
Supplementary supervision is to be applied to:
- any regulated entity at the head of a financial conglomerate;
- any regulated undertaking which has as its parent company a mixed financial holding company with its head office in the Union;
- any regulated entity connected to another entity in the financial sector.
Solvency
Financial conglomerates must have adequate capital of their own. In particular, the multiple gearing of own funds must be abolished. The parent firm is no longer able to issue loans to finance its regulated subsidiaries («excessive leveraging»).
The proposal defines methods for calculating solvency ratios and capital adequacy at group level.
«Intra-group» transactions and risk concentration
Regulated entities and mixed financial holding companies are required to report:
- any significant risk concentration at the level of the financial conglomerate;
- any intra-group transaction.
An intra-group transaction is regarded as significant if it exceeds 5 % of the total amount of capital adequacy requirements of own funds at the level of a financial conglomerate.
Internal control mechanisms
Regulated entities at the level of a financial conglomerate are required to set internal control mechanisms which enable all the incurred risks to be measured.
Reporting procedures must also be implemented to identify, measure, monitor and control the intra-group transactions, as well as the risk concentration.
A mixed committee of European supervisory authorities is responsible for ensuring coherent cross-sector and cross-border supervision and compliance with EU legislation.
Supervision
The Directive provides for the appointment of a competent authority or coordinator responsible for the supplementary supervision of regulated entities of a financial conglomerate. It is responsible for:
- coordinating and disseminating information;
- ensuring supervisory overview and assessment of the financial situation;
- assessing compliance with the rules on capital adequacy and of risk concentration and intra-group transactions;
- assessing the financial conglomerate’s structure, organisation and internal control system;
- planning and coordinating the supervisory activities.
The competent authorities responsible for supervising regulated entities belonging to a financial conglomerate and the coordinator for the financial conglomerate are required to cooperate closely with each other. In particular, they must cooperate in order to achieve harmonised supervisory practices.
Parent companies with their head office outside the European Union (EU)
Regulated entities whose head office is located outside the EU must be subject to supervision which is equivalent to that provided for by this Directive.
Role of the European Commission
The Commission is responsible for clarifying certain concepts, such as credit institutions, insurance undertakings and investment firms. It must also establish more precise methods for calculating capital adequacy in order to take account of developments on financial markets and prudential techniques.
References
| Act | Entry into force | Deadline for transposition in the Member States | Official Journal |
|---|---|---|---|
|
Directive 2002/87/EC |
11.2.2003 |
11.8.2004 |
OJ L 35, 11.2.2002 |
| Amending act(s) | Entry into force | Deadline for transposition in the Member States | Official Journal |
|---|---|---|---|
|
Directive 2005/1/EC |
13.4.2005 |
13.5.2005 |
OJ L 79, 24.3.2005 |
|
Directive 2008/25/EC |
21.3.2008 |
– |
OJ L 81, 20.3.2008 |
|
Directive 2010/78/EU |
4.1.2011 |
– |
OJ L 331, 15.12.2010 |
Successive amendments and corrections to Directive 2002/87/EC have been incorporated in the basic text. This consolidated version is for reference purpose only.
Another Normative about Financial conglomerates
Topics
These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic
Internal market > Single market for services > Financial services: banking
Financial conglomerates
Document or Iniciative
European Parliament and Council Directive 2002/87/EC of 16 December 2002 on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate and amending Council Directives 73/239/EEC, 79/267/EEC, 92/49/EEC, 92/96/EEC, 93/6/EEC, 93/22/EEC, 98/78/EC and 2000/12/EC [See amending acts].
Summary
This Directive provides for supervision of the conglomerate and promotes closer coordination between the supervisory authorities for the individual sectors and the exchange of information between them.
Characteristic thresholds of a financial conglomerate
The Directive considers that the activities of a group occur mainly in the financial sector where the balance sheet total of the regulated and non-regulated financial sector entities in the group exceeds 40 % of the group’s balance sheet total.
The most important financial sector in a financial conglomerate is the sector with the highest average. The Directive regards the group as a conglomerate where it has significant activities in another financial sector.
Target entities for supplementary supervision at the level of a financial conglomerate
Supplementary supervision is to be applied to:
- any regulated entity at the head of a financial conglomerate;
- any regulated undertaking which has as its parent company a mixed financial holding company with its head office in the Union;
- any regulated entity connected to another entity in the financial sector.
Solvency
Financial conglomerates must have adequate capital of their own. In particular, the multiple gearing of own funds must be abolished. The parent firm is no longer able to issue loans to finance its regulated subsidiaries («excessive leveraging»).
The proposal defines methods for calculating solvency ratios and capital adequacy at group level.
«Intra-group» transactions and risk concentration
Regulated entities and mixed financial holding companies are required to report:
- any significant risk concentration at the level of the financial conglomerate;
- any intra-group transaction.
An intra-group transaction is regarded as significant if it exceeds 5 % of the total amount of capital adequacy requirements of own funds at the level of a financial conglomerate.
Internal control mechanisms
Regulated entities at the level of a financial conglomerate are required to set internal control mechanisms which enable all the incurred risks to be measured.
Reporting procedures must also be implemented to identify, measure, monitor and control the intra-group transactions, as well as the risk concentration.
A mixed committee of European supervisory authorities is responsible for ensuring coherent cross-sector and cross-border supervision and compliance with EU legislation.
Supervision
The Directive provides for the appointment of a competent authority or coordinator responsible for the supplementary supervision of regulated entities of a financial conglomerate. It is responsible for:
- coordinating and disseminating information;
- ensuring supervisory overview and assessment of the financial situation;
- assessing compliance with the rules on capital adequacy and of risk concentration and intra-group transactions;
- assessing the financial conglomerate’s structure, organisation and internal control system;
- planning and coordinating the supervisory activities.
The competent authorities responsible for supervising regulated entities belonging to a financial conglomerate and the coordinator for the financial conglomerate are required to cooperate closely with each other. In particular, they must cooperate in order to achieve harmonised supervisory practices.
Parent companies with their head office outside the European Union (EU)
Regulated entities whose head office is located outside the EU must be subject to supervision which is equivalent to that provided for by this Directive.
Role of the European Commission
The Commission is responsible for clarifying certain concepts, such as credit institutions, insurance undertakings and investment firms. It must also establish more precise methods for calculating capital adequacy in order to take account of developments on financial markets and prudential techniques.
References
| Act | Entry into force | Deadline for transposition in the Member States | Official Journal |
|---|---|---|---|
|
Directive 2002/87/EC |
11.2.2003 |
11.8.2004 |
OJ L 35, 11.2.2002 |
| Amending act(s) | Entry into force | Deadline for transposition in the Member States | Official Journal |
|---|---|---|---|
|
Directive 2005/1/EC |
13.4.2005 |
13.5.2005 |
OJ L 79, 24.3.2005 |
|
Directive 2008/25/EC |
21.3.2008 |
– |
OJ L 81, 20.3.2008 |
|
Directive 2010/78/EU |
4.1.2011 |
– |
OJ L 331, 15.12.2010 |
Successive amendments and corrections to Directive 2002/87/EC have been incorporated in the basic text. This consolidated version is for reference purpose only.