Annexes to COM(2001)213 - Supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate - Main contents
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| dossier | COM(2001)213 - Supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate. |
|---|---|
| document | COM(2001)213  |
| date | December 16, 2002 |
CAPITAL ADEQUACY
The calculation of the supplementary capital adequacy requirements of the regulated entities in a financial conglomerate referred to in Article 6(1) shall be carried out in accordance with the technical principles and one of the methods described in this Annex.
Without prejudice to the provisions of the next paragraph, Member States shall allow their competent authorities, where they assume the role of coordinator with regard to a particular financial conglomerate, to decide, after consultation with the other relevant competent authorities and the conglomerate itself, which method shall be applied by that financial conglomerate.
Member States may require that the calculation be carried out according to one particular method among those described in this Annex if a financial conglomerate is headed by a regulated entity which has been authorised in that Member State. Where a financial conglomerate is not headed by a regulated entity within the meaning of Article 1, Member States shall authorise the application of any of the methods described in this Annex, except in situations where the relevant competent authorities are located in the same Member State, in which case that Member State may require the application of one of the methods.
I. Technical principles
1. Extent and form of the supplementary capital adequacy requirements calculation
Whichever method is used, when the entity is a subsidiary undertaking and has a solvency deficit, or, in the case of a non-regulated financial sector entity, a notional solvency deficit, the total solvency deficit of the subsidiary has to be taken into account. Where in this case, in the opinion of the coordinator, the responsibility of the parent undertaking owning a share of the capital is limited strictly and unambiguously to that share of the capital, the coordinator may give permission for the solvency deficit of the subsidiary undertaking to be taken into account on a proportional basis.
Where there are no capital ties between entities in a financial conglomerate, the coordinator, after consultation with the other relevant competent authorities, shall determine which proportional share will have to be taken into account, bearing in mind the liability to which the existing relationship gives rise.
2. Other technical principles
Regardless of the method used for the calculation of the supplementary capital adequacy requirements of regulated entities in a financial conglomerate as laid down in Section II of this Annex, the coordinator, and where necessary other competent authorities concerned, shall ensure that the following principles will apply:
(i) the multiple use of elements eligible for the calculation of own funds at the level of the financial conglomerate (multiple gearing) as well as any inappropriate intra-group creation of own funds must be eliminated; in order to ensure the elimination of multiple gearing and the intra-group creation of own funds, competent authorities shall apply by analogy the relevant principles laid down in the relevant sectoral rules;
(ii) pending further harmonisation of sectoral rules, the solvency requirements for each different financial sector represented in a financial conglomerate shall be covered by own funds elements in accordance with the corresponding sectoral rules; when there is a deficit of own funds at the financial conglomerate level, only own funds elements which are eligible according to each of the sectoral rules (cross-sector capital) shall qualify for verification of compliance with the additional solvency requirements;
where sectoral rules provide for limits on the eligibility of certain own funds instruments, which would qualify as cross-sector capital, these limits would apply mutatis mutandis when calculating own funds at the level of the financial conglomerate;
when calculating own funds at the level of the financial conglomerate, competent authorities shall also take into account the effectiveness of the transferability and availability of the own funds across the different legal entities in the group, given the objectives of the capital adequacy rules;
where, in the case of a non-regulated financial sector entity, a notional solvency requirement is calculated in accordance with section II of this Annex, notional solvency requirement means the capital requirement with which such an entity would have to comply under the relevant sectoral rules as if it were a regulated entity of that particular financial sector; in the case of asset management companies, solvency requirement means the capital requirement set out in Article 5a(1)(a) of Directive 85/611/EEC; the notional solvency requirement of a mixed financial holding company shall be calculated according to the sectoral rules of the most important financial sector in the financial conglomerate.
II. Technical calculation methods
Method 1: "Accounting consolidation" method
The calculation of the supplementary capital adequacy requirements of the regulated entities in a financial conglomerate shall be carried out on the basis of the consolidated accounts.
The supplementary capital adequacy requirements shall be calculated as the difference between:
(i) the own funds of the financial conglomerate calculated on the basis of the consolidated position of the group; the elements eligible are those that qualify in accordance with the relevant sectoral rules;
and
(ii) the sum of the solvency requirements for each different financial sector represented in the group; the solvency requirements for each different financial sector are calculated in accordance with the corresponding sectoral rules.
The sectoral rules referred to are in particular Directives 2000/12/EC, Title V, Chapter 3, as regards credit institutions, 98/78/EC as regards insurance undertakings, and 93/6/EEC as regards credit institutions and investment firms.
In the case of non-regulated financial sector entities which are not included in the aforementioned sectoral solvency requirement calculations, a notional solvency requirement shall be calculated.
The difference shall not be negative.
Method 2: "Deduction and aggregation" method
The calculation of the supplementary capital adequacy requirements of the regulated entities in a financial conglomerate shall be carried out on the basis of the accounts of each of the entities in the group.
The supplementary capital adequacy requirements shall be calculated as the difference between:
(i) the sum of the own funds of each regulated and non-regulated financial sector entity in the financial conglomerate; the elements eligible are those which qualify in accordance with the relevant sectoral rules;
and
(ii) the sum of
- the solvency requirements for each regulated and non-regulated financial sector entity in the group; the solvency requirements shall be calculated in accordance with the relevant sectoral rules, and
- the book value of the participations in other entities of the group.
In the case of non-regulated financial sector entities, a notional solvency requirement shall be calculated. Own funds and solvency requirements shall be taken into account for their proportional share as provided for in Article 6(4) and in accordance with Section I of this Annex.
The difference shall not be negative.
Method 3: "Book value/Requirement deduction" method
The calculation of the supplementary capital adequacy requirements of the regulated entities in a financial conglomerate shall be carried out on the basis of the accounts of each of the entities in the group.
The supplementary capital adequacy requirements shall be calculated as the difference between:
(i) the own funds of the parent undertaking or the entity at the head of the financial conglomerate; the elements eligible are those which qualify in accordance with the relevant sectoral rules;
and
(ii) the sum of
- the solvency requirement of the parent undertaking or the head referred to in (i), and
- the higher of the book value of the former's participation in other entities in the group and these entities' solvency requirements; the solvency requirements of the latter shall be taken into account for their proportional share as provided for in Article 6(4) and in accordance with Section I of this Annex.
In the case of non-regulated financial sector entities, a notional solvency requirement shall be calculated. When valuing the elements eligible for the calculation of the supplementary capital adequacy requirements, participations may be valued by the equity method in accordance with the option set out in Article 59(2)(b) of Directive 78/660/EEC.
The difference shall not be negative.
Method 4: Combination of methods 1, 2 and 3
Competent authorities may allow a combination of methods 1, 2 and 3, or a combination of two of these methods.
ANNEX II
TECHNICAL APPLICATION OF THE PROVISIONS ON INTRA-GROUP TRANSACTIONS AND RISK CONCENTRATION
The coordinator, after consultation with the other relevant competent authorities, shall identify the type of transactions and risks regulated entities in a particular financial conglomerate shall report in accordance with the provisions of Article 7(2) and Article 8(2) on the reporting of intra-group transactions and risk concentration. When defining or giving their opinion about the type of transactions and risks, the coordinator and the relevant competent authorities shall take into account the specific group and risk management structure of the financial conglomerate. In order to identify significant intra-group transactions and significant risk concentration to be reported in accordance with the provisions of Articles 7 and 8, the coordinator, after consultation with the other relevant competent authorities and the conglomerate itself, shall define appropriate thresholds based on regulatory own funds and/or technical provisions.
When overviewing the intra-group transactions and risk concentrations, the coordinator shall in particular monitor the possible risk of contagion in the financial conglomerate, the risk of a conflict of interests, the risk of circumvention of sectoral rules, and the level or volume of risks.
Member States may allow their competent authorities to apply at the level of the financial conglomerate the provisions of the sectoral rules on intra-group transactions and risk concentration, in particular to avoid circumvention of the sectoral rules.