Amended proposal for a COUNCIL DIRECTIVE RELATING TO THE SUPERVISION OF CREDIT INSTITUTIONS ON A CONSOLIDATED BASIS
Date: 1991-12-02
Institutions: European Commission
Subjects: banking, consolidated account, credit institution, financial institution, management audit

H  COMMISSION  OF  THE  EUROPEAN  COMMUNITIES 

COM(91) 491  final - SYN 506 

Brussels,  2  December 1991 

Amended proposal for a 

COUNCIL DIRECTIVE 

RELATING TO THE SUPERVISION OF CREDIT INSTITUTIONS 

ON A CONSOLIDATED BASIS 

(presented by the Commission pursuant to Article 149(3 
of the EEC-Treaty) 

-  1 -

EXPLANATORY  MEMORANDUM 

1.  On  9 October  1990  the  Commission  transmitted  to  the  Council  a 

proposal  for  a  Directive  relating  to  the  supervision  of  credit 

institutions  on  a  consolidated  basis.1  The  main  aim  of  that  proposal 

is  to  reinforce  supervision  of  credit  institutions  belonging  to  a 

group,  particularly  by  extending  the  scope  of  supervision  on  a 

consolidated  basis  to banking  groups whose  parent  undertaking  is not a 

credit  institution. 

2.  The  Economic  and  Social  Committee  delivered  its  opinion  on 

27 February  1991.2  Parliament  has  carried  out  a  first  reading  and 

delivered  an opinion on 20 November  1991 on  the basis of  a report  drawn 

up  by  the  Committee  on  Legal  Affairs  and  Citizens'  Rights.  In 

accordance  with  Article  149(3) of  the  Treaty  and  in  the  light  of  the 

two opinions delivered, the Commission  is presenting  an amended  version 

of  its propsoal  for a Directive. 

3.  The  Commission  has  incorporated  into  its  proposal  a  number  of 

amendments  proposed  by  Parliament  and  the  Economic  and  Social 

Committee.  A  number  of  other  amendments  designed  to  improve  and 

clarify  certain provisions are also proposed. 

The main amendments  are commented  on below. 

1  COM(90) 451; OJ  No C 315, 14.12.1990 
2  OJ  No C 102, 18.4.1991, p. 19. 

-  2 • -

Recitals 

Two  new  recitals,  the  fifth  and  the  twelfth^  have  been  added  in  the 

light of amendments  proposed by Parliament. 

Art icle 3: 

Supervision  of  credit  institutions  on  a  consolidated 

basis 

Paragraph  3 

Given  the progress made  in discussions  in the Council  and Parliament on 

the  proposal  for  a Council  Directive  on  capital  adequacy  of  investment 

firms  and  credit  institutions,1  the  Commission  no  longer  considers  it 

necessary  to  retain  the  fourth  indent  which  gave  Member  States  the 

option  of  excluding  from  consolidation  financial  institutions  that  are 

principally  subject  to  market  risks.  Pending  the  adoption  of  the 

above-mentioned  Directive,  the consolidation  of  such  institutions will 

be  carried  out  according  to  the  methods  determined  by  Member  States 

(see comments  below on  the new paragraph  2 of Article 9 ). 

Paragraph  4 

A  new  first  subparagraph  has  been  incorporated  in  the  light  of  an 

amendment  proposed  by Parliament. 

Paragraph  5 

Supervision  of  capital  adequacy  in  relation  to  market  risks  has  been 

added  to  the  list  of  subjects  to  be  covered  by  supervision  on  a 

consolidated basis. 

A  third  subparagraph  has  been  added  in  the  light  of  an  amendment 

proposed  by Parliament. 

1  COM(90) 141; OJ  No C 152, 21.6.1990. 

-  3 -

Paragraph  7 

Provision  has  been  made,  subject  to  observance  of  strict  conditions, 

for  a  further  option  for  forgoing  supervision  on  an  individual  basis, 

namely  where  a  credit  institution  is  the  subsidiary  of  a  financial 

holding  company  with  its head office  in the same Member  State. 

A  new  second  subparagraph  sets out,  by  analogy  with  the  provisions  of 

Article  3(4)  of  Directive 89/647/EEC  on  the  solvency  ratio,  the 

conditions governing  the exemption arrangements. 

Paragraph  10 

This  new  paragraph  authorizes  the  competent  authorities  to  request 

information  from  the  non-consolidated  subsidiaries  of  a  credit 

institution or  financial  holding  company. 

Art icle 4: 

Competent 

authorities 

charged 

with 

exercising 

supervision on a consolidated  basis 

Paragraph  5 

This paragraph  has been  inserted  in order  to ensure  cooperation  between 

competent  authorities  where,  in  the  Member  States,  more  than  one 

authority  is  responsible  for  the  prudential  supervision  of  credit  and 

financial  institutions. 

- 4 ~ 

Art icle 5: 

Form and extent  of consolidation 

Paragraph  3 

Paragraph  3 has been  redrafted  so as to cover only cases where  there  is 

a participation or other  capital  link. 

In  the  light  of  an  amendment  proposed  by  Parliament,  a  few  words  have 

been  added  to specify  the conditions  under  which  the equity  method  may 

be used. 

Paragraph  4 

This new paragraph  sets out, on an optional  basis, other  cases  that may 

give  rise  to  supervision  on  a  consolidated  basis.  It  covers  cases 

where  there  is no participation or other  capital  link. 

Art icle 9: 

Final  provisions 

Paragraph  2 

This  new  paragraph  stipulates  that,  pending  adoption  of  the 

above-mentioned  Directive  on  capital 

adequacy, 

the  competent 

authorities  will  determine  the  methods  for  consolidating  financial 

institutions which  are exposed  mainly  to market  risks,  and  this by way 

of  derogation  from  the  rules  laid  down  in  Article  3(5)  (see  above 

comments on Article  3(3)). 

-5"-

Amended  proposal  for a 

COUNCIL  DIRECTIVE 

relating  to the supervision of credit 

institutions on a consolidated  basis 

THE COUNCIL OF THE EUROPEAN  COMMUNITIES, 

Having  regard  to  the  Treaty  establishing  the  European  Economic 

Community,  and  in particular  Article  57(2),  first  and  third  sentences 

thereof, 

Having regard  to the proposal  from  the Commission^1), 

In co-operation with  the European Par Iiament^2), 

Having  regard  to the Opinion of  the Economic and Social  Committee<3), 

Whereas Council  Directive 83/350/EEC of  13 June  1983 on  the  supervision 

of  credit  institutions  on  a  consolidated  basis( 4)  established  the 

necessary  framework  for  the  introduction  of  supervision  of  credit 

institutions  on  a  consolidated  basis;  whereas  following 

the 

transposition  of  that  Directive  into  the  national  law  of  the  Member 

States  the  principle  of  supervision  on  a  consolidated  basis  is  now 

applied  throughout  the  Community; 

Whereas,  in order  to be effective, supervision  on  a consolidated  basis 

must  be  applied  to  all  banking  groups,  including  those  the  parent 

undertakings  of  which  are  not  credit  institutions;  whereas  the 

competent  authorities must  have  sufficient  legal  powers  to  be  able  to 

exercise  such  supervision; 

(1)  OJ C 315 of  14.12.1990, p. 15. 
(2)  Decision of  20 November  1991  (not  yet  published  in the Official 

Journal). 

(3)  OJ C  102 of  18.4.1991, p. 19. 
(4)  OJ  L 193 Of  18.7.1983, p. 18. 

-  6-

Whereas,  in  the  case  of  groups  with  diversified  activities  the  parent 

undertakings  of  which  control  at  least  one  credit 

institution 

subsidiary,  the  competent  authorities  must  be  able  to  assess  the 

financial  situation  of  a  credit  institution  in  such  a  group;  whereas, 

pending  subsequent  co-ordination,  the  Member  States  may  lay  down 

appropriate  methods  of  consolidation  for  the  achievement  of  the 

objective  of  this  Directive;  whereas  the  competent  authorities must  at 

least  have  the means  of  obtaining  from  all  undertakings  within  a  group 

the  information  necessary  for  the  performance  of  their  function; 

whereas  co-operation  between  the  authorities  responsible  for  the 

supervision  of  different  financial  sectors  must  be  established  to 

ensure  the  effective  supervision  of  groups  carrying  on  a  range  of 

financial  activities; 

Whereas  rules  limiting  the  risks  taken  by  a  credit  institution  on  the 

mixed-activity  company  of  which  it  is  a  subsidiary,  as  well  as  those 

taken  on  the  other  subsidiaries  of  the  same  mixed-activity  company  can 

be  particularly  useful;  whereas  it  would,  however,  appear  to  be 

preferable  to  settle  this  question  in a  more  systematic  manner  in  the 

framework  of  a  future  Directive on  the  limitation of  large exposures; 

Whereas  risks  taken  by one or  more  credit  institutions are  revealed  not 

only  in  figures  shown  in  (consolidated)  balance  sheets  and  annual 

accounts  but  are  also  subject  to  the  manner  in which  relations  within 

groups  are organized  and  the  relative  independence of  the management  of 

the credit  institutions  involved; 

Whereas  the Member  States  can,  furthermore,  refuse  or  withdraw  banking 

authorization  in  the  case  of  certain  group  structures  considered 

inappropriate  for  carrying  on  banking  activities,  in particular  because 

such  structures  could  not  be  supervised  effectively;  whereas  In  this 

-¥-

respect  the  competent  authorities  have  the  powers  mentioned  in 

Article 8(1)(c)  of 

the  first 

Council 

Directive 77/780/EEC  of 

17 December  1977  on  the  co-ordination  of  laws,  regulations  and 

administrative  provisions  relating  to the  taking  up  and  pursuit  of  the 

business  of  credit  inst i tut ions*1 *,  and  in  Articles 5  and  11  of  the 

second  Council  Directive 89/646/EEC  of  15 December  1989  on  the  co 

ordination  of  laws, regulations  and  administrative  provisions  relating 

to the taking up and pursuit  of  the business of credit  institutions and 

amending  Directive  77/780/EEC*2^,  in  order  to  ensure  the  sound  and 

prudent  management  of credit  institutions; 

Whereas  the  Member  States  can  equally  apply  appropriate  supervision 

techniques  to  groups  with  structures  not  covered  by  this  Directive; 

whereas  if  such  structures  become  common  this  Directive  should  be 

extended  to cover them-, 

Whereas supervision on a consolidated basis must  take  in all activities 

defined  in the Annex  to Directive  89/646/EEC; whereas  all  undertakings 

principally  engaged  in  such  activities  must  therefore  be  included  in 

supervision  on  a  consolidated  basis;  whereas  in  consequence  the 

definition  of  financial  institution given  in Directive 83/350/EEC  must 

be widened  to cover  such activities; 

Whereas  regarding  the consolidation  of  financial  institutions  involved 

in  activities  principally  subject  to  market  risks  and  subject  to 

particular  rules  of  supervision,  the  co-ordination  of  the  methods  for 

the  consolidated  supervision  of  market  risks  is  possible  in  the 

framework  of  Community  harmonization of  capital  adequacy  of  investment 

(1)  OJ L 322 of  17.12.1977, p. 30. 
(2)  OJ  L 386 of  30.12.1989, p.  1. 

-rf-

firms and  credit  institutions,  for  which  the Commission  has  introduced 

a  proposal 

for  a  Directive 

(COM(90)  141)*1>;  whereas  such 

harmonization  concerns  inter  alia  the conditions  which  must  be applied 

when  offsetting  opposing  positions  in  the  group,  and  the  case  where 

these  financial  institutions  are  subject  to specific  supervisory  rules 

regarding  their  financial  stability; whereas  this  implies  that, pending 

entry  into  force  of  the  Directive  on  capital  adequacy  to  cover  market 

risks,  the  competent  authorities  shall  include  in  consolidated 

supervision  financial  institutions  which  are  principally  exposed  to 

market  risks  in accordance with methods determined  by  those authorities 

in the  light of  the particular  nature of  the risks  involved; 

Whereas,  following  the  adoption  of  Council  Directive  86/635/EEC  of 

8 December  1986  on  the  annual  accounts  and  consolidated  accounts  of 

banks  and  other  financial  institut ions*2),  which  establishes  the  rules 

applicable  to  consolidated  accounts  published  by  credit  institutions, 

together  with  the  provisions  of  Council  Directive  83/349/EEC  of 

13 June  1983  on  consolidated  accounts*3^it  is  now  possible  to  define 

more  precisely  the  methods  to  be  used  in  prudential  supervision 

exercised  on a consolidated basis; 

Whereas  this Directive  is fully  in keeping  with  the objectives  defined 

in  the  Single  European  Act;  whereas  it  will  in particular  ensure  the 

homogeneous  application  throughout  the  Community  of  prudential  rules 

established  by other  Community  legislation,  which  must  be observed  on 

a  consolidated  basis;  whereas  this  Directive  is,  in  particular, 

necessary  for  the  correct  application  of  Council  Directive  89/299/EEC 

of  17 April  1989 on  the own  funds of credit  institut ions*4*; 

(1)  OJ C 152 of  21.6.1990, p. 6. 
(2)  OJ  L 372 of  31.12.1986, p.  1. 
(3)  OJ L 193 of  18.7.1983, p. 1. 
(4)  OJ L 124 of 5. 5.1989, p. 16. 

-f-

Whereas  supervision of  credit  institutions on  a consolidated  basis must 

be aimed  at  protection of  the depositors of  the credit  institutions; 

Whereas  it  is desirable  that  agreement  should  be  reached, on  the  basis 

of  reciprocity,  between  the  Community  and  third  countries  with  a  view 

to allowing  the practical  exercise of  consolidated  supervision over  the 

largest  possible geographical  area; 

Whereas  the  amendments  to  be  made  to  Directive 83/350/EEC  are  so 

considerable  that  it  is preferable  that  it  be  wholly  replaced  by  this 

Directive, 

HAS ADOPTED THIS DIRECTIVE: 

-4?-

Article 1 

Definitions 

For  the  purposes  of  this  Directive: 

"credit  institution"  shall  mean  a  credit  institution  within  the 

meaning 

of 

the  first 

indent 

of 

Article 

1  of 

Directive 

77/780/EEC,  or  any  private  or  public  undertaking  which  corresponds 

to  the  definition 

in  the  first 

indent  of  Article 

1  of 

Directive  77/780/EEC  and  has  been  authorized  in a  third  country; 

"financial  institution"  shall  mean  an  undertaking  other  than  a 

credit  institution,  the  principal  activity  of  which  is  to  acquire 

holdings  or  to  carry  on  one  or  more  of  the  activities  listed  in 

points  2  to  12 of  the Annex  to Directive  89/646/EEC; 

"financial  holding  company"  shall  mean  a  financial  institution  the 

subsidiary  undertakings  of  which  are  either  exclusively  or  mainly 

credit  institut ions or  financial  institutions, one  at  least  of  such 

subsidiaries  being  a credit  institution; 

"mixed-activity  holding  company"  shall  mean  a  parent  undertaking, 

other  than  a  financial  holding  company  or  a  credit  institution,  the 

subsidiaries  of  which  include  at  least  one  credit  institution; 

"ancillary  banking  services  undertaking"  shall  mean  an  undertaking 

the  principal  activity  of  which  consists  In  owning  or  managing 

property,  managingdata-processing  services,  or  any  other  similar 

activity  which  is  ancillary  to  the  principal  activity  of  one  or 

more  credit  institutions; 

- / /-

"participation"  shall  mean  the  ownership,  direct  or  indirect,  of 

20% or  more of  the voting  rights or  capital  of  an  undertaking; 

"parent  undertaking"  shall  mean  a  parent  undertaking  within  the 

meaning  of  Article  1(1)  of  Council  Directive  83/349/EEC  and  any 

undertaking  which,  in  the  opinion  of  the  competent  authorities, 

effectively 

exercises 

a 

dominant 

influence 

over 

another 

undertaking; 

"subsidiary"  shall  mean  a subsidiary  undertaking  within  the meaning 

of  Article  1(1)  of  Directive  83/349/EEC  and  any  undertaking  over 

which,  in  the  opinion  of  the  competent  authorities,  a  parent 

undertaking  effectively  exercises  a  dominant 

influence;  all 

subsidiaries  of  subsidiary  undertakings  shall  also  be  considered 

subsidiaries of  the undertaking  that  is their  ultimate  parent; 

"competent  authorities"  shall  mean  the  national  authorities  which 

are  empowered 

by 

law  or 

regulation 

to  supervise 

credit 

institutions; 

- «-

Article g 

Scope 

This  Directive  shall  apply  to  credit  institutions  that  have  obtained 

the  authorization  referred  to  in  Article  3  of  Directive  77/780/EEC, 

financial  holding  companies  and  mixed-activity  holding  companies  which 

have  their  head offices  in the  Community. 

The  institutions  permanently  excluded  by  Article  2  of  Directive 

77/780/EEC,  with  the  exception  of  the  Member  States'  central  banks, 

shall  be  treated  as  financial  institutions  for  the  purposes  of  this 

Directive. 

_ ^-

Article  3 

Supervision  on  a  consolidated  basis  of  credit  institutions 

1.  Every  credit  institution  which  has  a  credit  institution  or  a 

financial 

institution 

as 

a 

subsidiary 

or 

which 

holds 

a 

participation  in  such  institutions  shall  be  subject,  to  the  extent 

and  in  the  manner  prescribed  in  Article  5,  to  supervision  on  the 

basis  of  its  consolidated  financial  situation.  Such  supervision 

shall  be  exercised  at 

least 

in  the  areas  referred  to  in 

paragraphs  5  and  6. 

2.  Every  credit  institution  the  parent  undertaking  of  which  is  a 

financial  holding  company  shall  be  subject,  to  the  extent  and  in 

the  manner  prescribed  in Article  5,  to  supervision  on  the  basis  of 

the  consolidated  financial  situation  of  that  financial  holding 

company.  Such  supervision  shall  be  exercised  at  least  in  the  areas 

referred  to  in  paragraphs  5  and  6.  The  consolidation  of  the 

financial  situation  of  the  financial  holding  company  shall  not  in 

any  way  imply  that  the  competent  authorities  are  required  to  play  a 

supervisory  role  in  relation  to  the  financial  holding  company 

standing  alone. 

3.  The  Member  States  or  the  competent  authorities  responsible  for 

exercising  supervision  on  a  consolidated 

basis  pursuant 

to 

Article  4 may  decide  in  individual  cases  that  a  credit  institution, 

financial  institution  or  auxiliary  banking  services  undertaking 

which  is  a  subsidiary  or  in which  a  participation  is  held  need  not 

be  included  in  the  consolidation: 

-  if  the  undertaking  that  should  be  included  is situated  in a  third 

country  where  there  are  legal  impediments  to  the  transfer  of  the 

necessary  information; 

-4M-

if,  in  the  opinion  of  the  competent  authorities,  the 

undertaking  that  should  be  included  is  of  negligible 

interest  only  with  respect  to  the  objectives  of  monitoring 

credit  institutions  and  in  all  cases  if  the  balance  sheet 

total  of  the  undertaking  that  should  be  included  is  less 

than 

the 

smaller 

of 

the 

following 

two 

amounts: 

ECU  10 million  or  1%  of  the  balance  sheet  total  of  the 

parent  undertaking  or  the  undertaking  that  holds  the 

participation;  if  two  or  more  undertakings  meet  the  above 

criteria,  they  must  nevertheless  be  included  in  the 

consolidation  where  collectively  they  are  of  non-negligible 

interest  with  respect  to the aforementioned objective; 

if,  in the opinion  of  the  competent  authorities  responsible 

for  exercising  supervision  on  a  consolidated  basis,  the 

consolidation  of  the  financial  situation  of  the  undertaking 

that  should  be  included would be  inappropriate or  misleading 

as  far  as  the  objectives  of  the  supervision  of  credit 

institutions are  concerned. 

4.  Where  the  first  indent  of  Article  3(1)  is applied,  the  competent 

authorities  shall  nevertheless  obtain  any  information  the  transfer 

of  which  is authorized  and  inform  the Commission  of  the  limits set 

by a specified non-member  country. 

When  the  competent  authorities of  a Member  State  do  not  include a 

credit  institution  subsidiary  in  supervision  on  a  consolidated 

basis  under  one  of  the  cases  provided  for  in  the  second  and  third 

indents  of  paragraph  3,  the  competent  authorities  of  the  Member 

State  in which  that  credit  institution  subsidiary  is situated  may 

ask  the  parent  undertaking  for  information  which  may  facilitate 

their  supervision of  that  credit  institution. 

5.  Supervision  of  solvency,  and  of  the adequacy  of own  funds  to cover 

market  risks and  control  of  large  exposures,  as  governed  by  the 

relevant  Community  acts  in  force,  shall  be  exercised  on  a 

- /y 

consolidated  basis  in  accordance  with  this  Directive.  The  Member 

States  shall  adopt  any  measures  necessary,  where  appropriate,  to 

include  financial  holding  companies  in consolidated  supervision,  in 

accordance with  paragraph 2. 

Compliance  with  the  limits  set  in  Article  12(1)  and  (2)  of 

Directive 89/646/EEC  shall  be  supervised  and  controlled  on  the 

basis  of  the  consolidated  or  sub-consolidated  financial  situation 

of  the credit  institution. 

Supervision  on  a consolidated  basis shall  also  include  all  figures 

and  facts, e.g.  the economic  and  financial  performance of  the group 

the knowledge of which  could be  Judged as useful  with  regard  to the 

quality  of  supervision  on  a  consolidated  basis. This  concerns  not 

only  financial  information  but  also  organization  of  the  business, 

influence  exercised  by  undertaking  within  a  group  on  other 

undertakings  and  the existence of adequate  information flows. 

The  competent  authorities  shall  ensure  that,  in  all  the 

undertakings  included  in  the  scope  of  the  supervision  on  a 

consolidated  basis  that  is exercised  over  a  credit  institution  in 

implementation  of  paragraphs  1  and  2  above,  there  are  adequate 

internal  control  mechanisms  for  the  production  of  any  data  and 

information which would  be relevant  for  the purposes of  supervision 

on a consolidated basis. 

Without  prejudice  to  specific  provisions  contained  in  other 

Directives,  the  Member  States  may  waive  application  on  an 

individual  or  subconsolidated  basis  of  the  rules  laid  down  in 

paragraph  5  to a credit  institution  that, as a parent  undertaking, 

is  subject  to  supervision  on  a  consolidated  basis,  and  to  any 

subsidiary  of  such  a  credit  institution  which  is subject  to  their 

authorization and supervision  and  is  included  in the supervision on 

-46-

a  consolidated  basis  of  the  credit  institution  which  is  the  parent 

company.  The  same  exemption  option  shall  be  allowed  where  the 

parent  undertaking  is  a  financial  holding  company  which  has  its 

head  office  in  the  same  Member  State  as  the  credit  institution, 

provided  that  it  is  subject  to  the  same  supervision  as  that 

exercised  over  credit  institutions,  and  in particular  the  standards 

laid  down  in paragraph  5. 

In  both  cases,  steps  must  be  taken  to  ensure  that  capital  is 

distributed  adequately  within  the  banking  group. 

8.  Where  a  credit  institution  the  parent  of  which  is  a  credit 

institution  has  been  authorized  and  is  situated  in  another  Member 

State,  the  competent  authorities  which  granted  that  authorization 

shall  apply  the  rules  laid  down  in paragraph  5  to  that  institution 

on  an  individual  or, when  appropriate,  a subconsolIdated  basis. 

9.  Notwithstanding  paragraph  8,  the  competent  authorities  responsible 

for  authorizing  the  subsidiary  of  a  parent  undertaking  which  is a 

credit  institution  may,  by  bilateral  agreement,  delegate  their 

responsibility  for  supervision  to  the  competent  authorities  which 

authorized  and  supervise  the  parent  undertaking.  The  Commission 

must  be  kept  informed  of  the  existence  and  content  of  such 

agreements.  It  shall  forward  such  information  to  the  other 

authorities  and  to  the Banking  Advisory  Committee. 

10. The  Member  States  shall  provide  that  their  competent  authorities 

responsible  for  exercising  supervision  on  a  consolidated  basis  may 

ask  the  subsidiaries  of  a credit  institution  or  a  financial  holding 

company  which  are  not  included  within  the  scope  of  supervision on  a 

consolidated  basis  for  the  data  and  information  referred  to  in 

Article  6.  In  such  a  case,  the  procedures  for  transmitting  and 

verifying  the  information  laid  down  in that  Article  shall  apply. 

- #-

Article  4 

Competent  authorities  responsible  for  exercising  supervision 

on  a consolidated  basis 

1.  Where  a  parent  undertaking  is a  credit  institution,  supervision  on 

a  consolidated  basis  shall  be  exercised  by  the  competent 

authorities 

that 

authorized 

it 

under 

Article  3 

of 

Directive  77/780/EEC. 

2.  Where  the  parent  of  a  credit  institution  is  a  financial  holding 

company,  supervision  on  a  consolidated  basis  shall  be  exercised  by 

the  competent  authorities  which  authorized  that  credit  institution 

under  Article  3 of  Directive  77/780/EEC. 

However, where  credit  institutions authorized  in two or  more  Member 

States  have  as  their  parent  the  same  financial  holding  company, 

supervision  on  a  consolidated  basis  shall  be  exercised  by  the 

competent  authorities  of  the  credit  institution  authorized  in  the 

Member  State  in which  the  financial  holding  company  was  set  up. 

If  no  credit  institution  subsidiary  has  been  authorized  in  the 

Member  State  in  which  the  financial  holding  company  was  set  up, 

the  competent  authorities of  the Member  States  concerned  (including 

those  of  the  Member  State  in  which  the  financial  holding  company 

was  set  up)  shall  seek  to  reach  agreement  as  to  who  amongst  them 

will  exercise  supervision  on  a  consolidated  basis.  In  the  absence 

of  such  agreement,  supervision  on  a  consolidated  basis  shall  be 

exercised  by  the  competent  authorities  that  authorized  the  credit 

institution  with  the  greatest  balance  sheet  total;  if  that  figure 

is  the  same  for  two  or  more  credit  institutions,  supervision  on  a 

consolidated  basis  shall  be  exercised  by  the  competent  authorities 

of  the  first  credit  institution  to be authorized  under  Article  3 of 

Directive  77/780/EEC. 

-ff-

3.  The  competent  authorities  concerned  may  by  common  agreement  waive 

the  rules  laid  down  in  the  first  and  second  subparagraphs  of 

paragraph  2. 

4.  The agreements  referred  to  In the  third  subparagraph  of  paragraph  2 

and  in  paragraph  3  shall  provide  for  procedures  for  co-operation 

and  for  the  transmission  of  information such  that  the objectives of 

this Directive may be  achieved. 

5.  Where  Member  States  have more  than one  competent  authority  for  the 

prudential  supervision  of  credit 

institutions  and  financial 

institutions,  Member  States  shall  take  the  requisite  measures  to 

organize co-ordination between  such  authorities. 

-49-

Article  5 

Form  and  extent  of  consolidation 

1.  The competent  authorities  responsible  for exercising  supervision  on 

a consolidated  basis must,  for  the purposes of  supervision,  require 

full  consolidation  of  all  the  credit  institutions  and  financial 

Institutions  which  are  subsidiaries of  a parent  undertaking. 

However, proportional  consolidation may  be prescribed  where,  in the 

opinion  of  the  competent  authorities,  the  liability  of  a  parent 

undertaking  holding  a share of  the capital  is  limited  to that  share 

of  the  capital  because  of  the  liability  of  other  shareholders  or 

members  whose  solvency  is satisfactory.  The  liability  of  the other 

shareholders  and  members  must  be  clearly  established,  if  necessary 

by means of  formal, signed  commitments. 

2.  The  competent  authorities  responsible  for  carrying  out  supervision 

on  a  consolidated  basis  must,  in  order  to  do  so,  require  the 

proportional  consolidation of  participations  in credit  institutions 

and  financial  institutions  managed  by  an  undertaking  included  in 

the  consolidation  together  with  one  or  more  undertakings  not 

included  in  the  consolidation,  where  those  undertakings'  liability 

is  limited  to  the share of  the capital  they  hold. 

3.  In  the  case  of  participations  or  capital  ties  other  than  those 

referred  to  in paragraphs  1 and  2,  the  competent  authorities  shall 

determine  whether  and  how  consolidation  is to  be  carried  out.  They 

may  permit  or  require  use  of  the  equity  method  where  the  risk  to 

-20-

which  the  shareholder  is  exposed  is  limited  to  his  investment. 

That  method  shall  not,  however,  constitute  inlusion  of  the 

undertakings  concerned  in supervision  on  a consolidated  basis. 

4.  Without  prejudice  to  paragraphs  1  to  3,  the  competent  authorities 

shall  determine  whether  and  how  consolidation  is  to  be  carried  out 

in the  following  cases: 

- where,  In  the  opinion  of  the  competent  authorities,  a  credit 

institution  exercises  a  significant  influence  over  one  or  more 

credit 

institutions  or  financial 

institutions,  but  without 

holding  a  participation  or  other  capital 

ties 

in  these 

institutions; 

-  where  two  or  more  credit  institutions  or  financial  institutions 

are  placed  under  single  management  other  than  pursuant  to  a 

contract  or  clauses  of  their  memorandums  or  articles  of 

association; 

-  where  two  or  more  credit  institutions  or  financial  institutions 

have  administrative,  management  or  supervisory  bodies  with  the 

same  persons  constituting  a majority. 

In particular,  the  competent  authorities may  permit  or  require  use 

of  the  method  provided  for  in Article  12  of  Directive  83/349/EEC. 

That  method  shall  not,  however,  constitute  inclusion  of  the 

undertakings  concerned  in consolidated  supervision. 

5.  Where  consolidated  supervision  is required  pursuant  to Article  3(1) 

and  (2), ancillary  banking  services  undertakings  shall  be  included 

in  consolidations  In  the  cases  and  in  accordance  with  the  methods 

laid  down  in paragraphs  1,  2, 3 and  4 of  this  Article. 

- z V-

Article  6 

information  to be  supplied  by mixed-activity  holding  companies 

and  their  subsidiaries 

1.  Pending  further  co-ordination  of  consolidation  methods,  the  Member 

States  shall  provide  that,  where  the  parent  undertaking  of  one  or 

more  credit  institutions  is  a  mixed-activity  holding  company,  the 

competent 

authorities  responsible  for 

the  authorization  and 

supervision  of  those  credit  institutions  shall,  by  approaching  the 

mixed-activity  holding  company  and  its subsidiaries  either  directly 

or  via  credit  institution  subsidiaries,  require  them  to  supply  any 

data  or  information  which  would  be  relevant  for  the  purposes  of 

supervising  the  credit  institution  subsidiaries. 

2.  The  Member  States  shall  provide  that  their  competent  authorities 

may  carry  out,  or  have  carried  out  by  external  inspectors,  on-the-

spot  inspections  to  verify  data  received  from  mixed-activity 

holding  companies  and  their  subsidiaries.  If  the  mixed-activity 

holding  company  or  one  of  its  subsidiaries  is  an  insurance 

undertaking  or  a  firm  providing  investment  services,  the  procedure 

laid  down  in  Article  7(4)  may  also  be  used.  If  a  mixed-activity 

holding  company  or  one  of  its  subsidiaries  is situated  in  a  Member 

State  other  than  that  in which  the  credit  institution  subsidiary  is 

situated,  on-the-spot  verification  of  information  shall  be  carried 

out  in accordance  with  the  procedure  laid  down  in Article 7 ( 7 ). 

-n-

Article 7 

Measures  to facilitate the application 

of  this Directive 

1.  The  Member  States  shall  take  the  necessary  steps  to  ensure  that 

there are no  legal  impediments preventing  the undertakings  included 

within  the  scope  of  supervision  on  a  consolidated  basis,  mixed-

activity  holding  companies  and  their  subsidiaries, or  subsidiaries 

of  the  kind  covered  in  Article  3(10),  from  exchanging  amongst 

themselves any data and  information which would be relevant  for  the 

purposes of supervision  in accordance with  this Directive. 

2.  Where  a  parent  undertaking  and  any  of  its  subsidiaries  that  are 

credit  institutions  are  situated  in  different  Member  States,  the 

competent  authorities  of  each  Member  State  shall  communicate  to 

each other  all  relevant  data and  information which may allow or aid 

the exercise of supervision on a consolidated  basis. 

Where  the  competent  authorities  of  the  Member  State  in  which  a 

parent  undertaking  is  situated  do  not  themselves  exercise 

supervision on a consolidated basis pursuant  to Article 4, they may 

be  invited  by  the  competent  authorities  responsible  for  exercising 

such  supervision  to  ask  the  parent  undertaking  for  any  data  and 

information which would  be relevant  for  the purposes of  supervision 

on a consolidated basis and  to transmit  them  to those authorities. 

3.  The Member  States shall  permit  the exchange between  their  competent 

authorities  of  the  information  referred  to  in  paragraph  2,  on  the 

understanding  that,  in  the  case  of  financial  holding  companies, 

financial  institutions  or  ancillary  banking  services  undertakings, 

the  collection  or  possession  of  information  shall  not  in  any  way 

imply  that  the  competent  authorities  are  required  to  play  a 

supervisory  role  in relation  to those  institutions standing alone. 

-u-

Similarly,  the  Member  States  shall  authorize  their  competent 

authorities  to exchange  the  information  referred  to  in Article  6 on 

the  understanding  that  the  collection  or  possession  of  information 

does  not  in  any  way  imply  that  the  competent  authorities  play  a 

supervisory  role  in  relation  to  the  mixed-activity  holding  company 

and  those of  its subsidiaries  which  are  not  credit  institutions, or 

to subsidiaries of  the kind  covered  in Article  3(10). 

4.  Where  a  credit  institution,  financial  ho IdIng  company  or  a  mixed 

activity  holding  company  controls  one  or  more  subsidiaries  which 

are  insurance  companies  or  other  undertakings  providing  investment 

services  which  are  subject  to  authorization,  the  competent 

authorities  and  the  authorities  entrusted  with  the  public  task  of 

supervising  insurance  undertakings  or  those  other  undertakings 

providing  investment  services  shall  co-operate  closely.  Without 

prejudice  to  their  respective  responsibilities,  those  authorities 

shall  provide  one  another  with  any  information  likely  to  simplify 

their  task  and  to  ensure  supervision  of  the  activity  and  overall 

financial  situation of  the undertakings  they  supervise. 

5.  Information  received  pursuant  to  this  Directive  and  in  particular 

any  exchange  of  information  between  competent  authorities  which  is 

provided  for  in  this  Directive  shall  be  subject  to  the  obligation 

of 

professional 

secrecy 

defined 

in 

Article  12 

of 

Directive  77/780/EEC. 

6.  The  competent  authorities  responsible  for  supervision  on  a 

consolidated  basis  shall  establish  lists  of  the  financial  holding 

companies  referred  to  in  Article  3(2).  Those  lists  shall  be 

communicated  to  the  other  competent  authorities  and  to  the 

Commission. 

-lh~ 

Where,  in applying  this  Directive,  the competent  authorities of  one 

Member  State  wish  in  specific  cases  to  verify  the  information 

concerning  a  credit  institution,  a  financial  holding  company,  a 

financial  institution,  an  ancillary  banking  services  undertaking,  a 

mixed-activity  holding  company,  a  subsidiary  of  the  kind  covered  in 

Article  6  or  a  subsidiary  of  the  kind  covered  in  Article  3(10), 

situated  in  another  Member  State,  they  must  ask  the  competent 

authorities  of  that  other  Member  State  to  have  that  verification 

carried  out.  The  authorities  which  have  received  such  a  request 

must,  within  the  framework  of  their  competence,  act  upon  it  either 

by  carrying  out  the  verification  themselves,  by  allowing  the 

authorities who  made  the  request  to carry  it out, or  by  allowing  an 

auditor  or  expert  to carry  it out. 

Without  prejudice  to  the  provisions  of  criminal  law,  the  Member 

States  shall  ensure  that  penalties  or  measures  aimed  at  ending 

observed  breaches  or  the  causes  of  such  breaches  may  be  imposed  on 

financial  holding  companies  and  mixed-activity  holding  companies, 

or  their  effective  managers,  that  infringe  laws,  regulations  or 

administrative  provisions  enacted  to  implement  this  Directive.  In 

certain  cases  such  measures  may  require  the  intervention  of  the 

courts.  The  competent  authorities  shall  co-operate  closely  to 

ensure  that  the  abovementioned  penalties  or  measures  produce  the 

desired  results, especially  when  the  central  administration  or  main 

establishment  of  a  financial  holding  company  or  of  a mixed-activity 

holding  company  is not  located  at  its head  office. 

-is-

Article  8 

Third  countries 

1.  The  Commission  may  submit  proposals  to  the  Council,  either  at  the 

request  of  a  Member  State  or  on  its  own  initiative,  for  the 

negotiation  of  agreements  with  one  or  more  third  countries  with  the 

aim  of  establishing  means  of  exercising 

supervision  on  a 

consolidated  basis  over: 

-  credit  institutions  with  parent  undertakings  in  third  countries 

and 

-  credit 

institutions  situated  in  third  countries  the  parent 

undertakings  of  which,  whether  credit  institutions  or  financial 

holding  companies,  have  their  head  offices  in  the  Community. 

2.  The  agreements  referred  to  in  paragraph  1  shall  in  particular  seek 

to ensure  both: 

-  that  the  competent  authorities  of  the  Member  States  are  able  to 

obtain  the  information  necessary  for  the  supervision,  on  the 

basis  of  their  consolidated  financial  situations,  of  credit 

institutions  or  financial  holding  companies  situated  in  the 

Community  and  which  have  as  subsidiaries  credit  institutions  or 

financial  institutions  situated  outside  the  Community,  or  which 

hold  participations  in such  institutions; 

-  that  the  competent  authorities  of  third  countries  are  able  to 

obtain  the  information  necessary  for  the  supervision  of  parent 

undertakings  the  head  offices  of  which  are  situated  within  their 

territories  and  which  have  as  subsidiaries  credit  institutions  or 

financial  institutions  situated  in one  or  more  Member  States,  or 

which  hold  participations  in such  institutions. 

-té 

3. The Commission  and  the Advisory  Committee  set  up under  Article  11 of 

Directive  77/780/EEC  shall 

examine 

the  outcome  of 

those 

negotiations  and  the resulting  situation. 

- 2 ?-

Art icle  9 

Final  provisions 

1.  Member 

States 

shall 

implement 

the 

laws, 

regulations 

and 

administrative  provisions  necessary  to  comply  with  the  provisions 

of  the  present  Directive  by  1  January  1993.  They  shall  forthwith 

inform  the  Commission  thereof. 

When  Member  States  adopt  these  provisions,  these  shall  contain  a 

reference  to  this  Directive  or  shall  be  accompanied  by  such 

reference  at  the  time  of  their  official  publication.  The  procedure 

for  such  reference  shall  be  adopted  by  Member  States. 

2.  Notwithstanding  the  provisions  of  Article  3(5)  and  pending  entry 

into  force  of  the  Directive  on  capital  adequacy  of  investment  firms 

and  credit  institutions,  the  competent  authorities  shall  include  in 

consolidated 

supervision 

financial 

institutions 

which 

are 

principally  exposed  to  market  risks  in  accordance  with  methods  to 

be  determined  by  those  authorities  in  the  light  of  the  particular 

nature  of  the  risks  involved. 

3.  Member  States  shall  communicate  to  the  Commission  the  texts  of  the 

main  provisions  laid  down  by  law,  regulation  or  administrative 

action  which  they  adopt  in  the  field  governed  by  this  Directive. 

-2P-

Article  10 

1.  Council  Directive  83/350/EEC  is  hereby  repealed  with  effect  from 

1  January  1993. 

2.  In  the  following  provisions,  the  words  "Directive  83/350/EEC"  shall 

be  replaced  by  "Directive  .../.../EEC": 

-  Article  5 of  Directive  89/299/EEC; 

-  Article  12(6),  Article  13(3),  Article  15(2)  and  the  fifth  indent 

of 

the 

first 

subparagraph 

of 

Article  18(2) 

of 

Directive  89/646/EEC; 

-  Article  3(3) of  Directive  89/647/EEC. 

3.  In  Article  1(5)  of  Directive  89/646/EEC  and  the  first  indent  of 

Article  2(1)  of  Directive  89/647/EEC,  the  definition  of  competent 

authorities  shall  be  replaced  by  the  following: 

"the  national  authorities  which  are  empowered  by  law  or  regulation 

to  supervise  credit  institutions". 

Article  11 

This  Directive  is addressed  to  the  Member  States 

ISSN 0254-1475 

COM(91) 491 final 

DOCUMENTS 

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