Opinion of the European Central Bank of 13 September 2001 at the request of the Council of the European Union on a proposal for a Directive of the European Parliament and of the Council 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 and 93/22/EEC, and Directives 98/78/EC and 2001/12/EC of the European Parliament and of the Council (COM(2001) 213 final) (CON/2001/25)
Date: 2001-09-13
Institutions: European Central Bank
Subjects: EU control, European Central Bank, conglomerate, credit institution, insurance company, investment company

C 271/10

EN

Official Journal of the European Communities

26.9.2001

EUROPEAN CENTRAL BANK

OPINION OF THE EUROPEAN CENTRAL BANK

of 13 September 2001

at the request of the Council of the European Union on a proposal for a Directive of the European
Parliament and of the Council 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 and 93/22/EEC, and Directives 98/78/EC
and 2001/12/EC of the European Parliament and of the Council (COM(2001) 213 final)

(CON/2001/25)

(2001/C 271/06)

firms

92/49/EEC,

supervision

79/267/EEC,

from the Council of

the European Parliament and of

1. On 21 May 2001 the European Central Bank (ECB)
received a request
the European
Union for an opinion on a proposal for a directive of
the Council on the
the European Parliament and of
institutions,
credit
of
supplementary
insurance undertakings
in a
and investment
financial conglomerate and amending Council Directives
73/239/EEC,
92/96/EEC,
93/6/EEC and 93/22/EEC, and Directives 98/78/EC and
the
2001/12/EC of
Council (COM(2001) 213 final) (hereinafter referred to as
Its aim is the establisment of common
(cid:145)the proposal(cid:146)).
prudential
financial
the supervision of
conglomerates throughout Europe. More specifically, the
institutions,
proposal
that where
insurance undertakings and investment
firms, having
their head office in the EU, are part of a financial
submitted to supplementary
conglomerate,
they
to ensure a proper
prudential
supervision.
the proposal envisages a role for a coor-
framework,
to be appointed
dinating authority (the coordinator)
amongst
In
concerned.
addition,
introduces some amendments to
sectoral prudential regulation in order to avoid unlevelled
playing fields amongst
regulated entities of different
financial sectors.

the
the proposal

authorities

competent

standards

In order

provides

credit

are

for

2. The ECB’s competence to deliver an opinion is based on
the first indent of Article 105(4), of the Treaty establishing
the European Community (hereinafter referred to as (cid:145)the
Treaty(cid:146)), and Article 3.3 of the Statute of the European
System of Central Banks and of
the European Central
Bank, as the proposal contains provisions concerning the
prudential supervision of credit institutions and has the
objective to foster the stability of the financial system. In
accordance with the first sentence of Article 17.5, of the
Rules of Procedure of
the
Governing Council of the ECB has adopted this opinion.

the European Central Bank,

3. The aim of the proposal

is the introduction of specific
prudential
conglomerates,
for
therefore addressing a major lacuna in the EU prudential
framework, as certain groups of financial institutions are

legislation

financial

focusing on capital adequacy,

not covered as such by existing sectoral regulation. The
supplementary supervision to be
proposal
introduces
that are in a financial
applied to regulated entities
conglomerate,
intra-group
In addition, since
transactions and risk concentration.
financial conglomerates include regulated entities usually
subject to different sectoral supervisory authorities within
each Member State, or possibly undertakings based in
different Member States, a high degree of coordination
the authorities involved is necessary. The
between all
proposal meets
the need for enhanced coordination
between all authorities involved by introducing measures
to facilitate supplementary supervision, namely regarding
the appointment and the tasks of a coordinating authority
and the exchange of information between competent auth-
orities. Chapter
some
amendments to sectoral Community legislation in order
to ensure a level playing field between financial conglom-
erates and (cid:145)homogenous(cid:146) financial groups, engaged in one
financial sector only.

the proposal

introduces

IV of

4. The ECB broadly welcomes and supports the proposal. The
ECB sees the proposal in the light of the need to provide
increasingly integrated European financial markets with an
adequate framework at Community level for the pursuance
of financial stability. From the ECB’s perspective, changes
in financial markets prompted by the introduction of the
euro call for a substantial enhancement of the mechanisms
for cooperation between national authorities and also with
the Eurosystem. The proposal draws an initial framework
for the prudential regulation and supervision of financial
conglomerates, which may be regarded as being coherent
overall. The ECB welcomes
the proposal’s objectives,
notably of addressing the issue of capital adequacy in
financial conglomerates,
in particular the avoidance of
multiple gearing, of establishing monitoring of intra-group
transactions and of ensuring adequate cooperation among
the competent authorities. The ECB shares the interest that
a solid institutional and regulatory framework for the
prudential supervision of financial conglomerates will be
achieved in the Community. This is with due consideration
to general requirements regarding the transparency and the
clarity of arrangements, legal certainty, and the appropriate
distribution of tasks and competences among the relevant
authorities. The recognition of the financial stability role of

26.9.2001

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Official Journal of the European Communities

C 271/11

central banks and of the contribution they may provide to
the conduct of prudential supervision should also be an
element of such framework. In general, the ECB would see
scope for the proposal to go further in clarifying certain
financial
issues
conglomerate than presently envisaged (see further below).

in the prudential

supervision of

a

the

remark,

concrete

identification of

the ECB considers that

that a thorough mapping of

5. First, the definition and the identification of a financial
ECB
a preliminary
conglomerate. As
considers
the existing
conglomerates in Member States is essential to understand
the proposal. With
the concrete impact and scope of
regard to the
financial
a
conglomerate, as determined under Article 2(13) and
the proposal could
Article 3,
define a procedure for identifying a financial conglomerate.
The initiative for reporting the existence of a financial
conglomerate could, in principle, be the responsibility of
the entities comprising such conglomerate. The competent
authorities, on the other hand, could be responsible for
scrutinising whether
a
conglomerate and for confirming the reporting provided
by the entities comprising the conglomerate. In any case,
the competent authorities would have the final responsi-
bility for reaching a common agreement on the identifi-
cation of a financial conglomerate. In this context, it could
the coordinator to notify the
be an additional
Commission of conglomerates,
instance in similar
terms to those in place for authorised credit institutions
(Article 11 of Directive 2000/12/EC) (1). In addition, a list
of the financial conglomerates subject to supplementary
supervision,
that
comprise each conglomerate, and of their respective coor-
dinators could be published, for instance on a yearly basis,
in the Official Journal of the European Communities.

together with the regulated entities

regulated entitities

comprise

task of

for

investment

the presence

6. The scope of application hinges upon a definition of
financial conglomerate, which comprises the following
elements:
in the group of both one
least one
insurance or reinsurance undertaking and at
other entity of a different financial sector; the presence
in the group of at least one regulated entity (credit insti-
tution or
insurance undertaking);
firm or
significant cross-sectoral activities; and the provision of
mainly financial services. With regard to this last criterion,
the ECB would like to highlight three aspects. First, the
provision of mainly financial services, is dependent on a
definition of (cid:145)financial sector(cid:146). The latter definition, set out
insurance and
in Article 2(7), comprises the banking,
investment services sectors. The ECB notes that this defi-
nition does exclude from the financial sector a major part
of the collective asset management business. This does not
seem adequate, given the nature and importance of that
business segment in the financial services industry. In this
following the definitive
context,
for a directive amending the
adoption of

the ECB recalls that,
the proposal

investments in financial

to harmonised prudential

Directive 85/611/EEC on the coordination of laws, regu-
lations and administrative provisions relating to under-
takings for collective investment in transferable securities
(UCITS) with a view to regulating management companies
and simplified prospectuses (2), management companies
will be subject
rules. The
amendments to the abovementioned Directive will allow
management companies to perform also management of
portfolios of
instruments on a
client-by-client basis, a service also provided by banks
and investment
firms. The provision of collective asset
management services should therefore be included in the
definition of the (cid:145)financial sector(cid:146). In addition, it is noted
that Article 4 of the proposal provides that supplementary
supervision is applied to all regulated entities within the
financial conglomerate, which are either at the head of the
conglomerate or subsidiaries of a mixed financial holding
company with the head office in the Community, or linked
by a relationship within the meaning of Article 12(1) of
Directive 83/349/EEC (3), or otherwise within the scope of
the proposal according to its Article 4. Article 2(4) of the
proposal defines (cid:145)regulated entity(cid:146) as credit
institutions,
insurance undertakings and investment firms. In light of
the above, the ECB suggests including, on the basis of a
cost benefit analysis, management companies in the defi-
nition of a regulated entity laid down in Article 2(4) and
thus subject them to supplementary supervision according
to the proposal.

that

the ECB would suggest

Secondly,
the threshold
specified in Article 3(1) could include off-balance sheet
items for the purposes of the calculation of the relevance
of the banking and investment sectors within a group. The
inclusion of off-balance sheet items is made conditional
upon the common agreement of competent authorities
under Article 3(3)(c) of the proposal. However, reporting
based solely on on-balance sheet items may be deemed
insufficient in cases where off-balance sheet items form a
significant share of the complete range of activities.

not

Thirdly, also regarding Article 3(1), the ECB notes that the
of
the
proposal
address
does
of
the
entities, where
partially-owned
thresholds using total balance sheet
figures may be
somewhat misleading. Therefore, Article 3(1) could also
allow for
threshold calculations using figures on a
pro-rata basis.

possibility
calculation

(2) Communication from the Commission to the European Parliament
pursuant to the second subparagraph of Article 251(2) of the EC
Treaty concerning the common position of the Council on the
adoption of a Directive of
the European Parliament and the
Council amending the Directive 85/611/EEC on the coordination
of laws, regulations and administrative provisions relating to under-
takings for collective investment in transferable securities (UCITS)
with a view to regulating management companies and simplified
prospectuses (COD(1998) 0242).

(1) OJ L 126, 26.5.2000, p. 1.

(3) OJ L 193, 18.7.1983, p. 1.

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Official Journal of the European Communities

26.9.2001

7.

to enable identification of entities within a
In order
financial conglomerate, Article 2(11) of
the proposal
defines (cid:145)group(cid:146) with a reference to the existence, between
natural or legal persons, of (cid:145)close links(cid:146). The latter notion
draws on the concept of close links as introduced in the
sectoral directives by the so-called post BCCI Directive
(Directive 95/26/EC) (1), which mainly refers to under-
takings that, according to Directive 83/349/EEC, have to
prepare consolidated accounts. In addition, the definition
the proposal covers other
used by Article 2(12) of
situations, such as, for instance,
(cid:145)a situation in which in
the opinion of the competent authorities one or more
influence over
persons effectively exercise a dominant
another person(cid:146),
such
dominant influence is exercised pursuant to a contract or
to a provision in the undertaking’s articles of association
(as it is instead required for the consolidation of accounts
by the relevant directive). While it is well understood that
the competent authority should have enough flexibility in
defining which entities are to be included in financial
conglomerates and should be subject
to supplementary
supervision, it is submitted that the necessary uniformity
in the future application of the proposal throughout the
Member States should not be impaired.

regardless of

that

fact

the

the

the

that

that

comprise

imply that

should contribute towards

8. Secondly, the exercise of supplementary supervision and
the role of the coordinator. The ECB notes that there is
no formal definition of the recurrent term of (cid:145)competent
authorities responsible for exercising supplementary super-
vision(cid:146), for instance as referred to in Article 5(1), Article
6(1) and Article 7. The heading of Article 7 and the
competent
wording of Article 7(1)
authority responsible for supplementary supervisions is
the coordinator. This point should be clarified.
in fact
it may not be a workable
The ECB considers
to be
solution for the coordinator, under Article 7(1),
composed of more that one competent authority. This
means
several
coordinator may
competent authorities. The ECB understands that the role
of a coordinator
reducing
complexity rather that increasing it. Therefore, the ECB
would prefer that the role of coordinator be assigned to
one competent authority only. The ECB also notes that,
under Article 7(3) of the proposal, the coordinator for
supervision with regard to the
the
inform the competent auth-
financial conglomerate shall
orities of
the other Member States involved and the
Commission of its identification. The ECB considers that
the requirements for transparency of
the Community’s
framework for financial supervision imply
institutional
that the identification of the coordinator should also, by
force of
law, be communicated to the regulated and
unregulated entities comprising the financial conglomerate,
for
the
conglomerate or the regulated institution located in the
jurisdiction of the coordinator, and also to the general
public. For
the International
Monetary Fund’s (cid:145)Code of good practices on transparency
in monetary and financial policies(cid:146), in Section 5.1.2, points
out that (cid:145)the responsibilities of the financial agencies and
should be
the authority to conduct
the ECB should
publicly disclosed(cid:146).

through the parent

In this connection,

financial policies

supplementary

company of

instance,

instance

in this

sense,

(1) OJ L 168, 18.7.1995, p. 7.

these provisions depends,

like to note that most provisions of the proposal rely on
cooperation and coordination arrangements between
competent authorities. For instance,
this is the case of
Article 3(3), Article 4(4), Article 5(5), Article 6(6),
Article 13(2), and Annexes I and II. The workability of
all
therefore, on the estab-
concrete and written arrangements and
lishment of
agreements among the competent authorities of
the
regulated entities comprising the conglomerate. The ECB
should have the
considers
possibility to make such agreements public, preferably by
publishing them in the Official
the European
In addition, with regard to the implemen-
Communities.
tation of
that
achieved
some
regarding their main elements, while safeguarding the
necessary flexibility of
in
order to achieve adequate transparency and clarity of the
supervisory framework, as well as equal and effective
supervisory treatment across financial conglomerates.

that competent authorities

supervisory arrangements,

these arrangements,

the ECB considers

convergence

Journal of

should

degree

be

of

of

better

supplementary supervision of

the coordinator, under Article 7(2),

that objective criteria for
serve
coordinator

9. With regard to the provisions concerning the appointment
of
the ECB would
prefer that the objective criteria listed in this provision
prevail over the discretion of competent authorities to
reach an ad-hoc agreement on the coordinator, while the
latter may remain as an alternative solution. This is
the
justified on the basis
appointment
the
the
requirements of transparency, clarity and legal certainty
regarding the
financial
conglomerates. The ECB notes,
in addition, that certain
identifying a coordinator, namely under
principles for
(iii) and (iv), depend on factors that
(ii),
Article 7(2)(b)
may be
(cid:145)largest
such as
the
the ECB considers
balance-sheet
that the appointment of
in all
cases, be fixed for a specified minimum period of time,
which could be defined in the proposal, independently of
variations on such dynamic factors, unless major changes
in the composition of the conglomerate occur. This would
not only ensure a certain degree of
continuity in
supplementary supervision but would also be justified by
clarity and legal
the
certainty.

the coordinator should,

In this context,

changing over

transparency,

requirements

total(cid:146).

time,

for

the

that

financial

10. With regard to the tasks of the coordinator under Article
the ECB welcomes the proposed list of mandatory
8,
assignments. The ECB considers
the coordinator
should be entrusted with an active role regarding the
monitoring of
conglomerate. The ECB
would propose, for the sake of transparency and clarity
vis-(cid:224)-vis market participants and the public in general, that
in addition to the set of tasks under Article 8(1), the coor-
dinator be assigned the task of coordinating, in agreement
with the competent authorities and in observance of
sectoral rules, the communication to the general public
of decisions which are
financial
conglomerate as a whole.

relevant

the

for

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Official Journal of the European Communities

C 271/13

between

cooperation

arrangements

11. The ECB notes that also the exercise of supplementary
supervision with regard to capital adequacy,
intra-goup
transactions and risk concentration is dependent on
effective
the
competent authorities. This may lead to some uncertainty
about the structure of the prudential framework, which, as
a matter of principle, should be well defined throughout
and not weakened by ambiguities about its effectiveness.
The issue of level playing field among financial institutions
may become increasingly relevant within the proposed
framework and the risk of regulatory arbitrage should be
avoided as much as possible. For instance, cross-sector
capital at the level of the financial conglomerate should
be defined to avoid possible ambiguities, since the sectoral
regards own funds
directives are not harmonised as
elements. Furthermore,
the proposal does not clarify
which national legislation will apply to the supplementary
supervision of
the conglomerate. According to Article
8(1)(b), the law of the Member State where the coordinator
is based would seem to apply. However, this interpretation
may be questioned by the reading of Annexes I and II,
authorities
which generally provide
should reach an agreement on the
application of
prudential rules. The ECB considers that a solution for
achieving greater clarity would be to stipulate that the
relevant national
legislation of the Member State where
the coordinator is based is the law applicable to the
activities
the
supplementary supervision of the financial conglomerate.
However, the proposal would have to clarify the applicable
legislation in those
is
cases where
composed of more than one competent authority. On
the other hand,
the proposal
provide scope for the competent authorities to participate
in the exercise of supplementary supervision. For instance,
the enforcement of measures aimed at ending observed
breaches, under Article 13,
the
the application of
competent authorities.
measures by a supervisory authority to entities of a
financial conglomerate located in another Member State
may give rise to problems of conflict of
laws and of
identification of the competent court for review. Therefore,
the proposal differentiates more
the ECB suggests that
precisely between the execution of supervisory tasks, to
be undertaken by competent authorities, and the role of
the coordinator.

is
In this sense,

certain provisions of

in the power of

coordinator

coordinator

competent

carried

that

out

the

the

by

in

12. Thirdly, crisis management. The ECB understands that the
prudential supervisory framework set out in the proposal
encompasses crisis management situations at the financial
conglomerate level.
In particular, the tasks of the coor-
dinator, as defined under Article 8(1), include (cid:145)the coor-
dination of gathering and dissemination of relevant or
essential
information in [. . .] emergency situations(cid:146) and
(cid:145)the planning and coordination of supervisory activities
[. . .] in emergency situations(cid:146). This is without prejudice
to the exercise of national competences and, accordingly,
the role of other relevant authorities as crisis managers.
However, the ECB considers that the very general clause of
the last paragraph of Article 9(1) may not be helpful in
supporting the role of the coordinator in such situations as
it may seem to be incompatible,
in particular, with the
tasks relating to (cid:145)emergency situations(cid:146). Nevertheless the
ECB welcomes the assignment of such role to the coor-

dinator, since this follows in particular the recommen-
dations of the Economic and Financial Committee Report
on financial crisis management. In this context, the ECB
also recalls that the report recommends that (cid:145)in a crisis
situation, all authorities likely to be involved should be
informed in a timely manner(cid:146). This would include, in the
terms of the EFC report, central banks and overseers of
payment systems. The ECB would therefore reiterate that
the role of central banks in the pursuance of financial
communication by the
the
stability would warrant
competent authorities and the coordinator
to central
banks, also in a crisis at the financial conglomerate level.

13. Fourthly,

the view that

the cooperation and exchange of

information
authorities. The ECB welcomes
between competent
Article 9 of the proposal. The ECB interprets Article 9(1)
as setting out mandatory obligations of
the competent
to cooperate and share information, both
authorities
generally
instances. The ECB also
and in specific
welcomes sharing of information both on request and at
the initiative of a competent authority itself. The ECB is
therefore of
there should not be any
constraints on cooperation and information sharing
among the competent authorities of the regulated entities
of a given financial conglomerate. As already mentioned
above with regard to crisis management, the ECB considers
that the scope of the last paragraph of Article 9(1) is too
broad in the context of the mandatory provisions of the
same Article 9(1). While the ECB recognises the need for
flexibility in the relations between competent authorities,
their
particularly with regard to the pursuance of
respective institutional mandates,
that
it also believes
such flexibility may be achieved in practice in the
that will be established
context of
between the competent authorities.

the arrangements

that

entities

their
a
in

14. Fifthly, the reference in the proposal to central banks and
the Eurosystem. The ECB welcomes the reference, under
(cid:145)the competent authorities may also
Article 9(1),
exchange information with the following authorities as
respective
the performance of
may needed for
tasks,
financial
regulated
regarding
conglomerate,
in line with the provisions laid down in
the sectoral rules: central banks, other bodies with a
similar function in their capacity as monetary authorities,
and where appropriate other authorities responsible for
overseeing payments systems(cid:146). The ECB understands that
this provision removes any possible legal impediments at
information-sharing
to supervisory
Community
regarding financial conglomerates between the competent
authorities, independently of their sectoral responsibilities,
and central banks and payment systems overseers. In this
connection, the ECB would first like to address a question
of terminology. On the one hand, all the monetary auth-
orities based in the European Union are central banks, as it
is the case both in practice and under the Treaty in the
context of EMU. The monetary authority for 12 Member
States is the Eurosystem. On the other hand, the central

level

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Official Journal of the European Communities

26.9.2001

domestic borders. In this context, the network of central
banks of the Eurosystem may provide improved moni-
toring of risks to financial stability in the single currency
area.

16. Sixthly, the comitology procedure. The ECB welcomes the
proposed comitology procedure, under Articles 16 and 17,
which aims basically to incorporate market and legislative
developments in the main concepts on which the proposal
is based, as well as to ensure their uniform application.
The establishment of a Financial Conglomerates Committee
is therefore a key element of
the proposal. The ECB
welcomes the proposed approach, which recently was
given a new impetus by the report of the Committee of
Wise Men on the Regulation of European securities
markets.
It should be borne in mind however that the
legitimacy of comitology procedures should rely not only
on their
feasibility but also on appropriate
safeguards for transparency and the prerogatives of the
relevant Community institutions and bodies. The ECB
would also recall the conclusions of the Committee of
Wise Men on the need to devise a Community regulatory
framework that
flexible and swiftly adaptable to
changing needs. In this context, the ECB underlines that
supervisory cooperation on the convergence of supervisory
practices
the proposed
Directive, particularly as regards the main features of coop-
erative arrangements among the competent authorities,
should be a main element in the Community’s regulatory
process for financial conglomerates. A periodical mapping
exercise of financial conglomerates would also be helpful.

implementation of

and the

technical

is

17. This opinion shall be published in the Official Journal of the

European Communities.

Done at Frankfurt am Main on 13 September 2001.

The President of the ECB

Willem F. DUISENBERG

banks of the Member States and the Eurosystem are also
the only authorities in the Community responsible for
overseeing payment systems. The Memorandum of Under-
standing on cooperation between payment
systems
in stage three of
overseers and banking supervisors
economic and monetary union (1)
this
fully reflects
framework. The ECB would like therefore to clarify the
abovementioned paragraph of Article 9(1) by rewording
it as follows:
(cid:145)[. . .] central banks, the European System
of Central Banks and the European Central Bank(cid:146). The
reasons to include the ESCB and the ECB are twofold.
First,
the
exchange of
information with the central banks of the
Eurosystem involves a cross-border dimension that is not
yet acknowledged in the sectoral directives. Secondly,
information conveyed to a central bank of the Eurosystem
may be shared among the central banks of the Eurosystem.
The ECB considers that the wording in the proposal would
only further consolidate outdated concepts. In this regard,
a recital in the proposal acknowledging the establishment
of
the European System of Central Banks and the
European Central Bank would be welcome.

since the establishment of

the Eurosystem,

15. Furthermore, the ECB notes that the reference in Article
9(1)
to the exchange of supervisory information with
central banks may serve as an acknowledgement of the
contribution by central banks to the prudential supervisory
framework for financial conglomerates. The ECB would
like to emphasise that the monitoring of risks inherent
in the operations of large and complex multinational insti-
tutions is of direct concern to central banks. The central
banks’ traditional
focus on systemic risk, together with
their knowledge of money and securities markets and
market infrastructures and their function in the oversight
of payment and settlement systems, places them in a
unique position to identify threats to the stability of the
financial system. In this context, supervisory information
sharing with central banks will contribute to the moni-
toring and pursuit of systemic stability in the Community.
Moreover, taking into consideration that the aim of the
financial
is to consider
proposal
conglomerates at Community level,
the ECB considers
that also the euro-area perspective becomes particularly
relevant. The behaviour of
large and complex financial
groups is likely to affect money and capital markets, as
well as payment and settlement systems, well beyond

the systemic risk of

(1) ECB press release of 2 April 2001, memorandum of understanding
on cooperation between payment systems overseers and banking
supervisors in stage three of economic and monetary union.