Common Position (EC) No 52/2002 of 12 September 2002 adopted by the Council, acting in accordance with the procedure referred to in Article 251 of the Treaty establishing the European Community, with a view to adopting 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 2000/12/EC of the European Parliament and of the Council
Date: 2002-09-12
Institutions: Council of the European Union
Subjects: company law, competition law, conglomerate, credit institution, financial control, financial market, insurance company, investment company, standard

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I

(Information)

COUNCIL

COMMON POSITION (EC) No 52/2002

adopted by the Council on 12 September 2002

with a view to adopting Directive 2002/. . ./EC of the European Parliament and of the Council of
. . . 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 2000/12/EC of the
European Parliament and of the Council

(2002/C 253 E/01)

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE
EUROPEAN UNION,

which are part of respectively a banking/investment firm
group or an insurance group,
i.e. groups with homo-
geneous financial activities.

Having regard to the Treaty establishing the European
Community, and in particular Article 47(2) thereof,

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

Having regard to the opinion of the Economic and Social
Committee (2),

After consulting the Committee of the Regions,

Having regard to the opinion of the European Central Bank (3),

Acting in accordance with the procedure laid down in Article
251 of the Treaty (4),

Whereas:

(1) The

current Community legislation provides
a
comprehensive set of rules on the prudential supervision
of
and
investment firms on a stand alone basis and credit insti-
firms
insurance undertakings and investment
tutions,

undertakings

institutions,

insurance

credit

for

(1) OJ C 213 E, 31.7.2001, p. 227.
(2) OJ C 36, 8.2.2002, p. 1.
(3) OJ C 271, 26.9.2001, p. 10.
(4) Opinion of the European Parliament of 14 March 2002 (not yet
published in the Official
Journal), Council Common Position of
12.9.2002 and Decision of the European Parliament of . . . (not
yet published in the Official Journal).

institutions,

the level of

(2) New developments in financial markets have led to the
creation of financial groups which provide services and
the financial markets,
products in different sectors of
called financial conglomerates. Until now,
there has
been no form of prudential supervision on a group-wide
basis of credit
insurance undertakings and
investment firms which are part of such a conglomerate,
in particular as regards the solvency position and risk
concentration at
the
intra-group transactions,
the internal risk management
processes at conglomerate level, and the fit and proper
character of the management. Some of these conglom-
erates are among the biggest financial groups which are
active in the financial markets and provide services on a
global basis.
If such conglomerates, and in particular
credit institutions, insurance undertakings and investment
firms which are part of such a conglomerate, were to face
financial difficulties, these could seriously destabilise the
financial
depositors,
affect
insurance policy holders and investors.

the conglomerate,

system and

individual

(3) The Commission Action Plan for Financial Services
identifies a series of actions which are needed to
complete the Single Market
in Financial Services, and
announces the development of supplementary prudential
legislation for financial conglomerates which will address
loopholes in the present sectoral legislation and additional
prudential risks to ensure sound supervisory arrangements
with regard to financial groups with cross-sectoral
financial activities. Such an ambitious objective can only
the
be
institutions,
supplementary
insurance undertakings
in a
firms
financial conglomerate is one such stage.

in stages. The
supervision

credit
and investment

establishment of

attained

of

(4) Other international fora have also identified the need for
the development of appropriate supervisory concepts with
regard to financial conglomerates.

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(5) In order to be effective, the supplementary supervision of
credit institutions, insurance undertakings and investment
firms in a financial conglomerate should be applied to all
such conglomerates, the cross-sectoral financial activities
of which are significant, which is the case when certain
thresholds
are
structured. Supplementary supervision should cover all
financial activities identified by the sectoral financial legis-
lation and all entities principally engaged in such activities
should be included in the scope of the supplementary
supervision, including asset management companies.

reached, no matter how they

are

(6) Decisions not to include a particular entity in the scope of
supplementary supervision should be taken, bearing in
mind inter alia whether or not such entity is included
in the group-wide supervision under sectoral rules.

(7) The competent authorities should be able to assess at a
group-wide level the financial situation of credit insti-
tutions,
firms
insurance undertakings and investment
which are part of a financial conglomerate, in particular
as regards solvency (including the elimination of multiple
gearing of own funds instruments), risk concentration and
intra-group transactions.

(8) Financial

conglomerates

are often managed on a
business-line basis which does not fully coincide with
the conglomerate's legal structures.
to take
account of this trend, the requirements for management
in particular as regards the
should be further extended,
management of the mixed financial holding company.

In order

(9) All

financial conglomerates

to supplementary
supervision should have a coordinator appointed from
among the competent authorities involved.

subject

(10) The tasks of the coordinator should not affect the tasks
the competent authorities as

and responsibilities of
provided for by the sectoral rules.

(11) The competent authorities involved, and especially the
coordinator, should have the means of obtaining from
the entities within a financial conglomerate, or from
the information necessary
other competent authorities,
for the performance of their supplementary supervision.

(12) There is a pressing need for

increased collaboration
between authorities responsible for the supervision of
credit institutions, insurance undertakings and investment
firms, including the development of ad hoc cooperation
arrangements between the authorities involved in the
supervision of entities belonging to the same financial
conglomerate.

to

be

subject

equivalent

be part of a financial conglomerate, the head of which is
outside the Community. These regulated entities should
also
appropriate
supplementary supervisory arrangements which achieve
objectives and results similar to those pursued by the
provisions of this Directive. To this end, transparency of
rules and exchange of
information with third-country
authorities on all relevant circumstances are of great
importance.

and

(14) Equivalent and appropriate supplementary supervisory
arrangements can only be assumed to exist if the third-
country supervisory authorities have agreed to cooperate
with the competent authorities concerned on the means
and objectives of exercising supplementary supervision of
the regulated entities of a financial conglomerate.

(15) This Directive does not

require

authorities

the disclosure by
competent
to a Financial Conglomerates
Committee of information which is subject to an obli-
gation of confidentiality under this Directive or other
sectoral directives.

credit

insurance

institutions,

undertakings

(16) Since the objective of the proposed action, namely the
establishment of rules on the supplementary supervision
of
and
investment firms in a financial conglomerate, cannot be
sufficiently achieved by the Member States and can
therefore, by reason of the scale and the effects of the
action, be better achieved at Community level,
the
Community may adopt measures,
in accordance with
the principle of subsidiarity as set out in Article 5 of
the Treaty. In accordance with the principle of propor-
tionality, as set out in that Article, this Directive does not
go beyond what is necessary in order to achieve this
objective. Since this Directive defines minimum standards,
Member States may lay down stricter rules.

(17) This Directive

and
the
observes the principles recognised in particular by the
Charter of Fundamental Rights of the European Union.

fundamental

respects

rights

(18) The measures necessary for the implementation of this
Directive should be adopted in accordance with Council
Decision 1999/468/EC of 28 June 1999 laying down the
procedures
implementing powers
the exercise of
conferred on the Commission (1).

for

(19) Technical guidance and implementing measures for the
rules laid down in this Directive may from time to time
be necessary to take account of new developments on
financial markets. The Commission should accordingly
implementing measures,
be
provided that
essential
the
elements of this Directive.

these do not modify

empowered

adopt

to

(13) Credit institutions, insurance undertakings and investment
firms which have their head office in the Community can

(1) OJ L 184, 17.7.1999, p. 23.

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insurance

(20) The existing sectoral rules for credit institutions, insurance
undertakings and investment
firms should be supple-
mented to a minimum level, in particular to avoid regu-
latory arbitrage between the sectoral rules and those for
financial conglomerates. Therefore, First Council Directive
73/239/EEC of 24 July 1973 on the coordination of laws,
regulations and administrative provisions relating to the
taking up and pursuit of the business of direct insurance
than life assurance (1), First Council Directive
other
79/267/EEC of 5 March 1979 on the coordination of
laws, regulations and administrative provisions relating
to the taking up and pursuit of the business of direct
life assurance (2), Council Directive 92/49/EEC of 18 June
1992 on the coordination of laws, regulations and admin-
istrative provisions relating to direct insurance other than
insurance Directive) (3),
life
Council Directive 92/96/EEC of 10 November 1992 on
the coordination of laws, regulations and administrative
life assurance (third life
provisions relating to direct
insurance Directive) (4), Council Directive 93/6/EEC of
15 March 1993 on the capital adequacy of investments
institutions (5) and Council Directive
firms and credit
93/22/EEC of 10 May 1993 on investment services in
the securities field (6), as well as Directive 98/78/EC of
the
the Council of
27 October 1998 on the supplementary supervision of
insurance undertakings in an insurance group (7) and
Directive 2000/12/EC of the European Parliament and
of the Council of 20 March 2000 relating to the taking
up and pursuit of the business of credit institutions (8)
should be amended accordingly. The objective of further
harmonisation can, however, only be achieved by stages
and needs to be based on careful analysis.

European Parliament

(third non-life

and of

harmonisation

(21) In order to assess the need for and prepare any possible
asset
of
future
management
the
Commission should report on Member States' practices
in this field,

treatment
sectoral

the
under

of
rules,

companies

(1) OJ L 228, 16.8.1973, p. 3. Directive as last amended by European
Parliament and Council Directive 2002/13/EC (OJ L 77, 20.3.2002,
p. 17).

(2) OJ L 63, 13.3.1979, p. 1. Directive as last amended by European
Parliament and Council Directive 2002/12/EC (OJ L 77, 20.3.2002,
p. 11).

(3) OJ L 228, 11.8.1992, p. 1. Directive as last amended by European
and Council Directive 2000/64/EC (OJ L 290,

Parliament
17.11.2000, p. 27).

(4) OJ L 360, 9.12.1992, p. 1. Directive as last amended by Directive

2000/64/EC.

(5) OJ L 141, 11.6.1993, p. 1. Directive as last amended by European
Parliament and Council Directive 98/33/EC (OJ L 204, 21.7.1998,
p. 29).

(6) OJ L 141, 11.6.1993, p. 27. Directive as last amended by Directive

2000/64/EC.

HAVE ADOPTED THIS DIRECTIVE:

CHAPTER I

OBJECTIVE AND DEFINITIONS

Article 1

Objective

This Directive lays down rules for supplementary supervision
of regulated entities which have obtained an authorisation
pursuant to Article 6 of Directive 73/239/EEC, Article 6 of
Directive 79/267/EEC, Article 3(1) of Directive 93/22/EEC or
Article 4 of Directive 2000/12/EC, and which are part of a
financial conglomerate.
It also amends the relevant sectoral
rules which apply to entities regulated by the Directives
referred to above.

Article 2

Definitions

For the purposes of this Directive:

1.

‘credit institution’ shall mean a credit institution within the
meaning of the second subparagraph of Article 1(1) of
Directive 2000/12/EC;

2.

3.

4.

5.

‘insurance undertaking’ shall mean an insurance under-
taking within the meaning of Article 6 of Directive
73/239/EEC, Article 6 of Directive 79/267/EEC or
Article 1(b) of Directive 98/78/EC;

‘investment firm’ shall mean an investment firm within the
meaning of Article 1(2) of Directive 93/22/EEC, including
the undertakings referred to in Article 2(4) of Directive
93/6/EEC;

‘regulated entity’
insurance undertaking or an investment firm;

shall mean a credit

institution, an

‘asset management company’ shall mean a management
company within the meaning of Article 1a(2) of Council
Directive 85/611/EEC of 20 December 1985 on the coor-
dination of laws, regulations and administrative provisions
relating to undertakings for collective investment in trans-
ferable securities (UCITS) (9), as well as an undertaking the
registered office of which is outside the Community and
which would require authorisation in accordance with
Article 5(1) of that Directive if it had its registered office
within the Community;

6.

‘reinsurance undertaking’ shall mean a reinsurance under-
taking within the meaning of Article 1(c) of Directive
98/78/EC;

(7) OJ L 330, 5.12.1998, p. 1.
(8) OJ L 126, 26.5.2000, p. 1. Directive as amended by Directive

2000/28/EC (OJ L 275, 27.10.2000, p. 37).

(9) OJ L 375, 31.12.1985, p. 3. Directive as last amended by European
and Council Directive 2001/108/EC (OJ L 41,

Parliament
13.2.2002, p. 35).

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7.

rules’
to the prudential

shall mean the Community legislation
‘sectoral
relating
regulated
entities, in particular laid down in Directives 73/239/EEC,
79/267/EEC,
and
2000/12/EC;

supervision of

93/22/EEC

98/78/EC,

93/6/EEC,

8.

‘financial sector’ shall mean a sector composed of one or
more of the following entities:

(a) a credit

institution, a financial

institution or an
ancillary banking services undertaking within the
meaning of Article 1(5)
and (23) of Directive
2000/12/EC (the banking sector);

(b) an insurance undertaking, a reinsurance undertaking or
an insurance holding company within the meaning of
Article 1(i) of Directive 98/78/EC (the insurance
sector);

(c) an investment firm or a financial institution within the
meaning of Article 2(7) of Directive 93/6/EEC (the
investment services sector);

13.

‘close links’ shall mean a situation in which two or more
natural or legal persons are linked by:

(a)

‘participation’, which shall mean the ownership, direct
or by way of control, of 20 % or more of the voting
rights or capital of an undertaking or

(b) ‘control’, which shall mean the relationship between a
parent undertaking and a subsidiary,
in all the cases
referred to in Article 1(1) and (2) of Directive
83/349/EEC, or a similar relationship between any
natural or
legal person and an undertaking; any
subsidiary undertaking of a subsidiary undertaking
shall also be considered a subsidiary of the parent
undertaking which is at
those under-
takings.

the head of

A situation in which two or more natural or legal persons
are permanently linked to one and the same person by a
control relationship shall also be regarded as constituting a
close link between such persons.

(d) a mixed financial holding company;

14.

‘financial conglomerate’ shall mean a group which meets,
subject to Article 3, the following conditions:

9.

10.

11.

12.

‘parent undertaking’
shall mean a parent undertaking
within the meaning of Article 1 of Seventh Council
Directive 83/349/EEC of 13 June 1983 on consolidated
accounts (1) and any undertaking which,
in the opinion
of
a
dominant influence over another undertaking;

effectively exercises

authorities,

competent

the

‘subsidiary undertaking’ shall mean a subsidiary under-
taking within the meaning of Article 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 subsidiary
shall also be
subsidiary undertakings
undertakings of
considered as subsidiary undertakings of the parent under-
taking;

shall mean a participation within the
‘participation’
meaning of
the first sentence of Article 17 of Fourth
Council Directive 78/660/EEC of 25 July 1978 on the
annual accounts of certain types of companies (2), or the
direct or indirect ownership of 20 % or more of the voting
rights or capital of an undertaking;

‘group’ shall mean a group of undertakings, which consists
of a parent undertaking, its subsidiaries and the entities in
which the parent undertaking or its subsidiaries hold a
participation, as well as undertakings
linked to each
other by a relationship within the meaning of Article
12(1) of Directive 83/349/EEC;

(1) OJ L 193, 18.7.1983, p. 1. Directive as last amended by European
and Council Directive 2001/65/EC (OJ L 283,

Parliament
27.10.2001, p. 28).

(2) OJ L 222, 14.8.1978, p. 11. Directive as last amended by Directive

2001/65/EC.

(a) a regulated entity within the meaning of Article 1 is at
the head of
the
the group or at
subsidiaries in the group is a regulated entity within
the meaning of Article 1;

least one of

(b) where there is a regulated entity within the meaning of
Article 1 at the head of the group, it is either a parent
undertaking of an entity in the financial sector, an
entity which holds a participation in an entity in the
financial sector, or an entity linked with an entity in
the financial
sector by a relationship within the
meaning of Article 12(1) of Directive 83/349/EEC;

(c) where there is no regulated entity within the meaning
of Article 1 at the head of the group, the group's
activities mainly occur in the financial sector within
the meaning of Article 3(1);

(d) at least one of the entities in the group is within the
insurance sector and at least one is within the banking
or investment services sector;

(e) the consolidated and/or aggregated activities of

the
entities in the group within the insurance sector and
the consolidated and/or aggregated activities of
the
entities within the banking and investment services
sector are both significant within the meaning of
Article 3(2) or (3).

Any sub-group of a group within the meaning of point 12
which meets the criteria in this point shall be considered
as a financial conglomerate;

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15.

16.

than a

‘mixed financial holding company’ shall mean a parent
undertaking, other
entity, which
together with its subsidiaries, at least one of which is a
regulated entity which has
in the
Community, and other entities, constitutes a financial
conglomerate;

its head office

regulated

‘competent authorities’ shall mean the national authorities
of the Member States which are empowered by law or
regulation
and/or
insurance undertakings and/or investment firms whether
on an individual or a group-wide basis;

institutions,

supervise

credit

to

17.

‘relevant competent authorities’ shall mean

(a) Member States' competent authorities responsible for
the sectoral group-wide supervision of any of
the
regulated entities in a financial conglomerate;

(b) the coordinator appointed in accordance with Article
10 if different from the authorities referred to in (a);

(c) other competent authorities concerned, where relevant,
in the opinion of the authorities referred to in (a) and
(b); this opinion shall especially take into account the
market
the
conglomerate in other Member States, in particular if
the
it
conglomerate of any regulated entity established in
another Member State;

regulated entities of

importance

share of

exceeds

5 %,

and

the

the

in

For the purposes of determining whether activities in
2.
different financial sectors are significant within the meaning
of Article 2(14)(e), for each financial sector the average of
the ratio of the balance sheet total of that financial sector to
the balance sheet total of the financial sector entities in the
group and the ratio of the solvency requirements of the same
financial sector to the total solvency requirements of
the
financial sector entities in the group should exceed 10 %.

For the purposes of this Directive, the smallest financial sector
in a financial conglomerate is the sector with the smallest
average and the most important financial sector in a financial
conglomerate is the sector with the highest average. For the
purposes of calculating the average and for the measurement of
the smallest and the most
the
banking sector and the investment services sector shall be
considered together.

financial sectors,

important

if

total of

the smallest

threshold referred to in paragraph 2,

Cross-sectoral activities shall also be presumed to be
3.
the
significant within the meaning of Article 2(14)(e)
financial sector in the
balance sheet
If the group does not reach
group exceeds EUR 6 billion.
the
relevant
competent authorities may decide by common agreement not
to regard the group as a financial conglomerate, or not to
apply the provisions of Articles 7, 8 or 9, if they are of the
opinion that the inclusion of the group in the scope of this
Directive or the application of such provisions is not necessary
or would be inappropriate or misleading with respect to the
objectives of supplementary supervision, taking into account,
for instance, the fact that:

the

18.

19.

‘intra-group transactions’ shall mean all transactions by
which regulated entities within a financial conglomerate
rely either directly or indirectly upon other undertakings
within the same group or upon any natural or legal person
linked to the undertakings within that group by ‘close
links’, for the fulfilment of an obligation, whether or not
contractual, and whether or not for payment;

‘risk concentration’ shall mean all exposures with a loss
potential borne by entities within a financial conglomerate,
which are large enough to threaten the solvency or the
financial position in general of the regulated entities in the
financial conglomerate; such exposures may be caused by
insurance
counterparty risk/credit risk,
risk, market risk, other risks, or a combination or inter-
action of these risks.

investment risk,

Article 3

Thresholds for identifying a financial conglomerate

For the purposes of determining whether the activities of
1.
a group mainly occur in the financial sector, within the
meaning of Article 2(14)(c), the ratio of the balance sheet
total of
sector
the regulated and non-regulated financial
entities in the group to the balance sheet total of the group
as a whole should exceed 40 %.

(a) the relative size of its smallest financial sector does not
the average
exceed 5 %, measured either
referred to in paragraph 2 or in terms of the balance
sheet total or the solvency requirements of such financial
sector; or

in terms of

(b) the market share does not exceed 5 % in any Member State,
measured in terms of the balance sheet total in the banking
or
sectors and in terms of gross
premiums written in the insurance sector.

investment services

Decisions taken in accordance with this paragraph shall be
notified to the other competent authorities concerned.

For the application of paragraphs 1, 2 and 3, the relevant

4.
competent authorities may by common agreement:

(a) exclude an entity when calculating the ratios, in the cases

referred to in Article 6(5);

(b) take into account compliance with the thresholds envisaged
in paragraphs 1 and 2 for three consecutive years so as to
avoid sudden regime shifts, and disregard such compliance
if there are significant changes in the group's structure.

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Where a financial conglomerate has been identified according
to paragraphs 1, 2 and 3, the decisions referred to in the first
subparagraph of this paragraph shall be taken on the basis of a
proposal made
financial
conglomerate.

coordinator

that

the

by

of

For the application of paragraphs 1 and 2, the relevant
5.
in exceptional cases and by
competent authorities may,
common agreement, replace the criterion based on balance
sheet total with one or both of the following parameters or
add one or both of these parameters, if they are of the opinion
that
the
purposes of supplementary supervision under this Directive:
income structure, off-balance-sheet activities.

these parameters are of particular

relevance for

For the application of paragraphs 1 and 2, if the ratios
6.
fall below 40 % and 10 %
referred in those paragraphs
respectively
to
for
supplementary supervision, a lower ratio of 35 % and 8 %
respectively shall apply for the following three years to avoid
sudden regime shifts.

conglomerates

already

subject

Similarly, for the application of paragraph 3,
if the balance
sheet total of the smallest financial sector in the group falls
below EUR 6 billion for conglomerates already subject
to
supplementary supervision, a lower figure of EUR 5 billion
shall apply for the following three years to avoid sudden
regime shifts.

the coor-
During the period referred to in this paragraph,
relevant
dinator may, with the agreement of
competent authorities, decide that
the lower ratios or the
lower amount referred to in this paragraph shall cease to apply.

the other

7.
The calculations referred to in this Article regarding the
balance sheet shall be made on the basis of the aggregated
balance sheet total of the entities of the group, according to
their annual accounts. For the purposes of this calculation,
undertakings in which a participation is held shall be taken
into account as regards the amount of their balance sheet
total corresponding to the aggregated proportional share held
by the group. However, where consolidated accounts are
available, they shall be used instead of aggregated accounts.

For this purpose:

— competent authorities which have authorised regulated
entities in the group shall, where necessary, cooperate
closely;

— if a competent authority is of the opinion that a regulated
entity authorised by that competent authority is a member
of a group which may be a financial conglomerate, which
has not already been identified according to this Directive,
the competent authority shall communicate its view to the
other competent authorities concerned.

2.
The coordinator appointed in accordance with Article 10
shall inform the parent undertaking at the head of a group or,
in the absence of a parent undertaking, the regulated entity
with the largest balance sheet total
in the most important
financial sector in a group, that the group has been identified
as a financial conglomerate and of the appointment of the
coordinator. The coordinator shall also inform the competent
authorities which have authorised regulated entities in the
group and the competent authorities of the Member State in
which the mixed financial holding company has its head office,
as well as the Commission.

CHAPTER II

SUPPLEMENTARY SUPERVISION

SECTION 1

SCOPE

Article 5

Scope of supplementary supervision of regulated entities
referred to in Article 1

1. Without prejudice to the provisions on supervision
contained in the sectoral rules, Member States shall provide
for the supplementary supervision of
the regulated entities
referred to in Article 1, to the extent and in the manner
prescribed in this Directive.

The following regulated entities

shall be subject
2.
supplementary supervision at
the
conglomerate in accordance with Articles 6 to 17:

level of

to
financial

the

The solvency requirements referred to in paragraphs 2 and 3
shall be calculated in accordance with the provisions of the
relevant sectoral rules.

(a) every regulated entity which is at the head of a financial

conglomerate;

Article 4

Identifying a financial conglomerate

(b) every regulated entity, the parent undertaking of which is a
mixed financial holding company which has its head office
in the Community;

Competent authorities which have authorised regulated
identify

1.
entities shall, on the basis of Articles 2, 3 and 5,
any group that falls under the scope of this Directive.

(c) every regulated entity linked with another financial sector
entity by a relationship within the meaning of Article 12(1)
of Directive 83/349/EEC.

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Where a financial conglomerate is a subgroup of another
financial conglomerate which meets the requirements of the
first subparagraph, Member States may apply Articles 6 to
17 to the regulated entities within the latter group only and
any reference in the Directive to the terms group and financial
conglomerate will then be understood as referring to that latter
group.

Every

is not

regulated

to
entity which
3.
supplementary supervision in accordance with paragraph 2,
the parent undertaking of which is a regulated entity or a
mixed financial holding company, having its head office
to supplementary
outside the Community, shall be subject
supervision at the level of the financial conglomerate to the
extent and in the manner prescribed in Article 18.

subject

4. Where persons hold participations or capital ties in one
or more regulated entities or exercise significant influence over
such entities without holding a participation or capital ties,
other than the cases referred to in paragraphs 2 and 3, the
relevant competent authorities shall, by common agreement
and in conformity with national law, determine whether and
to what extent supplementary supervision of
the regulated
entities is to be carried out, as if they constitute a financial
conglomerate.

In order to apply such supplementary supervision, at least one
of the entities must be a regulated entity as referred to in
Article 1 and the conditions set out in Article 2(14)(d) and
(e) must be met. The relevant competent authorities shall
take their decision, taking into account the objectives of the
supplementary supervision as provided for by this Directive.

For the purposes of applying the first subparagraph to ‘coop-
take into
erative groups’,
account
these groups
with respect to other financial entities.

the public financial commitment of

the competent authorities must

the

to Article 13,
the

exercise of
5. Without prejudice
supplementary supervision at
financial
conglomerate shall in no way imply that the competent auth-
orities are required to play a supervisory role in relation to
mixed financial holding companies,
third-country regulated
entities in a financial conglomerate or unregulated entities in
a financial conglomerate, on a stand-alone basis.

level of

the

SECTION 2

FINANCIAL POSITION

Article 6

Capital adequacy

1. Without prejudice to the sectoral rules, supplementary
supervision of the capital adequacy of the regulated entities
in a financial conglomerate shall be exercised in accordance
with the rules laid down in Article 9(2) to (5), in Section 3
of this Chapter, and in Annex I.

The Member States shall require regulated entities in a
2.
financial conglomerate to ensure that own funds are available
at the level of the financial conglomerate which are always at
least equal to the capital adequacy requirements as calculated in
accordance with Annex I.

The Member States shall also require regulated entities to have
in place adequate capital adequacy policies at the level of the
financial conglomerate.

requirements

The
subparagraphs shall be subject
the coordinator in accordance with Section 3.

referred to in the

and second
to supervisory overview by

first

The coordinator shall ensure that the calculation referred to in
the first subparagraph is carried out at least once a year, either
by the regulated entities or by the mixed financial holding
company.

The results of the calculation and the relevant data for the
calculation shall be submitted to the coordinator by the
regulated entity within the meaning of Article 1 which is at
the head of the financial conglomerate, or, where the financial
conglomerate is not headed by a regulated entity within the
meaning of Article 1, by the mixed financial holding company
or by the regulated entity in the financial conglomerate
identified by the coordinator after consultation with the
other relevant competent authorities and with the financial
conglomerate.

referred to in the

For the purposes of calculating the capital adequacy
3.
requirements
subparagraph of
paragraph 2, the following entities shall be included in the
scope of supplementary supervision in the manner and to
the extent defined in Annex I:

first

(a) a credit institution, a financial

institution or an ancillary
banking services undertaking within the meaning of Article
1(5) and (23) of Directive 2000/12/EC;

(b) an insurance undertaking, a reinsurance undertaking or an
insurance holding company within the meaning of Article
1(i) of Directive 98/78/EC;

(c) an investment firm or a financial

institution within the

meaning of Article 2(7) of Directive 93/6/EEC;

(d) mixed financial holding companies.

4. When calculating the supplementary capital adequacy
requirements with regard to a financial conglomerate by
applying method 1 (Accounting consolidation) referred to in
Annex I, the own funds and the solvency requirements of the
entities in the group shall be calculated by applying the corre-
sponding sectoral rules on the form and extent of consolidation
as
in Article 54 of Directive
2000/12/EC and Annex I.1.B. to Directive 98/78/EC.

laid down in particular

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When applying methods 2 or 3 (Deduction and aggregation,
Book value/requirement deduction) referred to in Annex I, the
calculation shall take account of the proportional share held by
the parent undertaking or undertaking which holds a partici-
‘Proportional share’
pation in another entity of
means the proportion of the subscribed capital which is held,
directly or indirectly, by that undertaking.

the group.

The coordinator may decide not to include a particular
5.
entity in the scope when calculating the supplementary capital
adequacy requirements in the following cases:

accordance with the rules laid down in this Article and in
Annex II. The necessary information shall be submitted to
the coordinator by the regulated entity within the meaning
of Article 1 which is at the head of the financial conglomerate
or, where the financial conglomerate is not headed by a
regulated entity within the meaning of Article 1, by the
mixed financial holding company or by the regulated entity
in the financial conglomerate identified by the coordinator
after consultation with the other relevant competent authorities
and with the financial conglomerate.

(a)

to the

impediments

if the entity is situated in a third country where there are
the necessary
legal
rules
information, without prejudice
sectoral
regarding the obligation of competent authorities
to
refuse authorisation where the effective exercise of their
supervisory functions is prevented;

transfer of
to the

(b) if the entity is of negligible interest with respect to the
objectives of the supplementary supervision of regulated
entities in a financial conglomerate;

(c)

if the inclusion of the entity would be inappropriate or
misleading with respect to the objectives of supplementary
supervision.

These risk concentrations
overview by the coordinator in accordance with Section 3.

shall be subject

to supervisory

3.
Pending further coordination of Community legislation,
Member States may set quantitative limits or allow their
competent authorities to set quantitative limits, or take other
supervisory measures which would achieve the objectives of
supplementary supervision, with regard to any risk concen-
tration at the level of a financial conglomerate.

4. Where a financial conglomerate is headed by a mixed
financial holding company, the sectoral rules regarding risk
concentration of the most important financial sector in the
financial conglomerate, if any, shall apply to that sector as a
whole, including the mixed financial holding company.

However, if several entities are to be excluded pursuant to (b)
of the first subparagraph, they must nevertheless be included
when collectively they are of non-negligible interest.

Article 8

Intra-group transactions

In the case mentioned in (c) of the first subparagraph the
coordinator shall, except
the
other relevant competent authorities before taking a decision.

in cases of urgency, consult

1. Without prejudice to the sectoral rules, supplementary
supervision of intra-group transactions of regulated entities in
a financial conglomerate shall be exercised in accordance with
the rules laid down in paragraphs 2 to 4,
in
Section 3 of this Chapter, and in Annex II.

in Article 9,

subparagraph,

When the coordinator does not include a regulated entity in
the scope under one of the cases provided for in (b) and (c) of
the first
the
Member State in which that entity is situated may ask the
entity which is at the head of the financial conglomerate for
information which may facilitate their supervision of
the
regulated entity.

the competent authorities of

Article 7

Risk concentration

1. Without prejudice to the sectoral rules, supplementary
supervision of the risk concentration of regulated entities in
a financial conglomerate shall be exercised in accordance with
the rules laid down in Article 9(2) to (4), in Section 3 of this
Chapter and in Annex II.

2.
The Member States shall require regulated entities or
mixed financial holding companies to report on a regular
basis and at least annually to the coordinator any significant
risk concentration at the level of the financial conglomerate, in

regulated

2.
The Member States shall require regulated entities or
mixed financial holding companies to report on a regular
basis and at least annually to the coordinator all significant
entities within a
intra-group transactions of
financial conglomerate,
laid
down in this Article and in Annex II. Insofar as no definition
of the thresholds referred to in the last sentence of the first
paragraph of Annex II has been drawn up, an intra-group
transaction shall be presumed to be significant if its amount
exceeds at least 5 % of the total amount of capital adequacy
requirements at the level of a financial conglomerate.

in accordance with the rules

The necessary information shall be submitted to the coor-
dinator by the regulated entity within the meaning of Article
1 which is at the head of the financial conglomerate or, where
the financial conglomerate is not headed by a regulated entity
within the meaning of Article 1, by the mixed financial holding
company or by
financial
conglomerate identified by the coordinator after consultation
with the other relevant competent authorities and with the
financial conglomerate.

regulated entity

in the

the

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These intra-group transactions shall be subject to supervisory
overview by the coordinator.

the production of any data and information which would be
relevant for the purposes of the supplementary supervision.

3.
Pending further coordination of Community legislation,
Member States may set quantitative limits and qualitative
requirements or allow their competent authorities
to set
quantitative limits and qualitative requirements, or take other
supervisory measures that would achieve the objectives of
supplementary supervision, with regard to intra-group trans-
actions of regulated entities within a financial conglomerate.

4. Where a financial conglomerate is headed by a mixed
financial holding company,
regarding
financial
intra-group transactions of
sector in the financial conglomerate shall apply to that sector
including the mixed financial holding company.
as a whole,

the
the most

rules
important

sectoral

Article 9

Internal control mechanisms and risk management
processes

The Member States shall require regulated entities to have
1.
in place at the level of the financial conglomerate adequate risk
management processes and internal
control mechanisms,
including sound administrative and accounting procedures.

2.

The risk management processes shall include:

(a) sound governance and management with the approval and
the strategies and policies by the
periodical review of
appropriate governing bodies at the level of the financial
conglomerate with respect to all the risks they assume;

(b) adequate capital adequacy policies in order to anticipate the
impact of their business strategy on risk profile and capital
requirements as determined in accordance with Article 6
and Annex I;

(c) adequate procedures to ensure that their risk monitoring
systems are well integrated into their organisation and that
all measures are taken to ensure that the systems imple-
mented in all the undertakings included in the scope of
supplementary supervision are consistent so that the risks
can be measured, monitored and controlled at the level of
the financial conglomerate.

3.

The internal control mechanisms shall include:

(a) adequate mechanisms as

regards capital adequacy to
identify and measure all material risks incurred and to
appropriately relate own funds to risks;

(b) sound reporting and accounting procedures to identify,
measure, monitor and control the intra-group transactions
and the risk concentration.

4.
The Member States shall ensure that, in all undertakings
included in the scope of supplementary supervision pursuant to
Article 5, there are adequate internal control mechanisms for

The processes and mechanisms referred to in paragraphs
5.
1 to 4 shall be subject to supervisory overview by the coor-
dinator.

SECTION 3

MEASURES TO FACILITATE SUPPLEMENTARY SUPERVISION

Article 10

Competent authority responsible for exercising
supplementary supervision (the coordinator)

responsible

1.
In order to ensure proper supplementary supervision of
the regulated entities in a financial conglomerate, a single coor-
dinator,
of
supplementary supervision, shall be appointed from among
the competent authorities of the Member States concerned,
including those of
the Member State in which the mixed
financial holding company has its head office.

coordination

exercise

and

for

2.

The appointment shall be based on the following criteria:

(a) where a financial conglomerate is headed by a regulated
entity, the task of coordinator shall be exercised by the
competent authority which has authorised that regulated
entity pursuant to the relevant sectoral rules;

(b) where a financial conglomerate is not headed by a
regulated entity, the task of coordinator shall be exercised
by the competent authority identified in accordance with
the following principles:

(i) where the parent of a regulated entity is a mixed
financial holding company,
the task of coordinator
shall be exercised by the competent authority which
has authorised that regulated entity pursuant to the
relevant sectoral rules;

(ii) where more than one regulated entity with a head
office in the Community have as their parent
the
same mixed financial holding company, and one of
these entities has been authorised in the Member
State in which the mixed financial holding company
has its head office, the task of coordinator shall be
exercised by the competent authority of the regulated
entity authorised in that Member State;

where more than one regulated entity, being active in
different financial sectors, have been authorised in the
Member State in which the mixed financial holding
company has its head office, the task of coordinator
shall be exercised by the competent authority of the
regulated entity active in the most important financial
sector;

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where the financial conglomerate is headed by more
than one mixed financial holding company with a head
office in different Member States and there is a
regulated entity in each of these States, the task of
shall be exercised by the competent
coordinator
the regulated entity with the largest
authority of
balance sheet total
if these entities are in the same
financial sector, or by the competent authority of the
regulated entity in the most important financial sector;

(iii) where more than one regulated entity with a head
office in the Community have as their parent
the
same mixed financial holding company and none of
these entities has been authorised in the Member State
in which the mixed financial holding company has its
head office, the task of coordinator shall be exercised
by the competent authority which authorised the
regulated entity with the largest balance sheet total in
the most important financial sector;

(iv) where the financial conglomerate is a group without a
parent undertaking at the top, or in any other case, the
task of coordinator shall be exercised by the competent
authority which authorised the regulated entity with
the largest balance sheet total in the most important
financial sector.

In particular cases,

3.
the relevant competent authorities
may by common agreement waive the criteria referred to in
paragraph 2 if their application would be inappropriate, taking
into account the structure of the conglomerate and the relative
importance of its activities in different countries, and appoint a
different competent authority as coordinator. In these cases,
before taking their decision, the competent authorities shall
give the conglomerate an opportunity to state its opinion on
that decision.

Article 11

Tasks of the coordinator

The tasks to be carried out by the coordinator with

1.
regard to supplementary supervision shall include:

(a) coordination of the gathering and dissemination of relevant
or essential information in going concern and emergency
situations,
information
including the dissemination of
which is of importance for a competent authority's super-
visory task under sectoral rules;

(b) supervisory overview and assessment of

the financial

situation of a financial conglomerate;

(c) assessment of compliance with the

rules on capital
adequacy and of risk concentration and intra-group trans-
actions as set out in Articles 6, 7 and 8;

(d) assessment of

financial
organisation and internal control system as set out
Article 9;

conglomerate's

structure,
in

the

(e) planning and coordination of supervisory activities in going
concern as well as in emergency situations, in cooperation
with the relevant competent authorities involved;

(f) other tasks, measures and decisions assigned to the coor-
dinator by this Directive or deriving from the application of
this Directive.

In order to facilitate and establish supplementary supervision
on a broad legal basis, the coordinator and the other relevant
competent authorities, and where necessary other competent
authorities concerned, shall have coordination arrangements in
place. The coordination arrangements may entrust additional
tasks to the coordinator and may specify the procedures for the
decision-making process among the relevant competent auth-
orities as referred to in Articles 3, 4, 5(4), 6, 12(2), 16 and 18,
and for cooperation with other competent authorities.

2.
The coordinator should, when it needs information which
has already been given to another competent authority in
this authority
accordance with the sectoral
rules, contact
whenever possible
to prevent duplication of
in order
reporting to the various authorities involved in supervision.

3. Without prejudice to the possibility of delegating specific
supervisory competences and responsibilities as provided for by
Community legislation, the presence of a coordinator entrusted
with specific tasks concerning the supplementary supervision
of regulated entities in a financial conglomerate shall not affect
the tasks and responsibilities of the competent authorities as
provided for by the sectoral rules.

Article 12

Cooperation and exchange of

information between

competent authorities

The competent authorities responsible for the supervision
1.
of
regulated entities in a financial conglomerate and the
competent authority appointed as the coordinator for that
financial conglomerate shall cooperate closely with each
other. Without prejudice to their respective responsibilities as
defined under sectoral rules, these authorities, whether or not
established in the same Member State, shall provide one
another with any information which is essential or relevant
for the exercise of
the other authorities' supervisory tasks
under the sectoral rules and this Directive. In this regard, the
competent authorities and the coordinator shall communicate
on request all relevant information and shall communicate on
their own initiative all essential information.

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This cooperation shall at least provide for the gathering and
the exchange of
information with regard to the following
items:

(a)

identification of the group structure of all major entities
belonging to the financial conglomerate, as well as of the
competent authorities of the regulated entities in the group;

The coordinator may invite the competent authorities of
3.
the Member State in which a parent undertaking has its head
office, and which do not themselves exercise the supplementary
supervision pursuant to Article 10, to ask the parent under-
taking for any information which would be relevant for the
exercise of its coordination tasks as laid down in Article 11,
and to transmit that information to the coordinator.

(b) the financial conglomerate's strategic policies;

(c)

the financial situation of the financial conglomerate,
particular on capital adequacy,
risk concentration and profitability;

in
intra-group transactions,

(d) the

financial
management;

conglomerate's major

shareholders

and

(e)

the organisation, risk management and internal control
systems at financial conglomerate level;

(f) procedures for the collection of

information from the
entities in a financial conglomerate, and the verification
of that information;

(g) adverse developments in regulated entities or in other
conglomerate which could

entities of
seriously affect the regulated entities;

financial

the

(h) major

sanctions

taken by
competent authorities in accordance with sectoral rules or
this Directive.

and exceptional measures

Where the information referred to in Article 14(2) has already
been given to a competent authority in accordance with
sectoral rules, the competent authorities responsible for exer-
cising supplementary supervision may apply to the first-
mentioned authority to obtain the information.

shall authorise the exchange of

4. Member States
the
information between their competent authorities and between
their competent authorities and other authorities, as referred to
in paragraphs 1, 2 and 3. The collection or possession of
information with regard to an entity within a financial
conglomerate which is not a regulated entity shall not in any
way imply that the competent authorities are required to play a
supervisory role in relation to these entities on a stand-alone
basis.

supplementary
Information received in the framework of
supervision, and in particular any exchange of
information
between competent authorities and between competent auth-
orities and other authorities which is provided for in this
Directive, shall be subject to the provisions on professional
secrecy and communication of confidential
information laid
down in the sectoral rules.

The competent authorities may also exchange with the
following authorities such information as may be needed for
the performance of their respective tasks, regarding regulated
entities in a financial conglomerate, in line with the provisions
laid down in the sectoral rules: central banks, the European
System of Central Banks and the European Central Bank.

Article 13

Management body of mixed financial holding companies

Member States shall require that persons who effectively direct
the business of a mixed financial holding company are of
sufficiently good repute and have sufficient experience to
perform those duties.

sectoral

2. Without prejudice to their respective responsibilities as
authorities
defined under
concerned shall, prior to their decision, consult each other
with regard to the following items, where these decisions are
of
importance for other competent authorities' supervisory
tasks:

competent

rules,

the

(a) changes in the shareholder, organisational or management
structure of regulated entities in a financial conglomerate,
which require the approval or authorisation of competent
authorities;

(b) major

sanctions or
competent authorities.

exceptional measures

taken by

A competent authority may decide not to consult in cases of
urgency or where such consultation may jeopardise the effec-
tiveness of the decisions. In this case, the competent authority
inform the other competent authorities.
shall, without delay,

Article 14

Access to information

there are no legal
1. Member States shall ensure that
impediments within their jurisdiction preventing the natural
and legal persons included within the scope of supplementary
supervision, whether or not
from
exchanging
information which
would be relevant for the purposes of supplementary super-
vision.

regulated entity,
any

themselves

amongst

a

2. Member States shall provide that, when approaching the
entities in a financial conglomerate, whether or not a regulated
entity, either directly or indirectly, their competent authorities
responsible for exercising supplementary supervision shall have
access to any information which would be relevant for the
purposes of supplementary supervision.

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Article 15

Verification

sectoral
of
conglomerate.

rules by

regulated entities

in a

financial

Where, in applying this Directive, competent authorities wish
in specific cases to verify the information concerning an entity,
whether or not
regulated, which is part of a financial
conglomerate and is situated in another Member State, they
shall ask the competent authorities of
that other Member
State to have the verification carried out.

The authorities which receive such a request shall, within the
framework of their competences, act upon it either by carrying
the verification themselves, by allowing an auditor or
out
expert to carry it out, or by allowing the authority which
made the request to carry it out itself.

The competent authority which made the request may, if it so
wishes, participate in the verification when it does not carry
out the verification itself.

Article 16

Enforcement measures

If the regulated entities in a financial conglomerate do not
comply with the requirements referred to in Articles 6 to 9
or where the requirements are met but solvency may never-
theless be jeopardised or where the intra-group transactions or
the risk concentrations are a threat to the regulated entities'
financial position, the necessary measures shall be required in
order to rectify the situation as soon as possible:

— by the coordinator with respect

to the mixed financial

holding company,

— by the competent authorities with respect to the regulated
inform those

entities; to that end, the coordinator shall
competent authorities of its findings.

Without prejudice to Article 17(2), Member States may
determine what measures may be taken by their competent
authorities with respect to mixed financial holding companies.

The competent authorities involved, including the coordinator,
shall where appropriate coordinate their supervisory actions.

Article 17

Additional powers of the competent authorities

1.
Pending further harmonisation between sectoral rules, the
Member States shall provide that their competent authorities
shall have the power to take any supervisory measure deemed
necessary in order to avoid or to deal with the circumvention

law provisions,
2. Without prejudice to their criminal
Member States shall ensure that penalties or measures aimed
at ending observed breaches or the causes of such breaches
may be imposed on mixed financial holding companies, or
their effective managers, which 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 cooperate closely to
ensure that such penalties or measures produce the desired
results.

SECTION 4

THIRD COUNTRIES

Article 18

Parent undertakings outside the Community

to that provided for by the provisions of

1. Without prejudice to the sectoral rules,
in the case
referred to in Article 5(3), competent authorities shall verify
whether the regulated entities, the parent undertaking of which
has its head office outside the Community, are subject
to
supervision by a third-country competent authority, which is
this
equivalent
Directive on the supplementary supervision of
regulated
entities referred to in Article 5(2). The verification shall be
carried out by the competent authority which would be the
coordinator if the criteria set out in Article 10(2) were to
apply, on the request of the parent undertaking or of any of
the regulated entities authorised in the Community or on its
own initiative. That competent authority shall consult the other
relevant competent authorities, and shall take into account any
applicable guidance prepared by the Financial Conglomerates
Committee in accordance with Article 21(5). For this purpose
the competent authority shall consult the Committee before
taking a decision.

2.
In the absence of equivalent supervision referred to in
paragraph 1, Member States shall apply to the regulated
the
entities,
supplementary supervision of regulated entities referred to in
Article 5(2). As an alternative, competent authorities may apply
one of the methods set out in paragraph 3.

concerning

provisions

analogy,

the

by

a

in

of

the

entities

regulated

3. Member States shall allow their competent authorities to
apply other methods which ensure appropriate supplementary
supervision
financial
conglomerate. These methods must be agreed by the coor-
dinator, after consultation with the other relevant competent
authorities. The competent authorities may in particular require
the establishment of a mixed financial holding company which
has its head office in the Community, and apply this Directive
to the regulated entities in the financial conglomerate headed
by that holding company. The methods must achieve the
objectives of the supplementary supervision as defined in this
Directive and must be notified to the other competent auth-
orities involved and the Commission.

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Article 19

Cooperation with third-country competent authorities

1.
Article 25(1) and (2) of Directive 2000/12/EC and Article
10a of Directive 98/78/EC shall apply mutatis mutandis to the
negotiation of agreements with one or more third countries
regarding the means of exercising supplementary supervision
of regulated entities in a financial conglomerate.

2. Where reference is made to this paragraph, Articles 5 and
7 of Decision 1999/468/EC shall apply, having regard to the
provisions of Article 8 thereof.

The period laid down in Article 5(6) of Decision 1999/468/EC
shall be set at three months.

3.

The Committee shall adopt its rules of procedure.

The Commission, the Banking Advisory Committee, the
Financial Conglomerates
the negotiations

2.
Insurance Committee
Committee shall examine the outcome of
referred to in paragraph 1 and the resulting situation.

and

the

CHAPTER III

POWERS CONFERRED ON THE COMMISSION AND
COMMITTEE PROCEDURE

Article 20

Powers conferred on the Commission

The Commission shall adopt,

1.
in accordance with the
procedure referred to in Article 21(2), the technical adaptations
to be made to this Directive in the following areas:

(a) a more precise formulation of the definitions referred to in
Article 2 in order to take account of developments in
financial markets in the application of this Directive;

(b) a more precise formulation of the definitions referred to in
Article 2 in order to ensure uniform application of this
Directive in the Community;

(c) the alignment of

terminology and the framing of defi-
nitions in the Directive in accordance with subsequent
Community acts on regulated entities and related matters;

(d) a more precise definition of the calculation methods set out
in Annex I in order to take account of developments on
financial markets and prudential techniques;

(e) coordination of the provisions adopted pursuant to Articles
7 and 8 and Annex II with a view to encouraging uniform
application within the Community.

2.
The Commission shall inform the public of any proposal
presented in accordance with this Article and will consult
interested parties prior to submitting the draft measures to
the Financial Conglomerates Committee referred to in Article
21.

Article 21

Committee

1.
The Commission shall be
Conglomerates Committee, hereinafter
‘Committee’.

assisted by a

referred to as

Financial
the

this Directive,

the application of

4. Without prejudice to the implementing measures already
adopted, on the expiry of a four-year period following the
entry into force of
the
provisions thereof requiring the adoption of technical rules
and decisions in accordance with the procedure referred to
in paragraph 2 shall be suspended. On a proposal from the
Commission, the European Parliament and the Council may
renew the provisions concerned in accordance with the
procedure laid down in Article 251 of the Treaty and, to
that end, they shall review them prior to the expiry of the
period referred to above.

5.
The Committee may give general guidance as to whether
the supplementary supervision arrangements of competent
authorities in third countries are likely to achieve the objectives
of the supplementary supervision as defined in this Directive,
in relation to the regulated entities in a financial conglomerate,
the head of which has its head office outside the Community.
The Committee shall keep any such guidance under review and
take into account any changes to the supplementary super-
vision carried out by such competent authorities.

The Committee shall be kept informed by Member States
6.
of the principles they apply concerning the supervision of
intra-group transactions and risk concentration.

CHAPTER IV

AMENDMENTS TO EXISTING DIRECTIVES

Article 22

Amendments to Directive 73/239/EEC

Directive 73/239/EEC is amended as follows:

1. the following Article shall be inserted:

‘Article 12a

1.
The competent authorities of the other Member State
involved shall be consulted prior to the granting of an
authorisation to an insurance undertaking which is:

(a) a subsidiary of an insurance undertaking authorised in

another Member State; or

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(b) a subsidiary of the parent undertaking of an insurance
undertaking authorised in another Member State; or

(c) controlled by the same person, whether natural or legal,
who controls an insurance undertaking authorised in
another Member State.

The competent authority of a Member State involved
2.
responsible for the supervision of credit
institutions or
investment firms shall be consulted prior to the granting
of an authorisation to an insurance undertaking which is:

(a) a subsidiary of a credit institution or investment firm

authorised in the Community; or

(b) a subsidiary of the parent undertaking of a credit insti-
tution or investment firm authorised in the Community;
or

(c) controlled by the same person, whether natural or legal,
institution or investment firm

who controls a credit
authorised in the Community.

The relevant competent authorities

referred to in
3.
paragraphs 1 and 2 shall in particular consult each other
when assessing the suitability of the shareholders and the
reputation and experience of directors involved in the
management of another entity of the same group. They
shall inform each other of any information regarding the
suitability of shareholders and the reputation and experience
of directors which is of relevance to the other competent
authorities involved for the granting of an authorisation as
well as for the ongoing assessment of compliance with
operating conditions.’;

2. the following subparagraphs shall be added to Article 16(2):

‘The available solvency margin shall also be reduced by the
following items:

(a) participations which the insurance undertaking holds in:

— insurance undertakings within the meaning of
this Directive, Article 6 of First
Article 6 of
Directive 79/267/EEC of 5 March 1979 on the coor-
dination of
regulations and administrative
provisions relating to the taking up and pursuit of
the business of direct life assurance (*), or Article
1(b) of Directive 98/78/EC of
the European
Parliament and of the Council (**),

laws,

— reinsurance undertakings within the meaning of

Article 1(c) of Directive 98/78/EC,

— insurance holding companies within the meaning of

Article 1(i) of Directive 98/78/EC,

— credit institutions and financial

institutions within
the meaning of Article 1(1) and (5) of Directive
2000/12/EC of the European Parliament and of the
Council (***),

— investment firms and financial institutions within the
meaning of Article 1(2) of Directive 93/22/EEC (****)
and
of Directive
of Article
93/6/EEC (*****).

2(4)

and

(7)

(b) each of the following items which the insurance under-
taking holds in respect of the entities defined in (a) in
which it holds a participation:

— instruments referred to in paragraph 3,

— instruments referred to in Article 18(3) of Directive

79/267/EEC,

— subordinated claims and instruments referred to in
of Directive

and Article

36(3)

Article
35
2000/12/EC.

institution,

Where shares in another credit institution, investment firm,
financial
insurance or reinsurance undertaking
or insurance holding company are held temporarily for
the purposes of a financial assistance operation designed
to reorganise
competent
authority may waive the provisions on deduction referred
to under (a) and (b) of the fourth subparagraph.

and save

entity,

that

the

As an alternative to the deduction of the items referred to in
(a) and (b) of the fourth subparagraph which the insurance
undertaking holds in credit institutions,
investment firms
institutions, Member States may allow their
and financial
insurance undertakings to apply mutatis mutandis methods
1, 2, or 3 of Annex I to Directive 2002/. . ./EC of the
European Parliament and of
. . . on the
supplementary supervision of credit institutions, insurance
undertakings
financial
conglomerate (******). Method 1 (Accounting consolidation)
shall only be applied if the competent authority is confident
about
integrated management and internal
control regarding the entities which would be included in
the scope of consolidation. The method chosen shall be
applied in a consistent manner over time.

the Council of

the level of

investment

firms

and

in

a

subject

Member States may provide that, for the calculation of the
solvency margin as provided for by this Directive, insurance
undertakings
to supplementary supervision in
accordance with Directive 98/78/EC or to supplementary
supervision in accordance with Directive 2002/. . ./EC,
need not deduct the items referred to in (a) and (b) of the
fourth subparagraph which are held in credit institutions,
institutions,
investment firms, financial
insurance or rein-
surance undertakings or
insurance holding companies
which are included in the supplementary supervision.

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For the purposes of the deduction of participations referred
to in this paragraph, participation shall mean a participation
within the meaning of Article 1(f) of Directive 98/78/EC.

___________

(*) OJ L 63, 13.3.1979, p. 1. Directive as last amended
by European Parliament and Council Directive
2002/12/EC (OJ L 77, 20.3.2002, p. 11).

(**) OJ L 330, 5.12.1998, p. 1.
(***) OJ L 126, 26.5.2000, p. 1. Directive as amended by
Directive 2000/28/EEC (OJ L 275, 27.10.2000,
p. 37).

(****) OJ L 141, 11.6.1993, p. 27. Directive as last
amended by European Parliament and Council
Directive 2000/64/EC (OJ L 290, 17.11.2000,
p. 27).

(*****) OJ L 141, 11.6.1993, p. 1. Directive as

last
amended by European Parliament and Council
Directive 98/33/EC (OJ L 204, 21.7.1998, p. 29).

(******) OJ L . . .’.

(c) controlled by the same person, whether natural or legal,
firm

institution or investment

who controls a credit
authorised in the Community.

The relevant competent authorities

referred to in
3.
paragraphs 1 and 2 shall in particular consult each other
when assessing the suitability of the shareholders and the
reputation and experience of directors involved in the
management of another entity of the same group. They
shall inform each other of any information regarding the
suitability of shareholders and the reputation and experience
of directors which is of relevance to the other competent
authorities involved for the granting of an authorisation as
well as for the ongoing assessment of compliance with
operating conditions.’;

2. the following subparagraphs shall be added to Article 18(2):

‘The available solvency margin shall also be reduced by the
following items:

Article 23

(a) participations which the assurance undertaking holds in:

Amendments to Directive 79/267/EEC

Directive 79/267/EC is amended as follows:

1. the following Article shall be inserted:

‘Article 12a

1.
The competent authorities of the other Member State
involved shall be consulted prior to the granting of an
authorisation to a life assurance undertaking which is:

(a) a subsidiary of an insurance undertaking authorised in

another Member State; or

(b) a subsidiary of the parent undertaking of an insurance
undertaking authorised in another Member State; or

(c) controlled by the same person, whether natural or legal,
who controls an insurance undertaking authorised in
another Member State.

The competent authority of a Member State involved
2.
responsible for the supervision of credit
institutions or
investment firms shall be consulted prior to the granting
of an authorisation to a life assurance undertaking which is:

— insurance undertakings within the meaning of
Article 6 of this Directive, Article 6 of Directive
73/239/EEC (*),
of Directive
98/78/EC of the European Parliament and of the
Council (**),

or Article

1(b)

— reinsurance undertakings within the meaning of

Article 1(c) of Directive 98/78/EC,

— insurance holding companies within the meaning of

Article 1(i) of Directive 98/78/EC,

— credit institutions and financial

institutions within
the meaning of Article 1(1) and (5) of Directive
2000/12/EC of the European Parliament and of the
Council (***),

— investment firms and financial institutions within the
meaning of Article 1(2) of Directive 93/22/EEC (****)
and of Articles 2(4)
and 2(7) of Directive
93/6/EEC (*****);

(b) each of the following items which the assurance under-
taking holds in respect of the entities defined in (a) in
which it holds a participation:

— instruments referred to in paragraph 3,

(a) a subsidiary of a credit institution or investment firm

authorised in the Community; or

— instruments referred to in Article 16(3) of Directive

73/239/EEC,

(b) a subsidiary of the parent undertaking of a credit insti-
tution or investment firm authorised in the Community;
or

— subordinated claims and instruments referred to in
of Directive

and Article

36(3)

Article
35
2000/12/EC.

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institution,

Where shares in another credit institution, investment firm,
financial
insurance or reinsurance undertaking
or insurance holding company are held temporarily for
the purposes of a financial assistance operation designed
competent
to reorganise
authority may waive the provisions on deduction referred
to under (a) and (b) of the third subparagraph.

and save

entity,

that

the

As an alternative to the deduction of the items referred to in
(a) and (b) of the third subparagraph which the insurance
undertaking holds in credit institutions,
investment firms
institutions, Member States may allow their
and financial
insurance undertakings to apply mutatis mutandis methods
1, 2, or 3 of Annex I to Directive 2002/. . ./EC of the
European Parliament and of
. . . on the
supplementary supervision of credit institutions, insurance
financial
undertakings
conglomerate (******). Method 1 (Accounting consolidation)
shall only be applied if the competent authority is confident
about
integrated management and internal
control regarding the entities which would be included in
the scope of consolidation. The method chosen shall be
applied in a consistent manner over time.

the Council of

the level of

investment

firms

and

in

a

subject

Member States may provide that, for the calculation of the
solvency margin as provided for by this Directive, insurance
undertakings
to supplementary supervision in
accordance with Directive 98/78/EC or to supplementary
supervision in accordance with Directive 2002/. . ./EC,
need not deduct the items referred to in (a) and (b) of the
third subparagraph which are held in credit institutions,
institutions,
investment firms, financial
insurance or rein-
insurance holding companies
surance undertakings or
which are included in the supplementary supervision.

For the purposes of the deduction of participations referred
to in this paragraph, participation shall mean a participation
within the meaning of Article 1(f) of Directive 98/78/EC.

___________

(*) OJ L 228, 16.8.1973, p. 3. Directive as

last
amended by European Parliament and Council
Directive 2002/13/EC (OJ L 77, 20.3.2002, p. 17).

(**) OJ L 330, 5.12.1998, p. 1.
(***) OJ L 126, 26.5.2000, p. 1. Directive as

last
amended by Directive 2000/28/EC (OJ L 275,
27.10.2000, p. 37).

(****) OJ L 141, 11.6.1993, p. 27. Directive as last
amended by European Parliament and Council
Directive 2000/64/EC (OJ L 290, 17.11.2000,
p. 27).

(*****) OJ L 141, 11.6.1993, p. 1. Directive as

last
amended by European Parliament and Council
Directive 98/33/EC (OJ L 204, 21.7.1998, p. 29).

(******) OJ L . . .’..

Article 24

Amendments to Directive 92/49/EEC

Directive 92/49/EEC is amended as follows:

1. the following paragraph shall be inserted in Article 15:

If

the holdings

the acquirer of

‘1a.
referred to in
paragraph 1 is an insurance undertaking, a credit institution
or an investment firm authorised in another Member State,
or the parent undertaking of such an entity, or a natural or
legal person controlling such an entity, and if, as a result of
that acquisition,
the undertaking in which the acquirer
proposes to hold a holding would become a subsidiary or
subject to the control of the acquirer, the assessment of the
to the prior consultation
acquisition must be subject
referred to in Article 12a of Directive 73/239/EEC.’;

2. Article 16(5c) shall be replaced by the following:

This Article shall not prevent a competent authority

‘5c.
from transmitting:

— to central banks and other bodies with a similar function

in their capacity as monetary authorities,

— where

appropriate,

to

other

public

authorities

responsible for overseeing payment systems,

information intended for the performance of their task, nor
shall it prevent such authorities or bodies from communi-
cating to the competent authorities such information as
they may need for the purposes of paragraph 4. Information
received in this context shall be subject to the conditions of
professional secrecy imposed in this Article.’

Article 25

Amendments to Directive 92/96/EEC

Directive 92/96/EEC is amended as follows:

1. the following paragraph shall be inserted in Article 14:

If

the holdings

the acquirer of

referred to in
‘1a.
paragraph 1 is an insurance undertaking, a credit institution
or an investment firm authorised in another Member State,
or the parent undertaking of such an entity, or a natural or
legal person controlling such an entity, and if, as a result of
that acquisition,
the undertaking in which the acquirer
proposes to hold a holding would become a subsidiary or
subject to the control of the acquirer, the assessment of the
acquisition must be subject
to the prior consultation
referred to in Article 12a of Directive 79/267/EEC.’;

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2. Article 15(5c) shall be replaced by the following:

This Article shall not prevent a competent authority

‘5c.
from transmitting:

(b) a subsidiary of the parent undertaking of a credit insti-
insurance undertaking authorised in the

tution or
Community; or

— to central banks and other bodies with a similar function

in their capacity as monetary authorities,

(c) controlled by the same person, whether natural or legal,
who controls a credit institution or insurance under-
taking authorised in the Community.

— where

appropriate,

to

other

public

authorities

responsible for overseeing payment systems,

information intended for the performance of their task, nor
shall it prevent such authorities or bodies from communi-
cating to the competent authorities such information as
they may need for the purposes of paragraph 4. Information
received in this context shall be subject to the conditions of
professional secrecy imposed in this Article.’

Article 26

Amendments to Directive 93/6/EEC

In Article 7(3) of Directive 93/6/EEC the first and the second
indents shall be replaced by the following:

The relevant competent authorities referred to in the first
and second paragraphs shall in particular consult each other
when assessing the suitability of the shareholders and the
reputation and experience of directors involved in the
management of another entity of the same group. They
shall inform each other of any information regarding the
suitability of shareholders and the reputation and experience
of directors which is of relevance to the other competent
authorities involved for the granting of an authorisation as
well as for the ongoing assessment of compliance with
operating conditions.’;

2. Article 9(2) shall be replaced by the following:

‘— “financial holding company” shall mean a financial insti-
tution, the subsidiary undertakings of which are either
exclusively or mainly investment firms or other financial
institutions, at least one of which is an investment firm,
and which is not a mixed financial holding company
the
within the meaning of Directive 2002/. . ./EC of
European Parliament and of the Council of . . . on the
institutions,
supplementary
insurance undertakings
in a
financial conglomerate (*),

credit
and investment

supervision

firms

of

— “mixed-activity holding company” shall mean a parent
undertaking, other than a financial holding company or
an investment
a mixed financial holding
company within the meaning of Directive 2002/. . ./EC,
the subsidiaries of which include at least one investment
firm,

firm or

___________
(*) OJ L . . .’.

Article 27

Amendments to Directive 93/22/EEC

Directive 93/22/EEC is amended as follows:

1.

in Article 6 the following paragraphs shall be added:

‘The competent authority of a Member State involved
responsible for the supervision of credit
institutions or
to the
insurance undertakings shall be consulted prior
granting of an authorisation to an investment firm which is:

(a) a subsidiary of a credit institution or insurance under-

taking authorised in the Community; or

‘2.
If the acquirer of the holding referred to in paragraph
1 is an investment firm, a credit institution or an insurance
undertaking authorised in another Member State, or the
parent undertaking of an investment firm, credit institution
or insurance undertaking authorised in another Member
State, or a natural or legal person controlling an investment
firm, credit institution or insurance undertaking authorised
that
in another Member State, and if, as a result of
acquisition,
acquirer
proposes to acquire a holding would become the acquirer's
subsidiary or come under his control, the assessment of the
acquisition must be subject
to the prior consultation
provided for in Article 6.’

the undertaking

in which the

Article 28

Amendments to Directive 98/78/EC

Directive 98/78/EC is amended as follows:

1.

in Article 1 points (g), (h), (i) and (j) shall be replaced by the
following:

‘(g) “participating undertaking” shall mean an undertaking
which is either a parent undertaking or other under-
taking which holds a participation, or an undertaking
linked with another undertaking by a relationship
within the meaning of Article 12(1) of Directive
83/349/EEC;

(h)

“related undertaking” shall mean either a subsidiary or
other undertaking in which a participation is held, or
an undertaking linked with another undertaking by a
relationship within the meaning of Article 12(1) of
Directive 83/349/EEC;

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(i)

(j)

shall mean a parent
“insurance holding company”
undertaking, the main business of which is to acquire
and hold participations
in subsidiary undertakings,
where those subsidiary undertakings are exclusively or
reinsurance under-
mainly insurance undertakings,
takings, or non-member-country insurance under-
takings, at least one of such subsidiary undertakings
being an insurance undertaking, and which is not a
mixed financial holding company within the meaning
of Directive 2002/. . ./EC of the European Parliament
and of the Council of . . . on the supplementary super-
vision of credit institutions, insurance undertakings and
investment firms in a financial conglomerate (*);

“mixed-activity insurance holding company” shall mean
a parent undertaking, other than an insurance under-
taking, a non-member-country insurance undertaking, a
reinsurance
holding
company or a mixed financial holding company
within the meaning of Directive 2002/. . ./EC (*),
which includes at
least one insurance undertaking
among its subsidiary undertakings.

undertaking,

insurance

an

___________
(*) OJ L . . .’.

2.

in Article 6(3) the following sentence shall be added:

‘The competent authority which made the request may, if it
so wishes, participate in the verification when it does not
carry out the verification itself.’;

Article 2 which have their head office situated in a
third country; and

(b) non-member-country
as

insurance undertakings which
undertakings
have,
within the meaning of Article 2 which have their
head office in the Community.

undertakings,

participating

The agreements referred to in paragraph 1 shall

2.
particular seek to ensure both:

in

(a) that the competent authorities of the Member States are
the
able to obtain the information necessary for
supplementary supervision of
insurance undertakings
which have their head office in the Community and
which have subsidiaries or hold participations in under-
takings outside the Community; and

(b) that the competent authorities of third countries are
able to obtain the information necessary for
the
insurance undertakings
supplementary supervision of
which have their head office in their territories and
which have subsidiaries or hold participations in under-
takings in one or more Member States.

3.
The Commission and the Insurance Committee shall
examine the outcome of the negotiations referred to in
paragraph 1 and the resulting situation.

Article 10b

3.

in Article 8(2) the first subparagraph shall be replaced by
the following:

Management body of insurance holding companies

‘Member States shall require insurance undertakings to have
in place adequate risk management processes and internal
sound
control mechanisms,
and
including
reporting
to identify, measure,
accounting procedures,
in
monitor and control
paragraph 1 appropriately. Member States
also
require at least annual reporting by insurance undertakings
transactions.
to the competent authorities of significant
to
These processes and mechanisms
overview by the competent authorities.’;

transactions as provided for

shall be subject

in order

shall

4. the following Articles shall be inserted:

‘Article 10a

Cooperation with third countries' competent authorities

The Commission may submit proposals

1.
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 regarding the means of exercising
supplementary supervision over:

(a)

insurance undertakings which have, as participating
undertakings, undertakings within the meaning of

shall

that persons who
The Member States
effectively direct
the business of an insurance holding
company are of sufficiently good repute and have sufficient
experience to perform these duties.’;

require

5.

in Annex I.1.B. the following paragraph shall be added:

‘Where there are no capital ties between some of the under-
takings in an insurance group, the competent authority shall
determine which proportional share will have to be taken
account of.’;

6.

in Annex I.2. the following point shall be added:

‘2.4a. Related credit

institutions,

investment

firms and

financial institutions

investment firm or financial

When calculating the adjusted solvency of an insurance
undertaking which is a participating undertaking in a
credit institution,
institution,
the rules laid down in Article 16(1) of Directive 73/239/EEC
and in Article 18 of Directive 79/267/EEC on the deduction
of such participations shall apply mutatis mutandis, as well as
the provisions on the ability of Member States under certain
conditions to allow alternative methods and to allow such
participations not to be deducted.’

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Article 29

Amendments to Directive 2000/12/EC

Directive 2000/12/EC is amended as follows:

1. Article 1 shall be amended as follows:

(a) Point 9 shall be replaced by the following:

‘(9)

“participation for the purposes of supervision on a
consolidated basis and for the purposes of points
15 and 16 of Article 34(2)” shall mean partici-
pation within the meaning of the first sentence of
Article 17 of Directive 78/660/EEC, or
the
ownership, direct or indirect, of 20 % or more
of the voting rights or capital of an undertaking;’

(b) Points 21 and 22 shall be replaced by the following:

‘(21)

(22)

“financial holding company”
shall mean a
financial institution, the subsidiary undertakings
of which are either exclusively or mainly credit
institutions or financial institutions, at least one
institution,
of such subsidiaries being a credit
and which is not a mixed financial holding
company within the meaning of Directive
2002/. . ./EC of the European Parliament and of
the Council of . . . on the supplementary super-
insurance under-
institutions,
vision of credit
takings and investment
in a financial
conglomerate (*)

firms

than a

“mixed-activity holding company” shall mean a
parent undertaking, other
financial
holding company or a credit
institution or a
mixed financial holding company within the
the
meaning
subsidiaries of which include at least one credit
institution;

2002/. . ./EC,

Directive

of

___________
(*) OJ L . . .’.

2. In Article 12 the following paragraphs shall be added:

‘The competent authority of a Member State involved
responsible for the supervision of insurance undertakings
or
to the
granting of an authorisation to a credit institution which
is:

shall be consulted prior

investment

firms

(a) a subsidiary of an insurance undertaking or investment

firm authorised in the Community; or

(b) a subsidiary of the parent undertaking of an insurance
firm authorised in the

investment

undertaking or
Community; or

(c) controlled by the same person, whether natural or
legal, who controls an insurance undertaking or
investment firm authorised in the Community.

The relevant competent authorities referred to in the first
and second paragraphs shall
in particular consult each
other when assessing the suitability of the shareholders
and the reputation and experience of directors involved
in the management of another entity of the same group.
They shall inform each other of any information regarding
the suitability of shareholders and the reputation and
experience of directors which is of
relevance to the
other competent authorities involved for the granting of
an authorisation as well as for the ongoing assessment of
compliance with operating conditions.’;

3. Article 16(2) shall be replaced by the following:

If

the holdings

the acquirer of

‘2.
referred to in
paragraph 1 is a credit institution, insurance undertaking
or investment firm authorised in another Member State or
the parent undertaking of a credit institution,
insurance
undertaking or investment
firm authorised in another
Member State or a natural or legal person controlling a
credit
investment
firm authorised in another Member State, and if, as a
result of
the institution in which the
acquirer proposes to hold a holding would become a
subsidiary or subject to the control of the acquirer, the
assessment of the acquisition must be subject to the prior
consultation referred to in Article 12.’;

insurance undertaking or

that acquisition,

institution,

4. Article 34(2) shall be amended as follows:

(a)

in the first subparagraph points 12 and 13 shall be
replaced by the following:

‘(12) holdings in other credit and financial institutions
amounting to more than 10 % of their capital;

(13) subordinated claims and instruments referred to
in Article 35 and Article 36(3) which a credit
institution holds in respect of credit and financial
institutions in which it has holdings exceeding
10 % of the capital in each case;

(14) holdings in other credit and financial institutions
of up to 10 % of their capital, the subordinated
claims and the instruments referred to in Article
35 and Article 36(3) which a credit institution
holds in respect of credit and financial
insti-
tutions other than those referred to in points
12 and 13 of this subparagraph in respect of
the amount of the total of such holdings, subor-
dinated claims and instruments which exceed
institution's own funds
10 % of
calculated before the deduction of
in
points 12 to 16 of this subparagraph;

that credit

items

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(15) participations within the meaning of Article 1(9)

which a credit institution holds in:

— insurance undertakings within the meaning
of Article 6 of Directive 73/239/EEC,
Article 6 of Directive 79/267/EEC or Article
1(b) of Directive 98/78/EC of the European
Parliament and of the Council (*),

to supervision on a consolidated basis in
subject
accordance with Chapter 3 or to supplementary super-
vision in accordance with Directive 2002/. . ./EC, need
not deduct the items referred to in points 12 to 16
insti-
which are held in credit institutions, financial
tutions,
reinsurance undertakings or
insurance holding companies, which are included in
the scope of consolidated or supplementary super-
vision.

insurance or

— reinsurance undertakings within the meaning

of Article 1(c) of Directive 98/78/EC,

This provision shall apply to all the prudential rules
harmonised by Community acts.’;

— insurance holding companies within the
of Directive

of Article

1(i)

meaning
98/78/EC;

(16) each of the following items which the credit
institution holds
entities
defined in point 15 in which it holds a partici-
pation:

in respect of

the

— instruments referred to in Article 16(3) of

Directive 73/239/EEC,

— instruments referred to in Article 18(3) of

Directive 79/267/EEC;

___________
(*) OJ L 330, 5.12.1998, p. 1.’;

(b) the second subparagraph shall be replaced by the

following:

‘Where shares in another credit institution, financial
institution,
insurance or reinsurance undertaking or
insurance holding company are held temporarily for
the purposes of a
assistance operation
financial
the
designed to reorganise and save that entity,
competent authority may waive the provisions on
deduction referred to in points 12 to 16.

As an alternative to the deduction of the items referred
to in points 15 and 16, Member States may allow their
credit institutions to apply mutatis mutandis methods 1,
2, or 3 of Annex I to Directive 2002/. . ./EC. Method 1
(Accounting consolidation) shall only be applied if the
competent authority is confident about the level of
integrated management and internal control regarding
the entities which would be included in the scope of
consolidation. The method chosen shall be applied in a
consistent manner over time.

Member States may provide that for the calculation of
own funds on a stand-alone basis, credit institutions

5. Article 51(3) shall be replaced by the following:

The Member States need not apply the limits laid
‘3.
down in paragraphs 1 and 2 to holdings in insurance
companies
as defined in Directive 73/239/EEC and
Directive 79/267/EEC, or in reinsurance companies as
defined in Directive 98/78/EC.’;

6. the last sentence in Article 52(2) shall be replaced by the

following:

‘Without prejudice to Article 54a, 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 on a stand-alone basis.’;

7. Article 54 shall be amended as follows:

(a)

in paragraph 1 the following subparagraph shall be
added:

‘In the case where undertakings are linked by a
relationship within the meaning of Article 12(1) of
Directive 83/349/EEC, the competent authorities shall
determine how consolidation is to be carried out.’;

(b) in paragraph 4, first subparagraph, the third indent

shall be deleted.

8. the following Article shall be inserted:

‘Article 54a

Management body of financial holding companies

shall

that persons who
The Member States
the business of a financial holding
effectively direct
company are of
and have
sufficiently good repute
sufficient experience to perform those duties.’;

require

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9. the following Article shall be inserted:

‘Article 55a

Intra-group transactions with mixed-activity holding
companies

Without prejudice to the provisions of Title V, Chapter 2,
Section 3, of this Directive, Member States shall provide
that, where the parent undertaking of one or more credit
institutions
the
competent authorities responsible for the supervision of
these credit institutions shall exercise general supervision
over transactions between the credit institution and the
mixed-activity holding company and its subsidiaries.

is a mixed-activity holding company,

Competent authorities shall require credit institutions to
have in place adequate risk management processes and
internal control mechanisms,
including sound reporting
and accounting procedures, in order to identify, measure,
monitor and control transactions with their parent mixed-
activity holding company and its
subsidiaries appro-
priately. Competent authorities shall require the reporting
by the credit institution of any significant transaction with
these entities other than the one referred to in Article 48.
transactions shall be
These procedures and significant
subject to overview by the competent authorities.

institution's

Where these intra-group transactions are a threat to a
competent
credit
authority responsible for the supervision of the institution
shall take appropriate measures.’;

financial position,

the

10.

in Article 56(7) the following sentence shall be added:

‘The competent authority which made the request may, if
it so wishes, participate in the verification when it does
not carry out the verification itself.’;

11. the following Article shall be inserted:

‘Article 56a

Third-country parent undertakings

institution,

is not subject

the head office of which is outside

Where a credit
the parent undertaking of
which is a credit
institution or a financial holding
company,
the
to consolidated supervision
Community,
under Article 52, the competent authorities shall verify
whether the credit institution is subject to consolidated
supervision by
authority
third-country
which is equivalent to that governed by the principles
laid down in Article 52. The verification shall be carried
authority which would be
out by
responsible for consolidated supervision if
the fourth
subparagraph were to apply, at the request of the parent
undertaking or of any of the regulated entities authorised

competent

competent

the

a

in the Community or on its own initiative. That competent
authority shall consult
the other competent authorities
involved.

to whether

The Banking Advisory Committee may give general
guidance as
the consolidated supervision
arrangements of competent authorities in third countries
are likely to achieve the objectives of consolidated super-
vision as defined in this Chapter,
in relation to credit
institutions, the parent undertaking of which has its head
office outside the Community. The Committee shall keep
any such guidance under review and take into account any
to the consolidated supervision arrangements
changes
applied by such competent authorities.

the verification
The competent authority carrying out
take into
specified in the second subparagraph shall
account
the
such guidance.
competent authority shall consult the Committee before
taking a decision.

this purpose

any

For

In the absence of such equivalent supervision, Member
States shall apply the provisions of Article 52 to the
credit institution by analogy.

shall

an alternative, Member States

As
allow their
competent authorities to apply other appropriate super-
visory techniques which achieve the objectives of
the
supervision on a consolidated basis of credit institutions.
Those methods must be agreed upon by the competent
authority which would be responsible for consolidated
supervision, after consultation with the other competent
authorities
in
particular require the establishment of a financial holding
company which has its head office in the Community, and
apply the provisions on consolidated supervision to the
consolidated position of that financial holding company.
The methods must achieve the objectives of consolidated
supervision as defined in this Chapter and must be notified
to the other competent authorities
involved and the
Commission.’

involved. Competent

authorities may

CHAPTER V

ASSET MANAGEMENT COMPANIES

Article 30

Asset management companies

Pending further coordination of sectoral rules, Member States
shall provide for the inclusion of asset management companies:

(a)

in the scope of consolidated supervision of credit insti-
tutions and investment
in the scope of
supplementary supervision of
insurance undertakings in
an insurance group; and

firms, and/or

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(b) where the group is a financial conglomerate, in the scope
of supplementary supervision within the meaning of this
Directive.

quantitative limits and qualitative requirements for this
purpose,

or

sector

sector)

services

For the application of the first paragraph, Member States shall
provide, or give their competent authorities the power to
decide, according to which sectoral rules (banking sector,
insurance
asset
investment
management companies shall be included in the consolidated
and/or supplementary supervision referred to in (a) of the first
paragraph. For the purposes of this provision, the relevant
sectoral rules regarding the form and extent of the inclusion
of financial
institutions (where asset management companies
are included in the scope of consolidated supervision of
credit institutions and investment firms) and of reinsurance
undertakings
are
included in the
supplementary supervision of
insurance undertakings) shall apply mutatis mutandis to asset
management companies. For the purposes of supplementary
supervision referred to in (b) of the first paragraph, the asset
management company shall be treated as part of whichever
sector it is included in by virtue of (a) of the first paragraph.

asset management

companies

scope of

(where

Where an asset management company is part of a financial
conglomerate, any reference to the notion of regulated entity
and any reference to the notion of competent authorities and
relevant competent authorities shall therefore, for the purposes
of this Directive, be understood as including, respectively, asset
authorities
and
management
responsible
asset management
supervision
companies. This applies mutatis mutandis as regards groups
referred to in (a) of the first paragraph.

competent
of

companies
the

the

for

CHAPTER VI

TRANSITIONAL AND FINAL PROVISIONS

Article 31

Report by the Commission

1.
By . . . (*), the Commission shall submit to the Financial
Conglomerates Committee referred to in Article 21 a report on
Member States' practices, and,
if necessary, on the need for
further harmonisation, with regard to:

— the

inclusion

of

asset management

companies

in

group-wide supervision,

— the choice and the application of

the capital adequacy

methods set out in Annex I,

— the definition of significant intra-group transactions and
significant
supervision of
risk concentration and the
intra-group transactions and risk concentration referred to
in particular regarding the introduction of
in Annex II,

— the intervals at which financial conglomerates shall carry
out the calculations of capital adequacy requirements as set
out
to the coordinator on
significant risk concentration as set out in Article 7(2).

in Article 6(2) and report

The Commission shall consult the Committee before making its
proposals.

2. Within one year of agreement being reached at inter-
national level on the rules for eliminating the double gearing
the Commission shall
of own funds in financial groups,
examine how to bring the provisions of this Directive into
line with those international agreements and,
if necessary,
make appropriate proposals.

Article 32

Transposition

Member States shall bring into force the laws, regulations and
administrative provisions necessary to comply with this
Directive before . . . (**). They shall
forthwith inform the
Commission thereof.

Member States shall provide that the provisions referred to in
the first subparagraph shall first apply to the supervision of
accounts for the financial year beginning on 1 January 2005 or
during that calendar year.

When Member States adopt these measures, they shall contain
a reference to this Directive or shall be accompanied by such
reference on the occasion of their official publication. The
methods of making such reference shall be laid down by
Member States.

Article 33

Entry into force

This Directive shall enter into force on the day of its publi-
cation in the Official Journal of the European Communities.

Article 34

Addressees

This Directive is addressed to the Member States.

Done at . . .

For the European Parliament

For the Council

The President

The President

(*) Four and a half years after the entry into force of this Directive.

(**) 18 months from the date of entry into force of this Directive.

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ANNEX I

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;

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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
conglomerate shall be carried out on the basis of the consolidated accounts.

the regulated entities in a financial

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 insti-
tutions, 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
conglomerate shall be carried out on the basis of the accounts of each of the entities in the group.

the supplementary capital adequacy requirements of

the regulated entities in a financial

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.

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Method 3: Book value/requirement deduction method

The calculation of
conglomerate shall be carried out on the basis of the accounts of each of the entities in the group.

the supplementary capital adequacy requirements of

the regulated entities in a financial

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'
for their

solvency requirements;
proportional share as provided for in Article 6(4) and in accordance with Section I of this Annex.

the latter shall be taken into account

the solvency requirements of

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.

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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.

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STATEMENT OF THE COUNCIL'S REASONS

I. INTRODUCTION

On 24 April 2001, the Commission submitted a proposal for a Directive on the supplementary
supervision of credit
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 2000/12/EC of the European Parliament and
of the Council (1).

insurance undertakings and investment

institutions,

firms

The European Central Bank gave its opinion on 13 September 2001 (2). The European Parliament gave
its Opinion on 14 March 2002 (3) and the Economic and Social Committee gave its Opinion on
17 October 2001 (4). The Committee of the Regions has decided not to give an opinion.

On 12 September 2002, the Council adopted its common position pursuant to Article 251 of the
Treaty.

II. OBJECTIVE

The proposal aims at establishing common prudential standards for the supervision of
financial
conglomerates and introducing level playing fields and legal certainty between financial institutions.

The proposal is built on the following key elements:

— the definition of a financial conglomerate and of the entities included therein, as well as a

procedure that allows identification of a conglomerate,

— determination of the scope of the supplementary supervision to which financial conglomerates
should be subject, including the calculation of groupwide adjusted solvency in accordance with
various technical methods, the monitoring of intra-group transactions and of possible risk concen-
trations, of risk management processes and internal control mechanisms, as well as requirement
concerning the good repute and experience of the management,

— the designation of a single competent authority responsible for exercising supplementary super-
vision of the financial conglomerate (the coordinator), along with the scope of this authority's
powers,

— provisions on cooperation between the competent authorities involved,

— amendments to the sectoral Directives on banking, investment services and insurance with the aim
of introducing a level playing field for homogeneous financial groups and for financial conglom-
erates.

III. ANALYSIS OF THE COMMON POSITION

The common position follows the approach of the Commission proposal, with some amendments to
the substance and to the presentation of the text. The changes to each article of the Commission
proposal and the way in which the amendments proposed by the European Parliament are included are
explained below.

(1) OJ C 213, 31.7.2001, p. 227.
(2) OJ C 271, 26.9.2001, p. 10.
(3) Not yet published in the Official Journal.
(4) OJ C 36, 8.2.2002, p. 1.

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The recitals

The recitals have been amended to take account of the changes to the enacting terms of the Directive,
and incorporate amendment 3 proposed by the European Parliament concerning the implementing
measures to be adopted by the Commission (see below).

Chapter I — Objectives and definitions (Articles 1 to 4)

Objective (Article 1)

Article 1 on the objective of the Directive is unchanged compared to the Commission proposal.

Definitions (Article 2)

A new definition has been introduced, in Article 2(5), of the term ‘asset management company’, which
is necessary for the purposes of Article 30 (see below).

Another new definition of the term ‘relevant competent authorities’, has been introduced in point 17.
The Commission proposal entrusts a large number of decisions to the competent authorities. In some
cases the number of competent authorities can be very high and the taking of decisions consequently
time-consuming and difficult. In order to facilitate the decision-making and make it effective the
‘relevant competent authorities’, defined in Article
common position introduces a new concept,
2(17), which comprises the authorities most concerned in the supervision of a financial conglomerate.
A number of the decisions which the Commission proposal entrusted to the competent authorities in
general have in the common position been entrusted to the relevant competent authorities. The
definition has a built-in flexibility allowing for the inclusion of other authorities, where relevant, for
instance the authorities of a Member State where the conglomerate has a large share of the market.

The terms ‘group’ and ‘close links’ have been amended. The definition of a ‘group’ is more restricted
than in the Commission proposal, but broader than the definition proposed in amendments 4 and 5 of
the European Parliament. The Council finds it important to include the so-called ‘horizontal groups’
referred to in Article 12(1) of Directive 83/349, in all cases, and not leave the inclusion of these groups
to national discretion. Amendments 11 and 12 of the European Parliament are as a consequence not
incorporated in the common position. The definition of ‘close links’ is used in the common position
purely to define intra-group transactions (see below), and does not bear upon the determination of a
group. The common position thus goes in the direction proposed by the European Parliament and can
be considered to take partial account of the spirit of amendments 4 and 5.

The definition of the term ‘financial conglomerate’ has been made more precise without changing the
approach of the Commission proposal. For the purposes of the definition the banking and investment
services sectors are considered as one sector, and a financial conglomerate must have at least one entity
in this sector and one in the insurance sector, and its activities in both sectors must be significant. It
has also been made clear that any subgroup of a group which meets the criteria set out in the
definition shall be considered a financial conglomerate in itself. Amendment 6 proposed by the
European Parliament has been taken into account in Article 3(3)(b) (see below).

The term ‘financial sector’ has also been amended to make it more precise, and the definition in point
13 of ‘close links’ has been redrafted without changing the substance, in order to avoid unnecessary
cross-references.

The identification of a financial conglomerate (Articles 3 and 4)

The approach of Article 3 of the Common Position largely follows the approach of the Commission
proposal. The drafting has been made clearer and some substantial changes have been introduced:

In the identification of a financial conglomerate the common position includes those groups, not
headed by an EU regulated entity, with mixed activities (industrial or commercial and financial)
which have a financial
in Article 3(1)), as proposed by the
least 40 % (set out
European Parliament in amendment 7.

interest of at

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As proposed by the Commission the cross sectoral activities of the group must be significant. In
addition to the 10 % threshold set out in Article 3(2) of the Commission proposal for the deter-
mination of whether activities in different financial sectors are significant, the common position
includes, as proposed by the European Parliament in amendment 50, an alternative threshold in
Article 3(3). The Council finds the figure of EUR 3 billion proposed by the Parliament too restrictive
and has fixed the threshold at EUR 6 billion. A group which meets the EUR 6 billion threshold but
not the 10 % threshold may, however, be excluded, either from the application of the Directive or from
the provisions relating to risk concentration, intra-group transactions and internal control mechanisms,
if the relevant competent authorities consider that the inclusion of that group would be inappropriate
or misleading with respect to the objectives of supplementary supervision. When taking this decision
the authorities must take into account for instance whether the relative size of the smallest financial
sector is too small (not exceeding 5 %) to consider the group a financial conglomerate or whether the
group is only a relatively small player on a large national market (the market share of its banking or
insurance activities does not exceed 5 % in any Member State). The latter criterion reflects the same
concerns as reflected in amendment 6 proposed by the European Parliament.

Article 3(4), (5) and (6) of the Common Position contains provisions allowing the relevant competent
authorities a degree of flexibility in applying the thresholds set out above. Article 3(4) stipulates that
compliance with the thresholds in Article 3(1) and (2) for three consecutive years may be taken into
account by the relevant competent authorities, and thus partially includes the continuity factor
proposed by the European Parliament in amendment 8. Amendment 10 proposed by the European
Parliament is not included, since the Council finds it important to allow the competent authorities a
certain degree of flexibility in the light of the complexity and the varied structures of the financial
conglomerates in Europe.

Article 3(7) introduces provisions for the calculation of the balance sheet total.

The Council finds that the complex structures and the cross-border nature of the financial conglom-
erates in Europe make a special procedure for the identification of a financial conglomerate necessary,
since it may not always be clear to the competent authorities involved when a group has evolved into a
financial conglomerate within the meaning of the Directive. Article 4 therefore introduces a new
procedure for the identification of a financial conglomerate and obliges the competent authorities
involved to cooperate closely to this end.

Chapter II — Supplementary supervision

Section 1 — Scope (Article 5)

Article 5 (Article 4 of the Commission proposal) concerning the scope of the supplementary super-
vision of authorised entities which are part of a financial conglomerate basically follows the
Commission proposal. Certain minor technical changes have been introduced, and a provision
applying to ‘cooperative groups’ has been introduced in paragraph 4 which partly incorporates
amendment 17 proposed by the European Parliament.

Section 2 — Financial position (Articles 6 to 9 and Annexes I and II)

Article 6 maintains the approach of Article 5 of the Commission proposal and incorporates some of
the amendments proposed by the European Parliament. Paragraph 2 has been changed to make the
drafting more precise and to emphasise the responsibilities of the coordinator for supervision of the
capital adequacy of the conglomerate and the responsibility of the conglomerate for the calculations.
Paragraph 3 has been redrafted to set out the scope in a more precise manner, and a new paragraph 4
has been introduced to incorporate amendments 39 and 58 proposed by the European Parliament.
Paragraph 5 introduces an obligation for the coordinator to consult with the other relevant authorities
before it decides that the inclusion of an entity in the scope of supplementary capital is inappropriate
or misleading. The provision regarding non-compliance with the capital adequacy requirements, set out
in Article 5(5) of the Commission proposal, has been included in a new Article 16 which regroups
provisions regarding enforcement measures.

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The main change to Annex I compared to the Commission proposal concerns the choice of method for
the calculation of supplementary capital. The Commission proposal left the choice open. The European
Parliament proposed in amendment 52 that the choice be left to the conglomerate itself. The Council
has chosen to lay down specific guidelines for the choice of method in view of the fact that the
methods are different and that the choice of the method must be seen in the context of the sectoral
rules for the group-wide supervision of the regulated entities in the conglomerate. The choice of
method is thus a supervisory decision incumbent upon the authorities, which should not be left to
the supervised entities.

The Council agrees to the need for clarification, expressed in amendment 16 of the European Parliament,
of the provision relating to the use of own funds elements according to the sectoral rules, and has
amended the text of the Commission proposal, however in a somewhat different wording from that
proposed by the European Parliament, which the Council found ambiguous. The Council also finds that
this issue should be dealt with in Annex I together with the other technical principles, and has thus not
incorporated this provision in the enacting terms of the Directive as proposed in amendments 16 and
37.

The Council finds that the risks to regulated entities in a group posed by risk-concentration and
intra-group transactions differ, and there are substantial differences in the supervisory treatment of
risk-concentration and intra-group transactions, and has therefore chosen to deal with these two issues,
which were both dealt with in Article 6 of the Commission proposal, in two new articles, 7 and 8. In
order to enhance the transparency of the text and to deal with related issues in the same article, the
common position sets out the provisions relating to internal control mechanisms and risk management
processes in a separate new Article 9 which deals with the issues set out in Articles 5(2) and 10 of the
Commission proposal. Article 6(6) of the Commission proposal on enforcement measures has been
included in Article 16 of the common position. Annex II has largely been maintained except for a
clarification of the competences of the coordinator.

Article 7 on risk concentration follows closely the Commission proposal. In order to avoid doubts and
to ensure legal certainty, the Council has added a provision in Article 7(2) making it clear who is to
submit the necessary information to the coordinator.

Article 8 on intra-group transactions largely follows the Commission proposal. The Council finds that
transactions concluded with undertakings that have close links with regulated entities within the
financial conglomerate must not be excluded from the supervision of intra-group transactions, and
has accordingly amended the definition of ‘intra-group transactions’ set out in Article 1(18).

With the aim of avoiding a legal void in cases where the coordinator has not (yet) defined what
constitutes a significant intra-group transaction, the common position stipulates in Article 8(2) that
where no definition of the thresholds has been made, an intra-group transaction shall be presumed to
be significant if its amount exceeds at least 5 % of the total amount of capital adequacy requirements at
the level of a financial conglomerate. A provision setting out who is to submit
the necessary
information to the coordinator has also been introduced in Article 8(2) in line with Article 7(2).

Significant and non-transparent transfers of funds from a regulated entity can occur not only through a
few large transfers but also through a large number of smaller transactions. In addition to the right of
the Member States to set quantitative limits, the Council therefore finds it necessary, in Article 8(3), to
include the right also to set qualitative requirements with regard to intra-group transactions of
regulated entities within a conglomerate,
intra-group transactions
should be entered into in accordance with an arm's length principle or on a cost- covering basis,
depending on the type of transaction.

for instance requirements that

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The Council finds internal control mechanisms and risk management processes very important and the
common position strengthens the provisions on these issues compared to the Commission proposal. In
line with the sectoral directives, paragraph 1 lays down a general requirement to have adequate internal
control mechanisms and risk management processes in place at the level of the financial conglomerate.
Paragraphs 2 and 3 lay down minimum requirements for these processes and mechanisms. Paragraph 4
contains the requirement set out in Article 10 of the Commission proposal relating to the production
of data and information.

Amendment 18 proposed by the European Parliament has been partially incorporated. Article 31 of the
common position requires the Commission to report to the Financial Conglomerates Committee on the
definition of significant intra-group transactions and significant risk concentration and the supervision
of intra-group transactions and risk concentration referred to in Annex II, in particular regarding the
introduction of quantitative limits and qualitative requirements for this purpose. The Council finds,
however, that the Financial Conglomerates Committee should not be required to oversee the actual
application of the rules to individual conglomerates, and that a report on this issue to the Committee
would be in breach of the obligation of confidentiality imposed on the supervisors, and the first
sentence of amendment 18 is therefore not included in the common position.

Section 3— Measures to facilitate supplementary supervision (Articles 10 to 17)

Article 10 has been slightly amended compared to Article 7 of the Commission proposal. The Council
agrees with the European Parliament on the importance of having in all cases only one single coor-
dinator; anything else would defeat the purpose of having a coordinator. The other provisions of the
common position are sufficient to ensure the necessary coordination between the authorities involved.
It has also been made clear that the competent authorities of the Member State where the mixed
financial holding company has its head office are involved in the appointment of the coordinator, and
amendment 19 proposed by the European Parliament is thus incorporated in the common position. The
information procedure regarding the appointment of the coordinator is set out in Article 4(2). Since
the Directive will apply also to conglomerates which will come into being in the future, the reference
in amendment 19 to the date of transposition of the Directive has not been included in the common
position.

In line with amendments 20, 21 and 22 proposed by the European Parliament, the common position
stipulates that the appointment of the coordinator shall be based on the criteria set out in Article 10(2),
and not on the agreement of the authorities, since this procedure will facilitate the appointment of the
coordinator and give a higher degree of legal certainty. Since the structure of financial conglomerates
varies greatly, strict application of the criteria might in particular cases be inappropriate; the relevant
competent authorities may, after consultation of the financial conglomerate, waive the criteria and
appoint a different authority as the coordinator (see Article 10(3) of the Common Position).

Article 11 of the Common Position deals with the tasks of the coordinator. In addition to the task
referred to in Article 7 of the Commission proposal, the common position adds in paragraph 1 (f) a
general clause referring to other tasks, measures and decisions assigned to the coordinator by this
Directive. This reflects the overall nature of the function of the coordinator as the authority responsible
for supplementary supervision which is emphasised in the common position. It is further specified
what the coordination arrangement may contain.

Incorporating the spirit of amendments 23 and 25 proposed by the European Parliament, Article 11(2)
strengthens the requirement set out in Article 12(2) in stipulating that the coordinator should, when it
needs information which has already been given to another competent authority in accordance with
the sectoral rules, contact this authority whenever possible in order to prevent duplication of reporting
to the various authorities involved in supervision. The Council finds that to make this provision into an
obligation without the possibility for exceptions would unnecessarily render the work of the coor-
dinator difficult and lead to an undesired inflexibility, in cases where the information was urgently
required and easily obtainable from the financial conglomerate.

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Article 12 incorporates amendment 42 and the spirit of amendment 24 proposed by the European
Parliament. While the Council agrees that
to
exchange information,
the competent authorities need the power to act
swiftly in exceptional circumstances, sometimes within hours. In such cases prior consultation of
other authorities may jeopardise the effectiveness of the decision and Article 12(2) therefore stipulates
that under such circumstances an a posteriori information without prior consultation is permitted.

there should be no exception to the requirement

the Council

finds that

Concerning the management body of mixed financial holding companies, the Council agrees with the
intention of the Commission proposal which is to subject all persons who de facto take decisions in
regulated entities to good repute requirements. The Council has, however, chosen a different legal
approach for inserting these requirements into this Directive, which it finds more precise and trans-
parent. This approach consists of:

— introducing a new Article 13 in the common position on the management body of mixed financial

holding companies, modelled on the good repute requirements in the sectoral directives,

— adding similar provisions in the consolidated banking Directive (Directive 2000/12/EC) concerning
financial holding companies, and in the insurance groups Directive (Directive 98/78/EC) concerning
the management body of insurance holding companies, and

— omitting the provisions of the Commission proposal, which then become redundant (1).

Articles 14 and 15 are unchanged compared to Articles 11 and 12 of the Commission proposal except
for minor clarifications of the text. The third paragraph of Article 15 is now aligned on the corre-
sponding provision in the sectoral directives (see below).

The Council has chosen to group all provisions relating to enforcement measures in one single Article
16, instead of repeating identical provisions in several articles, in order to make the text more trans-
parent. Article 16 follows the approach of the corresponding provisions in the Commission proposal,
but complements it with a clarification regarding mixed financial holding companies. It is made clear
that it is up to the Member States, subject to Article 17(2), to determine what, and to what extent,
measures may be taken by their competent authorities with respect
to mixed financial holding
companies since these are not covered by the sectoral directives.

Article 17 is unchanged compared to Article 13 of the Commission proposal.

Section 4 — Third countries (Articles 18 and 19)

Article 18(1) of the Common Position sets out a different procedure from that proposed by the
Commission for the verification of whether regulated entities with a parent undertaking from a
third country are subject to equivalent supervision. The decision-making structure is in line with the
other articles of the Directive where the authority which would be the coordinator if the criteria of the
Directive were to apply, takes the decision after consultation of the other relevant competent auth-
orities. The Financial Conglomerates Committee may issue general guidance on what constitutes
equivalence and must be consulted by the ‘coordinator’ before its takes its decision. The Committee
has no supervisory powers and it is stipulated in recital 15 that the Directive does not require the
disclosure by competent authorities to a Financial Conglomerates Committee of information which is
subject to an obligation of confidentiality under this Directive or other sectoral directives.

Article 18(3) incorporates amendment 26 proposed by the European Parliament, and entrusts, in line
with the other articles of the Directive, the coordinator with the task of agreeing possible alternative
methods, after consultation with the other relevant competent authorities.

(1) Article 25(2) amending Article 6(1) of Directive 2000/12/EC, Article 18(1) amending Article 8 of Directive
73/239/EEC, Article 19(1) amending Article 8 of Directive 79/267/EEC and Article 23(1) amending Article 3 of
Directive 93/22/EEC.

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Article 19 is unchanged compared to Article 15 of the Commission proposal except for the inclusion
of the Financial Conglomerates Committee in paragraph 2.

Chapter III — Powers conferred on the Commission and Committee procedure

Article 20(1) on powers conferred on the Commission incorporates amendments 28 and 29 proposed by
the European Parliament, and further entrusts the Commission with the task of co-ordination of the
provisions adopted pursuant to Articles 7 and 8 and Annex II with a view to encouraging a uniform
application within the Community. Amendment 27 has not been incorporated because of the risk that it
might be interpreted in a manner which limited unnecessarily the scope of the article.

The substance of amendment 31 proposed by the European Parliament is incorporated in Article 18(2)
of the Common Position. The wording has been amended in order not to restrict the consultation
obligation of the Commission and to avoid giving preferences to any private bodies in a Community
legal act.

The wording of Article 21 on the Committee has been slightly amended to bring it into line with the
standard legal drafting of such provisions, and amendment 30 proposed by the European Parliament
relating to the so-called ‘sunset clause’ has been incorporated in paragraph 4. In line with Article 18(1)
of the Common Position a new paragraph 5 has been introduced in Article 21 relating to the guidance
the Committee may give on equivalent supervision, and a new paragraph 6 stipulates, in line with
Articles 7 and 8, that the Committee should be kept informed of the principles Member States apply
concerning risk-concentration and intra-group transactions with a view to facilitating cooperation
between Member States on these issues.

Amendment 3 proposed by the European Parliament for a new recital relating to the implementing
measures to be adopted by the Commission is incorporated in recital 19. The Council finds amendment
2 proposed by the European Parliament, referring to the agreement between the Commission and the
European Parliament on the report of the Committee of Wise Men on European securities regulation
(the Lamfalussy Committee), out of place in this Directive since this Directive concerns the
supplementary supervision of financial conglomerates and is not drafted along the lines set out in
the report of the Committee of Wise Men.

Chapter IV — Amendments to existing Directives

Apart from purely technical modifications, and the amendments relating to the management bodies
explained above, the amendments to the existing directives have been altered on the following points:

(a) Concerning the own funds requirements (1) the Council has amended the Commission proposal,
motivated by the same concerns as those which inspired amendments 34, 44, 46 and 48 proposed
by the European Parliament, namely to achieve a balanced regime for the elimination of double
gearing. The solution chosen differs on some points from that proposed by the European
Parliament.
It aims at avoiding discrimination between financial conglomerates and other
financial groups with interests in both sectors (banking/securities and insurance) that are not
regarded as conglomerates. It allows Member States to permit the application of the methods set
out in Annex I to the conglomerates Directive for sectoral groups as regards their capital holdings
in a different financial sector. The deductions laid down in the sectoral directives have, however,
not been completely aligned to avoid too drastic changes to the current regime in the banks/
securities and insurance sectors, which is not one of the aims of the current Directive.

The Council agrees with the European Parliament on the need to bring the provisions on elim-
inating double gearing into line with the new capital adequacy regime currently being discussed in
the Basle Committee, and Article 31(2) of the common position incorporates the last paragraph of
amendment 48 and 34.

(1) Article 22(2) amending Article 16(1) of Directive 73/239/EEC, Article 23(2) amending Article 18 of Directive
79/267/EEC, Article 28(6) amending Annex I(2) of Directive 98/78/EC and Article 29(4) and (5) amending
Article 34(2) and Article 51(3) of Directive 2000/12/EC.

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(b) The insurance Directives, Directive 92/49/EEC and Directive 92/96/EEC, have been amended by
Articles 24(2) and 25(2) of the common position, to allow the competent authorities for insurance
to transmit information to monetary institutions, in line with the situation in the banking and
securities sector.

(c) The substance of Amendment 35 proposed by the European Parliament has been incorporated in
Articles 28(2) and 29(10) of the Common Position amending Article 6(3) of Directive 98/78/EC
and Article 56(7) of Directive 2000/12/EC respectively. The text is thus aligned on Article 15 of the
conglomerates Directive.

(d) Article 29(11) of the Common Position aligns Article 56a of the Banking Directive, Directive
2000/12/EC, on Article 18 of the conglomerates Directive on third-country conglomerates (see
above).

Chapter V — Asset management companies

The Council finds that where a financial group carries out asset management activities, these activities
are to be considered financial service sector activities that should be included in the overall prudential
supervision of the group, though asset management is in itself not a separate sector of the financial
sector the same way as the banking and insurance sectors are. The common position therefore includes
a new chapter, containing a new Article 30, on asset management companies, defined in Article 2(5) as
a management company within the meaning of the Directive on undertakings for collective investment
in transferable securities (UCITS). Article 30 leaves it up to Member States to decide according to which
insurance sector or investment services sector) asset management
sectoral rules (banking sector,
companies are to be included in consolidated supervision at sectoral level or in the supplementary
supervision at conglomerate level.

Chapter VI — Transitional and final provisions

In order to make sure that the implementation of the Directive is reviewed and the Directive updated
when necessary,
the common position introduces in a new Article 31 an obligation for the
Commission to report to the Financial Conglomerates Committee on Member States' practices, and,
if necessary, on the need for further harmonisation, with regard to a number of key provisions in the
Directive.

The transposition is fixed at 18 months after the entry into force of the Directive, which is the
minimum period required by some Member States according to their constitutional procedures. The
provisions shall apply to the supervision of accounts for financial years beginning on 1 January 2005
or during that calendar year. Amendment 36 proposed by the European Parliament is thus not included.

IV. CONCLUSIONS

The Council considers that all the amendments made to the Commission proposal are fully in line with
the objectives of the Directive. The common position incorporates a number of the amendments
proposed by the European Parliament and, while other amendments are not incorporated in the
common position in the wording proposed by the European Parliament, the Council largely shares
the concerns underlying these amendments and has taken them fully into account. The Council finds
that the common position ensures a balance between the need to introduce supplementary supervision
of financial conglomerates and the need to ensure that the supervision can work effectively and meet
the desired objectives without imposing an inflexible and rigid regime on the financial sector.