REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL The review of the Directive 2002/87/EC of the European Parliament and the Council on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate
Date: 2012-12-20
Institutions: European Commission
Subjects: credit institution, holding company, insurance company, investment company, market supervision, parent company

EUROPEAN 
COMMISSION 

Brussels, 20.12.2012  
COM(2012) 785 final 

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND 
THE COUNCIL 

The review of the Directive 2002/87/EC of the European Parliament and the Council on 
the supplementary supervision of credit institutions, insurance undertakings and 
investment firms in a financial conglomerate 

EN 

   EN 

 
 
 
 
  
 
1. 

INTRODUCTION & OBJECTIVES  

1.1. 

Background 

the  so-called 

The  rapid  development  in  financial  markets  in  the  1990s  led  to  the  creation  of 
financial groups providing services and products in different sectors of the financial 
markets, 
the  European 
financial  conglomerates. 
Commission’s Financial Services Action Plan identified the need to supervise these 
conglomerates on a group-wide basis and announced the development of prudential 
legislation  to  supplement  the  sectoral  legislation  on  banking,  investment  and 
insurance.  This  supplementary  prudential  supervision  was  introduced  by  the 
Financial Conglomerate Directive (FICOD) on 20 November 2002.1 The Directive 
follows the Joint Forum’s2 principles on financial conglomerates of 1999. 

In  1999, 

The  first  revision  of  FICOD  (FICOD1)  was  adopted  in  November  2011  following 
the  lessons  learnt  during  the  financial  crisis  of  2007-2009.  FICOD13  amended  the 
sector-specific  directives  to  enable  supervisors  to  perform  consolidated  banking 
supervision  and  insurance  group  supervision  at  the  level  of  the  ultimate  parent 
entity, even where that entity is a mixed financial holding company. On top of that, 
FICOD1  revised  the  rules  for  the  identification  of  conglomerates,  introduced  a 
transparency  requirement  for  the  legal  and  operational  structures  of  groups,  and 
brought  alternative  investment  fund  managers  within  the  scope  of  supplementary 
supervision in the same way as asset management companies. 

FICOD1’s  Article  5  requires  the  Commission  to  deliver  a  review  report  before  31 
December 2012 addressing in particular the scope of the Directive, the extension of 
its  application  to  non-regulated  entities,  the  criteria  for  identification  of  financial 
conglomerates owned by wider non-financial groups, systemically relevant financial 
conglomerates, and mandatory stress testing. The review was to be followed up by 
legislative proposals if deemed necessary.4 

1  Directive  2002/87/EC  of  the  European  Parliament  and  of  the  Council  of  16  December  2002  on  the 
supplementary  supervision  of  credit  institutions,  insurance  undertakings  and  investment  firms  in  a 
financial  conglomerate  and  amending  Council  Directives  73/239/EEC,  79/267/EEC,  92/49/EEC, 
92/96/EEC, 93/6/EEC and 93/22/EEC, and Directives 98/78/EC and 2000/12/EC. 

2  The Joint Forum is the joint body of the international standard setters: Basel Committee for Banking 
Supervision  (BCBS),  the  International  Association  of  Insurance  Supervisors  (IAIS),  and  the 
International Organisation of Securities Committees (IOSCO). 

3

  Directive  2011/89/EU  of  the  European  Parliament  and  of  the  Council  16  November  2011  amending 
Directives  98/78/EC,  2002/87/EC,  2006/48/EC  and  2009/138/EC  as  regards  the  supplementary 
supervision of financial entities in a financial conglomerate. 

4 

‘The Commission shall fully review Directive 2002/87/EC, including the delegated and implementing 
acts  adopted  pursuant  thereto.  Following  that  review,  the  Commission  shall  send  a  report  to  the 
European Parliament and to the Council by 31 December 2012, addressing, in particular, the scope of 
that  Directive,  including  whether  the  scope  should  be  extended  by  reviewing  Article  3,  and  the 
application of that Directive to non-regulated entities, in particular special purpose vehicles. The report 
shall  also  cover  the  identification  criteria  of  financial  conglomerates  owned  by  wider  non-financial 
groups, whose total activities in the banking sector, insurance sector and investment services sector are 
materially relevant in the internal market for financial services.  
‘The  Commission  shall  also  consider  whether  the  ESAs  should,  through  the  Joint  Committee,  issue 
guidelines for the assessment of this material relevance.  
‘In the same context, the report shall cover systemically relevant financial conglomerates, whose size, 
inter-connectedness or complexity make them particularly vulnerable, and which are to be identified 
by analogy with the evolving standards of the Financial Stability Board and the Basel Committee on 

 
 
                                                 
 
 
It  should  be  noted  that  since  the  adoption  of  FICOD1  some  issues,  such  as 
addressing  systemic  importance  of  complex  groups,  and  recovery  and  resolution 
tools beyond the living wills requirement in FICOD1 have been or will be resolved 
in other contexts and have therefore become less relevant for this review.  

1.2. 

The purpose of the review and the Joint Forum’s revised principles 

This  review  is  guided  by  the  objective  of  FICOD,  which  is  to  provide  for  the 
supplementary supervision of entities that form part of a conglomerate, with a focus 
on  the  potential  risks  of  contagion,  complexity  and  concentration  —  the  so-called 
group  risks  —  as  well  as  the  detection  and  correction  of  ‘double  gearing’  —  the 
multiple use of capital. The review aims to analyse whether the current provisions of 
FICOD,  in  conjunction  with  the  relevant  sectoral  rules  on  group  and  consolidated 
supervision, are effective beyond the additional provisions introduced by FICOD1. 

The review is justified as the market dynamics in which conglomerates operate have 
changed  substantially  since  the  Directive  entered  into  force  in  2002.  The  financial 
crisis  showed  how  group  risks  materialised  across  the  entire  financial  sector.  This 
demonstrates  the  importance  of  group-wide  supervision  of  such  inter-linkages 
within financial groups and among financial institutions, supplementing the sector-
specific prudential requirements. 

The limited approach of FICOD1 was partially based on the anticipation of the Joint 
Forum’s revised principles, which were due to be addressed in the present review. 
These principles were published in September 20125 with the two main issues being 
the inclusion of unregulated entities within the scope of supervision to cover the full 
spectrum of risks to which a financial group is or may be exposed and the need to 
identify  the  entity  ultimately  responsible  for  compliance  with  the  group-wide 
requirements.  This  review  takes  the  revised  principles  duly  into  account  together 
with the evolving sectoral legislation as presented below.     

1.3. 

Evolving regulatory and supervisory environment 

FICOD  rules  are  supplementary  in  nature.  They  supplement  the  rules  that  credit 
institutions, insurance undertakings and investment firms are subject to according to 
the  respective  prudential  regulations.  Currently  this  sectoral  legislation  is  being 
overhauled in a major way and the regulatory environment is evolving. 

The  CRD  IV6  and  Omnibus  II7  are  pending  proposals  before  the  European 
Parliament  and  the  Council,  and  Solvency  II  includes  enhanced  group  supervision 

Banking Supervision. In addition, that report shall review the possibility to introduce mandatory stress 
testing. The report shall be followed, if necessary, by appropriate legislative proposals.’ 

http://www.bis.org/publ/joint29.htm. 

5 
6  Commission  proposals  COM(2011)  452  and  COM(2011)  453  final  for  a  Regulation  on  prudential 
requirements for credit institutions and investment firms and for a Directive on the access to activity of 
credit institutions and prudential supervision of credit institutions and investment firms and amending 
Directive 2002/87/EC on financial conglomerates. The proposals are here referred to as CRD IV.  
7  Commission  proposal  COM(2011)  8  final  for  a  Directive  of  the  European  Parliament  and  of  the 
Council amending Directives 2003/71/EC and 2009/138/EC in respect of the powers of the European 
Insurance and Occupational Pensions Authority and the European Securities and Markets Authority. 

3 

 
 
 
                                                                                                                                                 
provisions  which  are  not  yet  applicable.  Once  these  provisions  are  applicable,  the 
Commission  will  closely  monitor  the  implementation  of  these  new  frameworks, 
which  also  comprise  a  number  of  delegated  and  implementing  acts,  including 
regulatory  technical  standards  to  be  developed  over  a  number  of  years  by  the 
Commission  and  the  European  supervisory  authorities  (ESAs).  In  addition,  the 
changes  recently  made  to  FICOD  will  not  be  in  place  before  mid-2013,  so  cannot 
yet be fully examined in practice before late 2014. These include the regulatory and 
implementing technical standards and common guidelines to be issued by the ESAs. 
Finally,  the  Banking  Union  Regulation8  proposal  calls  for  a  major  change  in  the 
supervision  of  European  banks  and  will  have  an  impact  on  the  supervision  of 
conglomerates as one of the tasks conferred to the European Central Bank would be 
to participate in supplementary supervision of a financial conglomerate. 

As  this  report  shows,  there  are  areas  of  supplementary  supervision  where 
improvements  could  be  made.  However,  as  with  any  legislation,  the  benefits  of 
amending  legislation  always  have  to  be  weighed  against  the  costs  connected  with 
the  European  Committee  on  Financial 
legislative  changes.  According 
Conglomerates  at  its  meeting  on  21  September  2012,  the  supervisory  community 
through the ESA’s advice to the Commission9, and the industry in its responses to 
the  consultation10  carried  out  by  the  Commission,  the  optimal  timing  for  revising 
FICOD will only be once the sectoral legislation has been adopted and is applicable. 

to 

2.  THE  SCOPE  OF  THE  DIRECTIVE  AND  THE  LEGAL  ADDRESSEES  OF  THE 

REQUIREMENTS  

2.1. 

Scope 

2.1.1.  The scope of FICOD and the sectoral legislation 

Most  of  the  groups  operating  in  the  financial  sector  have  a  broad  spectrum  of 
authorisations.  Focusing  on  the  supervision  of  only  one  type  of  authorised  entity 
ignores  other  factors  that  may  have  a  significant  impact  on  the  risk  profile  of  the 

8  Commission proposal COM(2012) 511 final for a Council Regulation conferring specific tasks on the 
European Central Bank concerning policies relating to the prudential supervision of credit institutions. 

9 

In  order  to  obtain  supervisory  expertise,  the  Commission  asked  in  2011  for  input  from  the  Joint 
Committee of the European Supervisory Authorities’ Committee on Financial Conglomerates (JCFC) 
in  a  Call  for  Advice.  The  JCFC  was  asked  to  explore  three  main  areas:  1)  the  scope  of  application, 
especially the inclusion of unregulated entities, 2) internal governance requirements and sanctions, and 
3)  supervisory  empowerment  in  the  current  framework.  This  ESAs’  advice  to  the  Commission  is 
reflected 
appropriate. 
https://eiopa.europa.eu/consultations/consultation-papers/2012-closed-consultations/may-2012/eba-
eiopa-and-esmas-joint-consultation-paper-on-its-proposed-response-to-the-european-commissions-
call-for-advice-on-the-fundamental-review-of-the-financial-conglomerates-directive-
jccp201201/index.html 

referred 

where 

report 

this 

and 

in 

to 

10  The Commission carried out a consultation between February and April 2012 in order to get the views 
of  stakeholders  on  the  general  concept  of  supplementary  supervision  of  groups,  on  the  European 
perspective regarding the Joint Forum principles and on certain specific elements of FICOD.   
http://ec.europa.eu/internal_market/financial-conglomerates/call_for_evidence_en.htm. 

4 

 
 
 
 
                                                 
group  as  a  whole.  Fragmented  supervisory  approaches  are  not  sufficient  to  cope 
with the challenges that current group structures pose to supervision. 

The supplementary supervision framework for conglomerates is meant to strengthen 
and complete the full set of rules applicable to financial groups, across sectors and 
across  borders.  However,  from  a  regulatory  standpoint,  additional  layers  of 
supervision have to be avoided when the sectoral requirements already cover all the 
types of risk that may arise in a group. 

2.1.2.  Coverage  of  unregulated  entities,  including  those  not  carrying  out 

financial activities 

In order to address group risks, which was the original aim of FICOD and the Joint 
Forum principles, as re-affirmed by the revised principles, group supervision should 
cover all entities in the group which are relevant for the risk profile of the regulated 
entities  in  the  group.  This  includes  any  entity  not  directly  prudentially  regulated, 
even if it carries out activities outside the financial sector, including non-regulated 
holding and parent companies at the top of the group. Each unregulated entity may 
present  different  risks  to  a  conglomerate  and  each  may  require  separate 
consideration and treatment. 

Among  unregulated  entities,  special  importance  is  attached  to  special  purpose 
entities  (SPEs).  The  number  of  SPEs  and  the  complexity  of  their  structures 
increased significantly before the financial crisis, in conjunction with the growth of 
markets  for  securitisation  and  structured  finance  products,  but  have  declined  since 
then. While the use of SPEs yields benefits and may not be inherently problematic, 
the  crisis  has  illustrated  that  poor  risk  management  and  a  misunderstanding  of  the 
risks of SPEs can lead to disruption and failure. The need for enhanced monitoring 
of  intra-group  relationships  with  SPEs  was  highlighted  in  the  Joint  Forum’s  2009 
SPE report11. 

2.1.3.  Coverage of systemically relevant financial conglomerates 

The  challenges  of  supervising  conglomerates  are  most  evident  for  groups  whose 
size,  inter-connectedness  and  complexity  make  them  particularly  vulnerable  and  a 
source of systemic risk. 

Any  systemically  important  financial  institution  (SIFI)  should  in  the  first  place  be 
subject  to  more  intense  supervision  through  application  of  the  CRD  IV  and 
Solvency II framework, both at individual and group/consolidated level. If the SIFI 
is  also  a  conglomerate,  supplementary  supervision  under  FICOD  would  also  be 
applicable.  Although  most  SIFIs  are  conglomerates,  this  is  not  always  the  case. 
Also, systemic risks are not necessarily the same as group risks. Therefore, it does 
not  seem  meaningful  to  try  to  bring  all  SIFIs  under  FICOD.  Furthermore, 
discussions  at  international  level  are  still  continuing  on  insurance  SIFIs,  and  the 
sectoral legislation, including the treatment of banking SIFIs, is not yet stable. 

2.1.4.  Thresholds for identifying a financial conglomerate 

All  the  issues  mentioned  above  are  linked  to  the  definition  of  a  conglomerate  and 
the thresholds for identifying one. The two thresholds set out in Article 3 of FICOD 

11     http://www.bis.org/publ/joint23.pdf 

5 

 
                                                 
take into account materiality and proportionality for identifying conglomerates that 
should  be  subject  to  supplementary  supervision  of  group  risks.  The  first  threshold 
restricts supplementary supervision to those conglomerates that carry out business in 
the financial sector and the second restricts application to very large groups. 

The combined application of the two thresholds and the use of the available waiver 
by supervisors have led to a situation where very big banking groups that are also 
serious players in the European insurance market are not subject to supplementary 
supervision.  Furthermore,  the  wording  of  the  identification  provision  may  leave 
room for different ways to determine the significance of cross-sectoral activities. It 
could be improved to ensure consistent application across sectors and borders. 

To ensure legal clarity, it is important to have easily understandable and applicable 
thresholds. However, the question remains whether the thresholds and the waivers 
should  be  amended  or  complemented  to  enable  supervision  in  a  proportionate  and 
risk-based manner.  

2.1.5.  Industrial groups owning financial conglomerates 

While there is agreement that regulated financial entities are exposed to group risks 
from the wider industrial group to which they might belong, no conclusion can be 
drawn  at  this  stage  as  to  how  to  extend  the  FICOD  requirements  to  wider  non-
financial  groups.  The  FICOD1  review  clause  required  the  Commission  to  assess 
whether  the  ESAs  should,  through  the  Joint  Committee,  issue  guidelines  for 
assessment of the material relevance of the activities of these conglomerates in the 
internal  market  for  financial  services.  Currently  there  is  no  legislation  on  the 
supervision of industrial groups owning financial conglomerates and the ESAs have 
no empowerment to issue guidelines. Therefore, while the ESAs will certainly play 
a key role in ensuring the consistent application of FICOD, it is premature to reach 
any conclusions on the need for the ESAs to issue guidelines on this specific topic. 

2.2. 

Entities responsible for meeting the group-level requirements 

Imposing  requirements  at  group  level  will  not  ensure  compliance  unless  this  is 
accompanied  by  clear  identification  of  the  entity  ultimately  responsible  in  the 
financial  group  for  controlling  risks  on  a  group-wide  basis  and  for  regulatory 
compliance with group requirements. This would allow more effective enforcement 
of  the  requirements  by  the  supervisory  authorities  (discussed  in  section  4  below). 
Interaction  with  company  law  provisions  governing  the  responsibilities  of  the 
ultimately responsible entity needs to be taken into consideration. 

This  ultimate  responsibility  might  need  to  be  extended  to  non-operating  holding 
companies  at  the  head  of  conglomerates,  even  though  a  limited  scope  may  be 
envisaged for those holding companies whose primary activity is not in the financial 
sector. 

3.  PROVISIONS NEEDED TO ENSURE THE DETECTION AND CONTROL OF GROUP RISKS  

The  objective  of  supplementary  supervision  is  to  detect,  monitor,  manage  and 
control  group  risks.  The  current  requirements  in  FICOD  concerning  capital 
adequacy  (Article  6),  risk  concentrations  (Article  7),  intra-group  transactions 
(Article  8)  and  internal  governance  (Articles  9  and  13)  are  meant  to  achieve  this 

6 

 
objective.  Amongst  other  criteria,  they  should  be  assessed  against  the  need  to 
strengthen the responsibility of the ultimate parent entity of conglomerates. 

3.1. 

Capital (Article 6) 

The  capital  requirements  for  authorised  entities  on  a  stand-alone  and  consolidated 
basis  are  defined  by  the  sectoral  legislation  dealing  with  the  authorisation  of 
financial  firms.  Article  6  of  FICOD  requires  supervisors  to  check  the  capital 
adequacy of a conglomerate. The calculation methods defined in that Article aim to 
ensure that multiple use of capital is avoided. 

The  JCFC’s  Capital  Advice  from  2007  and  200812  revealed  a  wide  range  of 
practices  among  national  supervisory  authorities  in  calculating  available  and 
required  capital  at  the  level  of  the  conglomerate.  The  draft  regulatory  technical 
standard (RTS) developed under FICOD Article 6(2), published for consultation on 
31  August  2012,13  specifies  the  methods  for  calculating  capital.  The  technical 
standard  is  expected  to  deal  sufficiently  with  the  inconsistent  use  of  capital 
calculation methods for the purpose of regulatory capital requirements and to ensure 
that only transferable capital is counted as available for the regulated entities of the 
group.  Indeed,  as  this  RTS  should  ensure  a  robust  and  consistent  calculation  of 
capital across Member States, when negotiating  the  CRD  IV  proposal, it appeared 
that  no  changes  to  FICOD  to  address  Basel  III  objectives  regarding  a  potential 
double  counting  of  capital  investments  in  unconsolidated  insurance  subsidiaries 
were necessary14.  

However, the discussions accompanying the development of this technical standard 
revealed  further  concerns  regarding  group-wide  capital  policy.  Supervisors 
sometimes  lack  insight  into  the  availability  of  capital  at  the  level  of  the 
conglomerate. This could be addressed by requesting the supervisory reporting and 
market disclosure of capital on an individual or sub-consolidated basis in addition to 
the consolidated level. 

3.2. 

Risk concentrations (Article 7) and intra-group transactions (Article 8) 

Articles 7 and 8 on risk concentrations and intra-group transactions set out reporting 
the  potential  extension  of 
requirements  for  undertakings.  Combined  with 
supervision  to  unregulated  entities  and  identification  of  the  entity  ultimately 
responsible  for  compliance  with  FICOD  requirements, 
including  reporting 
obligations,  these  requirements  should  provide  an  adequate  framework  for 
supplementary  supervision  with  regard  to  risk  concentrations  and  intra-group 
transactions.  

The guidelines to be developed by ESAs, as requested  by FICOD1, should ensure 
that the supervision of risk concentrations and intra-group transactions is carried out 
in a consistent way. 

12  http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CONSLEG:2002L0087:20110104:EN:PDF. 
13  http://www.eba.europa.eu/cebs/media/Publications/Consultation%20Papers/2012/JC%2002/JC-CP-

2012-02-on-RTS-on-Article-6-2-FICOD.pdf. 

14   See  recital  56  of  the  proposal  for  Regulation  on  prudential  requirements  for  credit  institutions  and 

investment firms. 

7 

 
                                                 
3.3. 

Governance (Articles 9 and 13) 

Given  the  inherent  complexity  of  financial  conglomerates,  corporate  governance 
should  carefully  consider  and  balance  the  combination  of  interests  of  recognised 
stakeholders  of  the  ultimate  parent  and  the  other  entities  of  the  group.  The 
governance system should ensure that a common strategy achieves that balance and 
that regulated entities comply with regulation on an individual and on a group basis. 

FICOD,  as  amended,  contains  a  requirement  for  conglomerates  to  have  in  place 
adequate  risk  management  processes  and  internal  control  mechanisms,  a  fit  and 
proper requirement for those who effectively direct the business of mixed financial 
holding companies, a ‘living will’ requirement, a transparency requirement for the 
legal  and  organisational  structures  of  groups,  and  a  requirement  for  supervisors  to 
make  the  best  possible  use  of  the  available  governance  requirements  in  CRD  and 
Solvency II. 

CRD  III  and  the  proposal  for  CRD  IV  require,  as  will  Solvency  II,  further 
strengthening  of  corporate  governance  and  remuneration  policy  following  the 
lessons  learnt  during  the  crisis.  The  living  will  requirement  in  FICOD1  would  be 
strengthened by the Bank Recovery and Resolution Framework.15 

What  these  frameworks  do  not  yet  cover  is  the  enforceable  responsibility  of  the 
head  of  the  group  or  the  requirement  for  this  legal  entity  to  be  ready  for  any 
resolution  and  to  ensure  a  sound  group  structure  and  the  treatment  of  conflicts  of 
interest.  The  Bank  Recovery  and  Resolution  Framework  would  require  the 
preparation  of  group  resolution  plans  covering  the  holding  company  and  the 
banking group as a whole. 

4.  SUPERVISORY TOOLS AND POWERS  

4.1. 

The  current  regime  and  the  need  to  strengthen  supervisory  tools  and 
powers 

Article 14 enables supervisors to access information, also on minority participations, 
when  required  for  supervisory  purposes.  Article  16  empowers  the  coordinator  to 
take measures with regard to the holding company, and the supervisors of regulated 
entities  to  act  against  these  entities,  upon  non-compliance  with  requirements 
concerning  capital,  risk  concentrations,  intra-group  transactions  and  governance. 
The Article only refers to ‘necessary measures’ to rectify the situation, but does not 
specify  such  measures.  Omnibus  I  gave  the  ESAs  the  possibility  to  develop 
guidelines for measures in respect of mixed financial holding companies, but these 
guidelines  have  not  yet  been  developed.  Article  17  requires  Member  States  to 
provide  for  penalties  or  corrective  measures  to  be  imposed  on  mixed  financial 
holding  companies  or 
they  breach  provisions 
implementing FICOD. The Article also requires Member States to confer powers on 
supervisors  to  avoid  or  deal  with  the  circumvention  of  sectoral  rules  by  regulated 
entities in a financial conglomerate.   

their  effective  managers 

if 

15  Commission  proposal  for  a  Directive  of  the  European  Parliament  and  of  the  Council  establishing  a 
framework  for  the  recovery  and  resolution  of  credit  institutions  and  investment  firms  and  amending 
Council  Directives  77/91/EEC  and  82/891/EC,  Directives  2001/24/EC,  2002/47/EC,  2004/25/EC, 
2005/56/EC, 2007/36/EC and 2011/35/EC and Regulation (EU) No 1093/2010. 

8 

 
                                                 
The wording of Article 16 and the lack of guidelines have led to a situation where 
there  is  no  EU-wide  enforcement  framework  specifically  designed  for  financial 
conglomerates. As a result, the supervision of financial conglomerates is sectorally 
based with differences in national implementation. Furthermore, the ESAs point out 
that strengthening the sanctioning regime as advocated in the CRD IV proposal may 
create  an  uneven  playing  field  between  financial  conglomerates  depending  on 
whether they are bank or insurance-led. At the same time, according to the ESAs, 
most  national  supervisory  authorities  consider  that  the  measures  available  for 
sectoral  supervision  are  equally  appropriate  for  the  supervision  of  financial 
conglomerates.  Strengthening  the  supervision  of  financial  conglomerates  could 
therefore be achieved by improving the actual use of the existing instruments.   

As to the Article 17 requirement for Member States to provide for credible sanctions 
to  make  the  requirements  credibly  enforceable,  no  such  sanctioning  regime  is 
known for conglomerates. 

The ESAs provide eight recommendations16 both to enhance the powers and tools at 
the disposal of supervisors and to strengthen enforcement measures, also taking into 
account the differences in national implementation. Those recommendations include 
establishing  an  enforcement  regime  for  the  ultimately  responsible  entity  and  its 
subsidiaries. This implies a dual approach, with enforcement powers to deal with the 
top entity for group-wide risks and to hold the individual entities to account for their 
respective  responsibilities.  In  addition,  the  supervisor  should  have  available  a 
minimum set of informative and investigative measures. Supervisors should be able 
to  impose  sanctions  upon  mixed  activity  holding  companies,  mixed  activity 
insurance holding companies or intermediate financial holding companies.   

4.2. 

The possibility to introduce mandatory stress testing 

The  possibility  to  require  conglomerates  to  carry  out  stress  tests  might  be  an 
additional supervisory tool to ensure the early and effective monitoring of risks in 
the conglomerate. FICOD1 introduced the possibility (though not an obligation) for 
the supervisor to perform stress tests on a regular basis. In addition, when EU-wide 
stress tests are performed, the ESAs may take into account parameters that capture 
the specific risks associated with financial conglomerates. 

5.  CONCLUSION 

The criteria for the definition and identification of a conglomerate, the identification 
of the parent entity ultimately responsible for meeting the group-wide requirements 
and  the  strengthening  of  enforcement  with  respect  to  that  entity  are  the  most 
relevant  issues  that  could  be  addressed  in  a  future  revision  of  the  financial 
conglomerates  directive.  The  identification  of  the  responsible  parent  entity  would 
also  enhance  the  effective  application  of  the  existing  requirements  concerning 
capital  adequacy,  risk  concentrations, 
internal 
governance. 

transactions  and 

intra-group 

16       See footnote 10. 

9 

 
 
                                                 
The  regulatory  and  supervisory  environment  with  regard  to  credit  institutions, 
insurance undertakings and investment firms is evolving. All the sectoral prudential 
regulations  have  been  significantly  amended  on  several  occasions  in  the  last  few 
years, and even more significant changes to the regulatory rules are pending before 
the  legislators.  Furthermore,  the  proposal  for  the  Banking  Union  significantly 
changes  the  supervisory  framework.    Therefore,  and  taking  into  account  also  the 
position  of  the  European  Financial  Conglomerates  Committee,  the  supervisory 
community and the industry, the Commission considers it advisable not to propose a  
legislative change in 2013. The Commission will keep the situation under constant 
review to determine an appropriate timing for the revision. 

10