Source: http://www.irishstatutebook.ie/eli/2004/si/727/made/en/print
Timestamp: 2019-02-22 06:16:48
Document Index: 684453940

Matched Legal Cases: ['art 1', 'art 2', 'arts 4', 'arts 4', 'art 6', 'arts 4', 'arts 4', 'art 3', 'art 3']

S.I. No. 727/2004 - European Communities (Financial Conglomerates) Regulations 2004
S.I. 727 of 2004
European Communities (Financial Conglomerates) Regulations 2004
I, Brian Cowen, Minister for Finance, in exercise of the powers conferred on me by section 3 of the European Communities Act 1972 (No. 27 of 1972), as amended by the European Communities (Amendment) Act 1993 (No. 25 of 1993), and for the purpose of giving effect to Directive 2002/87/EC, dated 16 December 2002, of the European Parliament and of the Council, hereby make the following Regulations:
1. (1) These Regulations may be cited as the European Communities (Financial Conglomerates) Regulations 2004.
(2) These Regulations come into operation on 1 January 2005.
Object of these Regulations
2. The object of these regulations is to give effect to 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 that are within a financial conglomerate.
“ancillary banking services undertaking” has the meaning given by Article 1(23) of Directive 2000/12/EC;
“asset management company” means—
(a) a management company within the meaning of Article 1a (2) of Council Directive 85/611/EEC on the co-ordination of laws, regulations and administrative provisions relating to UCITS, or
(b) an undertaking the registered office of which is located at a place that is not within a Member State and that would require authorisation in accordance with Article 5(1) of that Directive if it had its registered office within such a State;
“authorised regulated entity” means a regulated entity that is the holder of a licence or other authorisation granted by the Bank under a designated enactment or designated statutory instrument;
“the Bank” means the Central Bank and Financial Services Authority of Ireland;
“banking sector” means a sector that comprises or includes one or more credit institutions, financial institutions or ancillary banking services undertakings;
“competent authority”—
(a) in relation to the State, means the Bank, and
(b) in relation to every other Member State, means the authority of that State that is empowered by a law of that State to supervise credit institutions, insurance undertakings or investment firms (whether on an individual or a group-wide basis), or two or more of those kinds of entities;
“control”, in relation to an undertaking, means control of the undertaking by a parent undertaking in the cases referred to in Article 1(1) and (2) of Directive 83/349/EEC, or control of the undertaking by a person (whether natural or legal);
“co-ordinator” means the competent authority appointed under Regulation 12;
“credit institution” has the meaning given by the second subparagraph of Article 1(1) of Directive 2000/12/EC;
“designated enactment” means an enactment specified in Part 1 of Schedule 2 to the Central Bank Act 1942 ;
“designated statutory instrument” means a statutory instrument specified in Part 2 of Schedule 2 to the Central Bank Act 1942 ;
“entity” includes an undertaking and a company and, where appropriate, includes a natural person;
“exposure” means an exposure arising from a counter-party risk, a credit risk, an investment risk, an insurance risk or a market risk, or any other kind of risk, or from a combination or an interaction of all or any of those kinds of risks;
“financial conglomerate” means a group, or a subgroup of a group, that complies with the conditions specified in paragraph (3);
“Financial Conglomerates Committee” means the Committee established by the European Commission in accordance with Article 21 of the Financial Conglomerates Directive;
“Financial Conglomerates Directive” means Directive 2002/87/EC of the European Parliament and of the Council on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate;
“financial institution” has the meaning given by Article 1(5) of Directive 2000/12/EC;
“financial sector” means a sector that comprises or includes one or more of the following entities:
(a) a credit institution, a financial institution or an ancillary banking services undertaking within the banking sector;
(b) an insurance undertaking, a reinsurance undertaking or an insurance holding company within the insurance sector;
(c) an investment firm or financial institution within the investment services sector;
(d) a mixed financial holding company;
“group” means—
(a) a group that comprises a parent undertaking, subsidiaries of the undertaking and any entities in which the parent undertaking or any of its subsidiaries holds participatory interests, or
(b) a group of undertakings linked to each other by a relationship as defined by Article 12(1) of Directive 83/349/EEC,
and, if a group comprises an asset management company, includes the company, even if the company is not a regulated entity;
“insurance holding company” has the meaning given by Article 1(i) of Directive 98/78/EC;
“insurance sector” means a sector that comprises or includes one or more insurance undertakings, reinsurance undertakings or insurance holding companies;
“insurance undertaking” has the meaning given by Article 6 of Directive 73/239/EEC, Article 6 of Directive 79/267/EEC or Article 1(b) of Directive 98/78/EC;
“intra-group transactions” means those transactions by which a regulated entity within a financial conglomerate (either directly or indirectly) relies—
(a) on other undertakings within the same group, or
(b) on any other persons that are closely linked to the undertakings within that group,
for the performance of an obligation (whether or not contractual and whether or not for payment);
“investment firm” has the meaning given by Article 1(2) of Directive 93/22/EEC, and includes undertakings referred to in Article 2(4) of Directive 93/6/EEC;
“investment services sector” means a sector that comprises or includes one or more investment firms or financial institutions within the meaning of Article 2(7) of Directive 93/6/EEC;
“law” includes a regulation, rule or bylaw;
“mixed financial holding company” means a financial conglomerate that consists of—
(a) a parent undertaking that is not a regulated entity, and
(b) one or more subsidiaries of the undertaking, which or at least one of which is a regulated entity that has its head office in a Member State, and
(c) one or more other entities;
“parent undertaking” means—
(a) an undertaking as defined by Article 1 of Seventh Council Directive 83/349/EEC on consolidated accounts, or
(b) an undertaking that, in the opinion of the competent authority concerned, effectively exercises a dominant influence over another undertaking;
“participatory interest”, in relation to an entity, means—
(a) rights in the capital of other entities, whether or not represented by certificates, that, by creating a durable link with those entities, are intended to contribute to the entity's activities, or
(b) the direct or indirect ownership by the entity of 20 per cent or more of the voting rights of or capital of the capital of another entity;
“regulated entity” means a credit institution, insurance undertaking or investment firm;
“reinsurance undertaking” has the meaning given by Article 1(c) of Directive 98/78/EC;
“relevant competent authorities” means—
(a) each competent authority of a Member State that is responsible for the sectoral group-wide supervision of regulated entities within a financial conglomerate, and
(b) if a competent authority not referred to in paragraph (a) is the co-ordinator of the conglomerate, that competent authority, and
(c) any other competent authority that is declared under paragraph (4) to be a relevant competent authority for the purposes of these Regulations;
“responsible entity”, in relation to a financial conglomerate—
(a) means the regulated entity that is the head of the conglomerate, or
(b) if the conglomerate is not headed by a regulated entity, means—
(i) the relevant mixed financial holding company, or
(ii) the regulated entity within the financial conglomerate identified by the co-ordinator of the conglomerate after consultation with the other relevant competent authorities and the conglomerate;
“risk concentration”, in relation to a financial conglomerate, means exposures that have a potential to cause a loss that would be borne by entities within the conglomerate and would be large enough to jeopardise the solvency or the financial position of those entities within the conglomerate that are regulated entities, and includes exposures to potential losses that may be caused by counter-party risk, investment risk, insurance risk, market risk or any other risk, or a combination or interaction of all or any of those risks;
“Sectoral Rules” means legislation made by the European Community relating to the prudential supervision of regulated entities, and, in particular, includes the rules prescribed by Directives 73/239/EEC, 79/267/EEC, 98/78/EC, 93/6/EEC, 93/22/EEC and 2000/12/EC;
“subsidiary” means—
(a) a subsidiary undertaking as defined by Article 1 of Directive 83/349/EEC, or
(b) an undertaking over which, in the opinion of the competent authority concerned, a parent undertaking effectively exercises a dominant influence, or
(c) a subsidiary of another undertaking that is a subsidiary of a parent undertaking;
“third country” means a country that is not a Member State, and includes a state, province, region or dependent territory of such a country;
“UCITS” means an undertaking for collective investment in transferable securities.
(a) a person or persons are closely linked with an undertaking if the person or persons together own, directly or by way of control, 20 per cent or more of the voting rights or capital of the undertaking, and
(b) an undertaking is closely linked with another undertaking if it is controlled by the other undertaking in any case referred to in Article 1(1) and (2) of Directive 83/349/EEC, or if it is controlled by a natural or legal person in similar circumstances, and
(c) a subsidiary of an undertaking is closely linked with another undertaking if the other undertaking is the parent of the first-mentioned undertaking, and
(d) two or more natural or legal persons are closely linked if they are permanently linked to another person because they are controlled by that other person.
(3) A group, or a subgroup of a group, is a financial conglomerate for the purposes of these Regulations if it satisfies the following conditions in so far as they are relevant to the group or subgroup:
(a) a regulated entity is the head of the group or at least one of the subsidiaries within the group is a regulated entity;
(b) if a regulated entity is the head of the group, the entity is—
(i) a parent undertaking of an entity carrying on business in the financial sector, or
(ii) an entity that holds a participatory interest in an entity carrying on such a business, or
(iii) an entity that is linked with an entity carrying on such a business by a relationship as defined by Article 12(1) of Directive 83/349/EEC;
(c) if a regulated entity is not the head of the group, the group's activities are mainly carried on in the financial sector and meet the criterion specified in Regulation 4(1);
(d) at least one of the entities within the group carries on business in the insurance sector and at least one other carries on business in the banking or investment services sector;
(e) the activities of the entities within the group that carry on business in the insurance sector, when viewed on a consolidated or aggregated basis, and the activities of the entities that carry on business in the banking and investment services sector, when so viewed, are both significant within the meaning of Regulation 4.
(4) For the purpose of subparagraph (c) of the definition of “relevant competent authority” in paragraph (1), the existing competent authorities may declare another competent authority to be a relevant competent authority in respect of the conglomerate if they are of the opinion that it is appropriate to do so, taking into account—
(a) the market share of the regulated entities of the conglomerate in other Member States (in particular if that share exceeds 5 per cent), and
(b) the importance in the conglomerate of any regulated entity established in another Member State.
A declaration under this paragraph takes effect when it is notified to the other competent authority concerned.
(5) A word or expression that is used in these Regulations and also in the Financial Conglomerates Directive has, unless the context otherwise requires or these Regulations otherwise provide, the same meaning in these Regulations as it has in the Financial Conglomerates Directive.
(6) In these Regulations, unless the context otherwise requires—
(a) a reference to a Part, Regulation or Schedule is a reference to a Part or Regulation of, or a Schedule to, these Regulations, and
(b) a reference to a paragraph, subparagraph or sub-subparagraph is a reference to a paragraph, subparagraph or sub-subparagraph of the provision in which the reference occurs.
IDENTIFYING FINANCIAL CONGLOMERATES
Thresholds for identifying a financial conglomerate
4. (1) For the purposes of determining whether the activities of a group mainly occur in the financial sector, the ratio of the balance sheet total of the regulated and non-regulated financial sector entities within the group to the balance sheet total of the group as a whole must exceed 40 per cent.
(2) For the purpose of Regulation 3(3)(e), an activity is to be regarded as significant for a financial sector if the amount calculated in accordance with the formula specified in paragraph (3) exceeds 10 per cent.
(3) The formula referred to in paragraph (2) is as follows:
A represents the amount to be calculated, and
R1 represents the ratio of the balance sheet total of the sector to the balance sheet total of the financial sector entities within the group, and
R2 represents the ratio of the solvency requirements of the same financial sector to the total solvency requirements of the financial sector entities within the group.
(4) For the purposes of these Regulations—
(a) the smallest financial sector within a financial conglomerate is the sector with the smallest amount calculated in accordance with the formula referred to in paragraph (3), and
(b) the most important financial sector within a financial conglomerate is the sector with the highest amount so calculated.
(5) In calculating the amount referred to in paragraph (3) and determining the smallest and the most important financial sectors referred to in paragraph (4), the banking sector and the investment services sector must be considered together.
(6) Cross-sectoral activities are presumed to be significant for the purpose of Regulation 3(3)(e) if the most recent balance sheet total of the smallest financial sector of a group exceeds €6,000,000,000. However, if that total exceeds €6,000,000,000 but the group does not exceed the 10 per cent level referred to in paragraph (2), the Bank and the other relevant competent authorities may agree—
(a) that the group should not be treated as a financial conglomerate, or
(b) that all or any of Regulations 8 to 10 should not be applied to the group,
but only if those authorities believe that such action is unnecessary or would be inappropriate or misleading having regard to the objectives of supplementary supervision.
(7) In reaching such an agreement, the Bank and the other relevant competent authorities may take into account such factors as they consider relevant, including—
(a) the fact that the relative size of the group's smallest financial sector does not exceed 5 per cent, measured either—
(i) in terms of the average referred to in paragraph (2), or
(ii) in terms of the balance sheet total or the solvency requirements of that sector, or
(b) the fact that the market share of the group does not exceed 5 per cent in any Member State, measured in terms of—
(i) the latest balance sheet total in the case of the banking sector or the investment services sector, or
(ii) in terms of gross premiums written in the case of the insurance sector.
(8) In applying paragraphs (1) to (7), the Bank and the other relevant competent authorities may decide to do all or any of the following:
(a) to exclude an entity when calculating the relevant ratios in the cases referred to in Regulation 8(7);
(b) to take into account compliance with the thresholds envisaged in paragraphs (1) and (2) for 3 consecutive years so as to avoid any sudden changes that could result from the application of these Regulations;
(c) to disregard such compliance if there are significant changes in the group's structure.
(9) If a financial conglomerate has been identified in accordance with this Regulation, a decision under paragraph (8) to exclude an entity may be taken only on the basis of a proposal made by the co-ordinator of the conglomerate.
(10) In applying paragraphs (1) and (2), the Bank and the other relevant competent authorities may, in such exceptional cases as they may determine, agree to replace or add either or both of the criteria of income structure and off balance-sheet activities to the criterion of balance sheet total if they believe the criteria to be of particular relevance to supplementary supervision under these Regulations.
(11) If, when applying paragraphs (1) to (7), the ratios referred to in those paragraphs fall below 40 per cent and 10 per cent respectively for a financial conglomerate that is already subject to supplementary supervision, then, in order to avoid fluctuations resulting from the application of these Regulations, lower ratios of 35 per cent and 8 per cent are to apply respectively for the 3 years following the fall.
(12) If, in applying paragraph (6), the balance sheet total of the smallest financial sector within a financial conglomerate that is already subject to supplementary supervision falls below €6,000,000,000, then, in order to avoid fluctuations resulting from the application of these Regulations, a lower figure of €5,000,000,000 applies for the 3 years following the fall.
(13) While paragraph (11) or (12) applies to a financial conglomerate, the co-ordinator of the conglomerate may, with the agreement of the other relevant competent authorities, decide that the lower ratios or the lower amount referred to in the applicable paragraph will cease to apply.
(14) A calculation required by this Regulation in relation to a balance sheet must be made on the basis of the aggregated balance sheet total of the entities within the group, as derived from the annual accounts of those entities. However, if available, consolidated accounts must be used instead of aggregated accounts.
(15) In making such a calculation, the total amount to be taken into account must correspond to the sum of the value of the total shares held by the group, and by the entities within the group, in the relevant undertakings in which they hold participatory interests.
(16) The solvency requirements referred to in this Regulation are to be calculated in accordance with the relevant Sectoral Rules.
(17) If a decision taken under paragraph (6) is of concern to competent authorities that were not parties to the decision, the Bank shall, as soon as practicable after the decision was taken, notify it to those authorities.
How a financial conglomerate is to be identified
5. (1) If the Bank has authorised a regulated entity, it shall, in accordance with Regulations 3, 4 and 6, identify any group to which these Regulations apply.
(2) In carrying out the obligation imposed by paragraph (1)—
(a) the Bank shall, whenever necessary, co-operate closely with the other competent authorities concerned, and
(b) if the Bank believes that a regulated entity authorised by it is a member of a group that may be a financial conglomerate that has not already been identified according to these Regulations, it shall communicate its belief to the other competent authorities concerned.
(3) If the Bank is the co-ordinator of a financial conglomerate, it shall notify in writing—
(a) the parent undertaking that heads the group, or
(b) if there is no such parent undertaking, the regulated entity to which is attributable the largest balance sheet total in the most significant financial sector within the group.
(4) If the Bank is the co-ordinator of a financial conglomerate, it shall also notify the matters referred to in paragraph (3) to—
(a) other competent authorities that have responsibility for supervising authorised regulated entities within the group, and
(b) the competent authorities of the Member State in which the relevant mixed financial holding company has its head office, and
(c) the European Commission.
SUPPLEMENTARY SUPERVISION
Scope of supplementary supervision of regulated entities
6. (1) A regulated entity that is within a financial conglomerate is subject to supplementary supervision to the extent and in the manner prescribed by these Regulations.
(2) The following regulated entities are, at the level of the financial conglomerate, subject to supplementary supervision in accordance with this Part and Parts 4 and 5:
(a) every regulated entity that is the head of a financial conglomerate;
(b) every regulated entity, the parent undertaking of which is a mixed financial holding company that has its head office within a Member State;
(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.
(3) If a financial conglomerate is a subgroup of another financial conglomerate that complies with paragraph (1), the relevant competent authorities may apply this Part and Parts 4 and 5 to and in respect of the regulated entities within the other group only, in which case the references in those Parts to “group” and “financial conglomerate” are to be read as references to that other group.
(a) a regulated entity is not subject to supplementary supervision as provided by paragraph (2), and
(b) the parent undertaking of the entity is a regulated entity or a mixed financial holding company that has its head office outside the European Community,
the entity is subject to supplementary supervision at the level of the financial conglomerate to the extent and in the manner prescribed by Part 6.
(5) If persons—
(a) hold participatory interests, or have capital ties, in one or more regulated entities, or
(b) exercise significant influence over any such entities without holding any such interests or ties (other than the cases referred to in paragraphs (2) to (4)),
the relevant competent authorities shall, by agreement, decide whether and to what extent supplementary supervision of the entities is to be carried out (as would be the case if the entities comprised a financial conglomerate).
(6) For the purposes of paragraph (5), at least one of the entities must be a regulated entity and the conditions specified in Regulation 3(3)(d) and (e) must be met. The relevant competent authorities shall make their decision after taking into account the objectives of the supplementary supervision as provided for by these Regulations.
(7) When applying paragraph (5) to a co-operative group, the relevant competent authorities shall take into account the public financial commitment of the group with respect to other financial entities.
(8) Supplementary supervision of the regulated entities within a financial conglomerate does not imply that the competent authorities concerned are required to perform a supervisory role in relation to a particular mixed financial holding company, a third-country regulated entity within a financial conglomerate or an unregulated entity within a financial conglomerate, on an individual basis. This paragraph does not affect the operation of Regulation 16.
Which bodies have responsibility for exercising supplementary supervision of regulated entities
7. (1) Except as otherwise specifically provided by these Regulations, the relevant competent authorities shall exercise supplementary supervision of regulated entities within a financial conglomerate as provided by Regulation 11, Parts 4 and 5 and Schedules 1 and 2.
(2) The co-ordinator of a financial conglomerate shall, in accordance with Parts 4 and 5, supervise compliance with the requirements of Regulations 8 to 11. However, if the Bank is the co-ordinator, the obligation imposed by this paragraph is subject the Bank's responsibilities under the Sectoral Rules.
8. (1) Every authorised regulated entity within a financial conglomerate shall ensure—
(a) that own funds are maintained at the level of the conglomerate that are always at least equal to the capital adequacy requirement calculated in accordance with Schedule 1, and
(b) that adequate capital adequacy policies are established and maintained at the level of the conglomerate.
(2) The co-ordinator of a financial conglomerate shall ensure that the calculation referred to in paragraph (1)(a) is made at least twice each year, either by the regulated entities within the conglomerate or by the relevant mixed financial holding company.
(3) The responsible entity of a financial conglomerate shall ensure that the results of the calculation referred to in paragraph (1)(a), together with data used for the calculation, are submitted to the co-ordinator of the conglomerate within a period or periods specified by the co-ordinator.
(4) For the purpose of calculating the capital adequacy requirements referred to in paragraph (1), the following entities are to be included within the scope of supplementary supervision in the manner and to the extent prescribed by Schedule 1:
(a) a credit institution, a financial institution or an ancillary banking services undertaking;
(b) an insurance undertaking, a reinsurance undertaking or an insurance holding company;
(c) an investment firm;
(d) a mixed financial holding company.
(5) In calculating supplementary capital adequacy requirements for a financial conglomerate by applying method 1 (accounting consolidation method) referred to in Schedule 1, the own funds and the solvency requirements of the entities within the group are to be determined by applying the corresponding Sectoral Rules on the form and extent of consolidation that are in particular prescribed by Article 54 of Directive 2000/12/EC and Annex I.1.B of Directive 98/78/EC.
(6) In calculating supplementary capital adequacy requirements for a financial conglomerate by applying method 2 (deduction and aggregation method), or method 3 (book value/requirement deduction method), as referred to in Schedule 1, if the parent undertaking or undertaking holds a participatory interest in another entity of the group, account must be taken of the proportional share that the undertaking holds in the other entity. For the purpose of this paragraph, “proportional share” means the proportion of the subscribed capital that the parent undertaking holds, whether directly or indirectly.
(7) In the following cases, the co-ordinator of a financial conglomerate may decide to treat a particular entity as not being part of a group in calculating the supplementary capital adequacy requirements for the group:
(a) if the entity is located in a place that is not within a Member State and legal impediments in that place prevent the transfer of the required information;
(b) if treating the entity as part of the conglomerate would be inappropriate or misleading, having regard to the objectives of supplementary supervision of regulated entities included within the conglomerate.
This paragraph does not prevent the Bank from refusing to grant under the relevant Sectoral Rules an authorisation to an entity located in a third country if impediments imposed by or under a law of that country to the transfer of information would prevent or inhibit the Bank from effectively exercising its supervisory functions in respect of the entity.
(8) The co-ordinator of a financial conglomerate shall treat an entity as part of the group if—
(a) the entity is one of several entities within the group, and
(b) those entities are, collectively, of significant interest,
even if the entity is itself of negligible interest as regards the conglomerate.
(9) The co-ordinator of a financial conglomerate shall, except in a case of urgency, consult the other relevant competent authorities before deciding to treat an entity as not being part of a financial conglomerate in the circumstances specified in paragraph (7)(b).
(10) If the co-ordinator of a financial conglomerate is not the Bank and the co-ordinator decides, in accordance with paragraph (7)(b), to treat an authorised regulated entity as not being part of a financial conglomerate, the entity that heads the conglomerate shall, if required to do so by the Bank, provide the Bank with such information as will facilitate its supervision of the authorised entity.
(11) An entity that, without reasonable excuse, fails to comply with a requirement made under paragraph (10) commits an offence.
9. (1) An entity to which this Regulation applies shall, at least twice in each year, provide the co-ordinator of the conglomerate with a report as to the existence or otherwise of any significant risk concentration at the level of the financial conglomerate concerned. A report must comply with the rules prescribed by this Regulation and by Schedule 2.
(2) This Regulation applies to—
(a) every authorised regulated entity within a financial conglomerate, and
(b) every mixed holding company that heads a financial conglomerate and has its head office within the State.
(3) The responsible entity of the financial conglomerate concerned shall ensure that each entity to which this Regulation applies complies with paragraph (1) by such dates as are specified by the co-ordinator.
(4) If a financial conglomerate has its head office in the State, the Bank may—
(a) set quantitative limits in relation to risk concentration at the level of the conglomerate, and
(b) impose such other supervisory measures in relation to risk concentration as it considers will achieve the objectives of supplementary supervision.
(5) If a financial conglomerate is headed by a mixed financial holding company, the Sectoral Rules relating to the risk concentration of the most important financial sector within the conglomerate apply to that sector as a whole and to the relevant mixed financial holding company.
10. (1) Every entity to which this Regulation applies shall, at least twice in each year, provide the co-ordinator of the conglomerate with a report giving particulars of all significant intra-group transactions of the regulated entities within the conglomerate. A report must comply with the rules prescribed by this Regulation and by Schedule 2.
(4) To the extent that no definition of the thresholds referred to in the last sentence of paragraph 1(2) of Schedule 2 has been prepared, an intra-group transaction is presumed to be significant if its amount exceeds at least 5 per cent of the total amount of capital adequacy requirements at the level of a financial conglomerate.
(5) The Bank may—
(a) set quantitative limits, and qualitative requirements, in relation to intra-group transactions of authorised regulated entities within a financial conglomerate, and
(b) impose such other supervisory measures in relation to those intra-group transactions as it considers will achieve the objectives of supplementary supervision.
(6) If a financial conglomerate is headed by a mixed financial holding company, the Sectoral Rules relating to intra-group transactions of the most important financial sector within the conglomerate apply to that sector as a whole and to the relevant mixed financial holding company.
Internal control mechanisms and risk management processes
11. (1) Every authorised regulated entity within a financial conglomerate shall ensure that adequate risk management processes and internal control mechanisms, including sound administrative and accounting procedures, are established and maintained at the level of the conglomerate.
(2) The risk management processes referred to in paragraph (1) must include the following:
(a) sound governance and management, with the approval and periodical review of the strategies and policies by the appropriate governing body at the level of the financial conglomerate with respect to all the risks that it assumes;
(b) adequate capital adequacy policies in order to anticipate the impact of the business strategy of that conglomerate on risk profile and on capital requirements, as determined in accordance with Regulation 8 and Schedule 1;
(c) adequate procedures to ensure that—
(i) the risk monitoring systems at the level of the financial conglomerate are well integrated into the regulated entities concerned, and
(ii) all measures are taken to ensure that the systems implemented within each of the undertakings within that conglomerate and that are within the scope of supplementary supervision are consistent so that the risks can be measured, monitored and controlled at the level of that conglomerate.
(3) The internal control mechanisms referred to in paragraph (1) must include the following:
(a) adequate mechanisms to ensure that capital adequacy is maintained and, in particular, to identify and measure all material risks incurred and to appropriately relate own funds to risks within the financial conglomerate as a whole;
(b) sound reporting and accounting procedures to identify, measure, monitor and control the intra-group transactions and the risk concentration within that conglomerate as a whole.
(4) Every undertaking to which this paragraph applies shall maintain adequate internal control mechanisms for the production of any information that would be relevant for the purposes of exercising supplementary supervision of regulated entities within a financial conglomerate. This paragraph applies to every undertaking that is authorised, established or located, or that has its head office, within the State and is within the scope of supplementary supervision as provided by Regulation 6.
(5) An undertaking that, without reasonable excuse, fails to comply with paragraph (4) commits an offence.
MEASURES TO FACILITATE SUPPLEMENTARY SUPERVISION
Co-ordinator to be appointed in respect of financial conglomerate
12. (1) To ensure a proper level of supplementary supervision of the regulated entities within a financial conglomerate, the Bank and the competent authorities of the other Member States in which any of those entities are authorised (including the competent authority of the Member State in which the relevant mixed financial holding company has its head office) shall appoint one of them to be the co-ordinator of the conglomerate in accordance with this Regulation.
(2) If the financial conglomerate is headed by a regulated entity, the competent authority that authorised the entity in accordance with the relevant Sectoral Rules is to be appointed as co-ordinator.
(3) If the financial conglomerate is not headed by a regulated entity, the competent authority identified in accordance with the following principles is to be appointed as co-ordinator:
(a) if the parent of a regulated entity is a mixed financial holding company, the competent authority that authorised the entity in accordance with the relevant Sectoral Rules is to be appointed;
(b) if two or more regulated entities that have their head offices in different Member States have as their parent the same mixed financial holding company and one of the entities is authorised in the Member State in which the mixed financial holding company has its head office, the competent authority of that Member State is to be appointed.
(a) two or more regulated entities have been authorised in the Member State in which the relevant mixed financial holding company has its head office, and
(b) those entities are carrying on business in different financial sectors,
the competent authority of the regulated entity that is active in the most important financial sector is to be appointed.
(a) the financial conglomerate is headed by more than one mixed financial holding company with a head office in different Member States, and
(b) there is a regulated entity in each of those States,
then, if the entities are active in the same financial sector, the competent authority of the entity with the largest balance sheet total is to be appointed, but otherwise, the competent authority of the entity carrying on business in the most important financial sector is to be appointed.
(a) two or more entities with their head offices in a Member State have as their parent the same mixed financial holding company, and
(b) none of the entities has been authorised in the Member State in which that company has its head office,
the competent authority that authorised the entity that at the relevant time has the largest balance sheet total in the most important financial sector is to be appointed.
(7) If the financial conglomerate is a group that is not headed by a parent undertaking, or in any other case not provided for under this Regulation, the competent authority that authorised the regulated entity that at the relevant time has the largest balance sheet total in the most important financial sector is to be appointed.
(8) In the case of a particular financial conglomerate, the Bank and the other relevant competent authorities—
(a) may decide to disregard the criteria prescribed by paragraphs (2) to (7) if they consider that the application of those criteria to the conglomerate would be inappropriate, taking into account the structure of the conglomerate and the relative importance of its activities in different countries, and
(b) may instead appoint a different competent authority as co-ordinator.
However, before taking action under this paragraph, the Bank and those other competent authorities shall give the conglomerate an opportunity to give its views on the matter.
Bank required to maintain a register of financial conglomerates
13. (1) The Bank shall establish and maintain a register of those groups that include authorised regulated entities and have been identified as financial conglomerates.
(2) The Bank shall include in the register particulars of the co-ordinators of those groups.
Powers of Bank when appointed as co-ordinator of a financial conglomerate
14. If the Bank is appointed as the co-ordinator of a financial conglomerate, it has all the powers necessary to undertake its role as such.
Powers of co-ordinator when the Bank is not the co-ordinator
15. If a competent authority of another Member State is appointed as co-ordinator of a financial conglomerate, the authority is authorised to perform and exercise within the State its functions and powers as co-ordinator of the conglomerate and, in particular, to take in the State all such measures as are necessary to give effect to its decisions in respect of the conglomerate and the entities that comprise it.
Tasks to be undertaken by co-ordinator with respect to supplementary supervision of regulated entities within a financial conglomerate
16. (1) The tasks to be undertaken by the co-ordinator of a financial conglomerate include (but are not limited to) the following:
(a) co-ordinating the gathering and dissemination of relevant or essential information in both normal and emergency conditions, including the dissemination of information that is of importance for the performance of a competent authority's functions under the Sectoral Rules;
(b) exercising supervisory review over, and assessing, the financial position of the conglomerate;
(c) assessing the conglomerate's compliance with the rules on capital adequacy and of risk concentration and intra-group transactions as specified in Part 3;
(d) assessing the conglomerate's structure, organisation and internal control system as specified in that Part;
(e) in co-operation with other relevant competent authorities, planning and co-ordinating supervisory activities in both normal and emergency conditions;
(f) performing tasks, and taking measures and making decisions, assigned to the co-ordinator by or under these Regulations or arising from the application of the Financial Conglomerates Directive.
(2) In order to facilitate and establish supplementary supervision of the conglomerate, the co-ordinator of a financial conglomerate shall, in association with the other relevant competent authorities, establish and maintain appropriate co-ordination arrangements. Those arrangements may—
(a) provide for additional tasks to be assigned to the co-ordinator, and
(b) specify the procedures for the decision-making process among the relevant competent authorities in respect of decisions to be made under these Regulations, and for co-operation with competent authorities of other Member States.
(3) The co-ordinator of a financial conglomerate shall, whenever appropriate, liaise with the relevant competent authorities of other Member States in order to avoid, as far as possible, duplication of reporting by the regulated entities within the conglomerate to the various authorities involved in supervising those entities.
(4) As soon as practicable after making findings with respect to its supplementary supervision of a financial conglomerate under these Regulations, the co-ordinator of the conglomerate shall inform the other competent authorities concerned of its findings.
(5) The fact that the co-ordinator of a financial conglomerate is entrusted with specific tasks relating to supplementary supervision of regulated entities within the conglomerate does not limit the responsibilities of the Bank under the Sectoral Rules. This paragraph does not prevent the delegation of specific supervisory competences and responsibilities as provided for by other legislation of the European Community.
Co-operation and exchange of information between competent authorities
17. (1) The co-ordinator of a financial conglomerate shall—
(a) co-operate as closely as possible with the other competent authorities that are responsible for supervising the regulated entities within the conglomerate, and
(b) provide the other competent authorities responsible for supervising the regulated entities within the conglomerate with any information that is essential for, or relevant to, the performance by those authorities of their supervisory tasks under the relevant Sectoral Rules and the Financial Conglomerates Directive, and
(c) on request, communicate all relevant information to the other competent authorities concerned and, on its own initiative, communicate all essential information to those competent authorities and to the co-ordinator.
(2) In relation to a financial conglomerate of which it is not the co-ordinator, the Bank shall—
(a) co-operate as closely as possible with the co-ordinator of the conglomerate and with the other competent authorities that are responsible for supervising the regulated entities within the conglomerate, and
(b) provide the co-ordinator of the conglomerate and the other competent authorities responsible for supervising the regulated entities within the conglomerate with any information that is essential for, or relevant to, the performance by those authorities of their tasks under the Sectoral Rules and the Financial Conglomerates Directive, and
(c) on request, communicate all relevant information and, on its own initiative, all essential information.
(3) The co-operation referred to paragraphs (1) and (2) must, as a minimum, provide for the gathering and the exchange of information with respect to the following matters:
(a) identifying the group structure of all major entities belonging to the financial conglomerate and those competent authorities that are responsible for supervising the regulated entities within the conglomerate;
(b) the financial conglomerate's strategic policies;
(c) the financial situation of the financial conglomerate, in particular with respect to its capital adequacy, intra-group transactions, risk concentration and profitability;
(d) the financial conglomerate's major shareholders, directors and managers;
(e) the organisation, risk management and internal control systems that are maintained by the financial conglomerate;
(f) the procedures for collecting information from the entities within the financial conglomerate, and for verifying that information;
(g) identifying adverse developments in regulated entities, or in other entities, within the financial conglomerate that could seriously affect the performance of those regulated entities;
(h) identifying major sanctions imposed, and exceptional measures taken, by competent authorities in respect of the financial conglomerate in accordance with Sectoral Rules, the Financial Conglomerates Directive or these Regulations.
(4) The Bank may give the following authorities such information with respect to regulated entities that are within a financial conglomerate as they may require to enable them to perform their respective responsibilities:
(a) central banks of Member States;
(b) the European System of Central Banks;
(c) the European Central Bank.
(5) The Bank shall, before participating in making a decision about any of the following matters, consult the competent authorities of the other Member States if those decisions are relevant to the performance by those other authorities of their supervisory responsibilities with respect to a financial conglomerate or regulated entities within the conglomerate:
(a) changes in the shareholder, organisational or management structure of regulated entities within the conglomerate that require approval or authorisation by the Bank;
(b) major sanctions imposed, or exceptional measures taken, by the Bank with respect to the conglomerate or entities within the conglomerate that are authorised regulated entities.
(6) The Bank may decide not to consult competent authorities of other Member States as provided by this Regulation in a case of urgency or if consultation could jeopardise the effectiveness of decisions to be taken by the Bank under these Regulations or the Sectoral Rules. If the Bank takes such a decision, it shall, without delay, inform those competent authorities of the decision. Nothing in this paragraph affects the respective responsibilities of the Bank and other competent authorities under the relevant Sectoral Rules.
(7) If the parent undertaking of a financial conglomerate has its head office in the State, but the Bank is not the co-ordinator of the conglomerate, the Bank shall, if requested to do so by the co-ordinator of the conglomerate, require that undertaking to provide any information that would be relevant to the performance by the co-ordinator of the tasks referred to in Regulation 16. On being provided with information in accordance with a requirement made under this paragraph, the Bank shall forward the information to that co-ordinator.
(8) If the Bank is the co-ordinator of a financial conglomerate and the parent undertaking of the conglomerate has its head office in another Member State, it may request the competent authority of that State—
(a) to require that undertaking to provide it with any information that would be relevant to the performance by the Bank of its tasks as co-ordinator as referred to in Regulation 16, and
(b) to forward that information to the Bank.
(a) information relevant to the supplementary supervision of an entity of a financial conglomerate has already been given to the Bank in accordance with the Sectoral Rules, and
(b) the competent authority of another Member State is responsible for exercising supplementary supervision over the entity,
the Bank shall, on being requested to do so, give the information to that authority.
(a) information relevant to the supplementary supervision of an entity of a financial conglomerate has already been given to a competent authority of another Member State in accordance with the Sectoral Rules, and
(b) the Bank is responsible for exercising supplementary supervision of the entity,
the Bank can request the authority to give it the information.
(11) The fact that the Bank has collected, or is in possession of, information relating to a non-regulated entity within a financial conglomerate does not imply that the Bank or the competent authority of any other Member State is required to exercise supervision of the entity otherwise than on a collective basis.
(12) Information obtained by the Bank in accordance with these Regulations is subject to the provisions of the Sectoral Rules relating to professional secrecy and communication of confidential information.
Only suitably qualified persons of good repute and with sufficient experience to manage mixed financial holding companies
18. (1) This Regulation applies only to a mixed financial holding company that has its head office within the State.
(2) A mixed financial holding company is required to take all reasonably practicable steps to ensure that the persons who are concerned in the direction or management of the company—
(a) are suitably qualified, and
(b) are of sufficiently good repute, and
(c) have sufficient experience,
to be able to perform their obligations in that capacity.
(3) The Bank may, by notice given in writing, direct a mixed financial holding company to provide it with such information concerning the qualifications, reputation and experience of the persons who are concerned in the direction or management of the company as is specified in the notice.
(4) If the Bank is satisfied on reasonable grounds that a person who is concerned in the direction or management of a mixed holding company—
(a) is not suitably qualified, or
(b) is not of sufficiently good repute, or
(c) does not have sufficient experience,
to be concerned in the direction or management of the company, it may, by notice given in writing, direct the company to take such action (including terminating the person's appointment with the company) as may be specified in the notice.
(5) A mixed financial holding company shall not appoint a person to a position by virtue of which the person will be concerned in the direction or management of the company unless it has previously notified the Bank of the proposal to make the appointment. An appointment made in contravention of this paragraph is void.
(6) A mixed financial holding company shall provide the Bank with such information as it requires concerning the qualifications, reputation and experience of a person referred to in paragraph (5).
(7) A mixed financial holding company to which a direction has been notified under this Regulation shall comply with the direction within the period specified in the notice.
(8) A mixed financial holding company that—
(a) contravenes paragraph (5), or
(b) fails to comply with paragraph (6) or (7),
(9) The Bank is not liable in damages for any loss of office arising directly or indirectly because the Bank has given a direction under paragraph (4).
(10) The Bank may, by further notice in writing, vary or revoke a direction notified to a mixed financial holding company under this Regulation.
(11) A direction, and a variation or revocation of the direction, notified under this Regulation take effect from the date of the notice or, if a later date is specified in the notice, from that later date.
(12) A direction notified to a mixed financial holding company under this Regulation and a variation of the direction are appealable decisions for the purposes of Part VIIA of the Central Bank Act 1942 .
(13) For the purposes of this Regulation, a person is concerned in the direction or management of a mixed financial holding company if the person—
(a) is a director of the company, or
(b) not being a director of the company, has, in the opinion of the Bank, power to direct or control the affairs of the company, or
(c) is the chief executive of the company, or
(d) holds any other management position with the company of a kind publicly notified by the Bank.
Entities within financial conglomerate entitled to exchange information among themselves
19. Nothing in these Regulations prevents regulated entities within a financial conglomerate, or other persons, that are subject to supplementary supervision by the Bank, or by the competent authority of any other Member State, from exchanging among themselves any information that is or would be relevant to that supervision.
Bank entitled to access to certain information
20. (1) This Regulation applies to an entity that is part of a financial conglomerate if the entity is authorised, established or located, or has its head office, within the State.
(2) When dealing with an entity to which this Regulation applies in connection with the performance of its functions under these Regulations, either directly or indirectly, the Bank has the right to have access to all information that is relevant to the supplementary supervision of the conglomerate and, for that purpose, may, at all reasonable times, enter premises where the entity carries on business.
(3) A person who, without reasonable excuse, obstructs the Bank from exercising the right or power conferred on it by paragraph (3) commits an offence.
(4) An entity to which this Regulation applies shall, whenever requested to do so by the Bank in its capacity as competent authority or co-ordinator, provide the Bank with such information as the Bank specifies as being required for the purposes of these Regulations.
(5) An entity to which this Regulation applies shall establish and maintain such information systems as are necessary to enable it to provide the Bank with information to which it is entitled to have access or be provided with under these Regulations.
(6) An entity that, without reasonable excuse, fails to comply with paragraph (4) or (5) commits an offence.
Verification of information requested by the Bank or another competent authority
21. (1) If, in applying these Regulations, the Bank wishes to verify information relating to a particular entity that is part of a financial conglomerate and the entity is located in another Member State, it can request the competent authority of that State to arrange for the information to be verified either—
(a) by arranging for one of its officers or an auditor or expert to carry out the verification on its behalf, or
(b) by allowing the Bank to carry out the verification itself.
(2) If the Bank receives from a competent authority of another Member State a request to arrange for verification of information relating to an entity that is authorised, established or located, or has its office, within the State, the Bank may act on the request either—
(a) by arranging for one of its officers or an auditor or other expert to carry out the verification on its behalf, or
(b) by allowing the competent authority to carry out the verification itself.
(3) A competent authority that has made a request to the Bank under paragraph (2) may, if it so wishes, participate in the verification even if it does not carry out the verification itself. Similarly, if the Bank has made a request to a competent authority of another Member State under paragraph (1), it may, if permitted to do so by a law of that other State, participate in the verification even if it does not carry out the verification itself.
ENFORCEMENT OF THESE REGULATIONS
Measures for enforcing these Regulations
22. (1) If an authorised regulated entity within a financial conglomerate does not comply with a requirement of Part 3, the relevant authority shall, by notice given in writing, direct the entity to take such measures as will rectify the situation within such reasonable period as is specified in the notice.
(2) If, in the opinion of the relevant authority—
(a) the solvency of the regulated entities within a financial conglomerate could be jeopardised, or
(b) the intra-group transactions or risk concentrations of a conglomerate are a threat to the financial position of the regulated entities within the conglomerate,
that authority shall, by notice in writing, direct the regulated entities, and if a mixed financial holding company heads the conglomerate, the company, to take such measures as will rectify the situation within such reasonable period as is specified in the notice.
(3) An authorised regulated entity or mixed financial holding company that has been notified of a direction in accordance with this Regulation shall comply with the direction within the period specified in the notice or, if the relevant authority extends that period, within that extended period.
(4) If the relevant authority proposes to require measures to be taken under this Regulation, it shall, whenever appropriate, co-ordinate its actions in association with the other competent authorities concerned.
(5) The obligations imposed on a relevant authority by this Regulation must be performed even if all of the requirements of the Financial Conglomerates Directive are satisfied.
(6) An authorised regulated entity or mixed financial holding company that, without reasonable excuse, fails to comply with paragraph (3) commits an offence.
(7) For the purposes of this Regulation, the relevant authority is—
(a) the Bank in the case of authorised regulated entities, and
(b) the co-ordinator in the case of a mixed financial holding company.
Additional powers of the Bank
23. The Bank may take such supervisory measures as it considers necessary in order to prevent or deal with the circumvention of the relevant Sectoral Rules by authorised regulated entities within a financial conglomerate.
Special provisions for mixed financial holding companies that have their head offices in the State
24. (1) If—
(a) in the opinion of the Bank, a mixed financial holding company that has its head office within the State—
(i) has failed to provide the co-ordinator of the financial conglomerate of which the company is a part, within such reasonable period as is specified by that co-ordinator, with such information as that co-ordinator has reasonably requested for the purpose of enabling it to perform its functions under these Regulations, or
(ii) has failed to comply with any direction or requirement notified to the company in accordance with these Regulations, and
(b) the circumstances are such that the Bank is of the opinion that the stability or soundness of the financial conglomerate is or will become materially affected by the failure,
the Bank shall inform the company accordingly, and shall, by notice in writing, direct the company to rectify the failure within such period as is specified in the notice.
(a) in the opinion of the Bank, a mixed financial holding company that has its head office within the State has become, or is likely to become, unable to meet its obligations to its creditors or its clients, or
(b) the circumstances are such that the Bank is of the opinion that the stability or soundness of the financial conglomerate is or will become materially affected by the inability,
the Bank shall inform the company accordingly, and shall, by notice in writing, direct the company to rectify the situation within such period as is specified in the notice.
(3) If, in the opinion of the Bank, the subsidiaries of a mixed financial holding company that has its head office within the State, or the entities in which or with which such a company holds participatory interests or has close links—
(a) are not maintaining, or are unlikely to be in a position to maintain, adequate capital resources (having regard to the volume and nature of their business), or
(b) no longer comply with capital or other financial requirements specified by the relevant competent authorities,
the Bank shall inform the company accordingly and shall, by notice in writing, direct the company to take such measures to rectify the situation as are specified in the notice.
(4) The Bank may issue a direction to a mixed financial holding company under this Regulation only if—
(a) it has notified the company in writing of its intention to do so, and
(b) has given the company an opportunity to make, within a period specified in the notice, representations on the matter.
(5) If a mixed financial holding company fails to comply with a direction of the Bank given to the company under this Regulation, the Bank shall, without delay, notify the relevant competent authorities of the failure.
(6) The Bank may, in a case of emergency, dispense with its obligations under paragraphs (4) and (5) if it considers that it is necessary to do so in the interest of the proper and orderly regulation of financial markets in the State.
(7) For the purposes of this Regulation, the Bank shall co-operate with the other relevant competent authorities concerned to ensure that, as far as practicable, the imposition of such penalties and other measures as will achieve proper supplementary supervision of regulated entities in the relevant mixed financial holding company.
Offence to provide false or misleading information in purported compliance with direction or requirement under these Regulations
25. A person who, knowing the information to be false or misleading, provides the Bank or the co-ordinator of a financial conglomerate with information in purported compliance with a direction or requirement notified to the person by the Bank or by that co-ordinator in accordance with these Regulations commits an offence.
Liability of directors and managers for offences committed by entities
26. (1) If an entity that is authorised, established or located, or has its head office, within the State and is included within the scope of supplementary supervision provided for by these Regulations commits an offence against these Regulations, each person who, at the time when the offence is found to have been committed, was concerned in the direction or management of the entity commits a separate offence, unless the person establishes in the proceedings that—
(a) the offence was committed by the entity without the person's knowledge, or
(b) although the person did have that knowledge, the person took all reasonably practicable steps to prevent the commission of the offence by the entity.
(2) A person may be prosecuted and convicted of an offence under paragraph (1) even if the body corporate is not prosecuted or convicted.
(3) In this Regulation, “entity” does not include a natural person.
Penalties for offences under these Regulations
27. A person who is found guilty of an offence under these Regulations is liable on conviction—
(a) if a natural person, to a fine not exceeding €3,000 or to imprisonment for a term of not more than 12 months, or to both, or
(b) if not a natural person, to a fine not exceeding €5,000.
Prosecution of offences under these Regulations
28. (1) An offence alleged to have been committed under these Regulations is triable summarily.
(2) A prosecution for an offence under these Regulations may be taken only by the Bank or by some other person who is authorised by law to prosecute offences.
(3) Despite section 10(4) of the Petty Sessions (Ireland) Act 1851, summary proceedings for an offence under these Regulations may be started only within 12 months after the date on which the offence is alleged to have been committed.
Power of the High Court to make enforcement orders
29. (1) The co-ordinator of a financial conglomerate or the Bank (if it is not the co-ordinator of the conglomerate) may apply to the High Court in a summary manner for an order under paragraph (3) if of the opinion that a person specified in the application—
(a) is contravening, or
(b) has contravened, or
(c) is not complying with,
a provision of these Regulations, or a direction given, or a requirement made, under such a provision.
(2) On making an application under paragraph (1), the Bank shall serve a copy of the application on the person in respect of whom the application is made. On being served with the copy, that person becomes the respondent to the application and as such is entitled to appear before and be heard at the hearing of the application.
(3) Pending the hearing of the application, the High Court may make such interim or interlocutory orders as it thinks fit.
(4) On the haring of the application, the High Court may make an order directing the respondent—
(a) to cease to contravene, or
(b) not to repeat the contravention of, or
(b) to comply with,
the provision of these Regulations, or the direction or requirement, to which the application relates, provided it is satisfied that the person is contravening or has contravened, or is not complying with, the provision, direction or requirement.
(5) If the High Court makes an order under paragraph (4), it may also make such ancillary orders as thinks appropriate in the circumstances.
FINANCIAL CONGLOMERATES WHOSE PARENT UNDERTAKINGS ARE LOCATED IN THIRD COUNTRIES
Application of this Part to financial conglomerates whose parent undertakings are located outside the Member States
30. This Part applies to a financial conglomerate that comprises or includes regulated entities whose parent undertaking has its head office located at a place that is not within a Member State.
Co-ordinators of financial conglomerates to which this Part applies
31. For the purposes of this Part, the Bank is taken to be the co-ordinator of a financial conglomerate to which this Regulation applies if, assuming the criteria specified in Regulation 12 were to be applied, it would be the co-ordinator of such a financial conglomerate.
Obligations and powers of the Bank in relation to financial conglomerates to which this Part applies
32. (1) If the Bank is taken to be the co-ordinator of a financial conglomerate to which this Part applies, it shall take such steps as are necessary to verify—
(a) whether the regulated entities within the conglomerate are subject to supervision by an authority of a third country, and
(b) if it is subject to such supervision, whether the supervision is equivalent to that provided for by these Regulations for a financial conglomerate whose parent undertaking has its head office within a Member State.
(2) The action referred to in paragraph (1) may be taken by the Bank either—
(a) on its own initiative, or
(b) at the request of the parent undertaking of the financial conglomerate concerned or of any regulated entity within that conglomerate that is authorised by a competent authority of a Member State.
(3) If a competent authority of another Member State is taken to be the co-ordinator of a financial conglomerate to which this Part applies, the Bank shall do everything within its capacity to assist the authority to carry out its responsibilities with respect to verification of the matters referred to in paragraph (1)(a) and (b).
(4) If the Bank is taken to be the co-ordinator of a financial conglomerate to which this Part applies, it—
(a) shall, before taking action under this Regulation, consult the other relevant competent authorities and the Financial Conglomerates Committee, and
(b) shall, in taking such action, take into account any applicable guidance prepared by that Committee in accordance with Article 21 (5) of the Financial Conglomerates Directive.
(5) If a financial conglomerate to which this Part applies is found not to be subject to supervision that is equivalent to that contemplated by the Financial Conglomerates Directive, the Bank may enter into an agreement with the other relevant competent authorities to apply these Regulations or regulations of another Member State that correspond to these Regulations, or such of them as may be specified in the agreement, to and in respect of the regulated entities within the conglomerate. On such an agreement being entered into, these Regulations or the regulations of the other Member State, or such of them as are specified in the agreement, apply to the financial conglomerate by the operation of this paragraph.
(6) As an alternative to paragraph (5), the Bank may, if it is taken to be the co-ordinator of a financial conglomerate to which this Part applies, apply any other method that will ensure that the regulated entities within the conglomerate are subject to appropriate supplementary supervision. However, the Bank may take action under this paragraph only after consulting the other relevant competent authorities concerned.
(7) If the Bank is taken to be the co-ordinator of a financial conglomerate to which this Part applies, it may, with the agreement of the other relevant competent authorities, require that a mixed financial holding company be established in respect of the conglomerate and that the company must, on being established, have its head office located within a Member State.
(8) If a competent authority of another Member State is taken to be the co-ordinator of a financial conglomerate to which this Part applies, the Bank may enter into an agreement with that authority and the other relevant competent authorities under which—
(a) a mixed financial holding company is required to be established in respect of the conglomerate, and
(b) the company, on being established, is required to have its head office located within a Member State.
(9) As soon as practicable after applying a method in accordance with paragraph (6), the Bank shall notify the European Commission of the method that has been used.
Financial Conglomerates Committee to be notified of principles applicable to supervision of intra group transactions and risk concentration
33. As soon as practicable after formulating principles that it intends to apply for the purpose of supervising intra-group transactions and the risk concentration of the authorised regulated entities within financial conglomerates, the Bank shall notify the Financial Conglomerates Committee of those principles.
Regulations not to limit application of Sectoral Rules
34. Nothing in these Regulations limits the application of the relevant Sectoral Rules to or in respect of a regulated entity.
[ Regulations 7 , 8 and 11 ]
“notional solvency requirement”, in relation to a non-regulated financial sector entity whose notional solvency requirement is to be calculated in accordance with paragraphs 6 to 9 of this Schedule, means the capital requirement with which such an entity would have to comply under the relevant Sectoral Rules if it were a regulated entity of the same financial sector;
“solvency requirement”, in relation to an asset management company, means the capital requirement specified in Article 5a(1)(a) of Directive 85/611/EEC.
How capital adequacy requirements are to be calculated
2. (1) The calculation of the supplementary capital adequacy requirements of the regulated entities within a financial conglomerate is to be carried out in accordance with the technical principles, and one of the methods, described in this Schedule.
(2) Without limiting subparagraph (3), if the Bank is the co-ordinator of a particular financial conglomerate, it may, after consulting the other relevant competent authorities and the conglomerate, decide which method is to be used by the conglomerate.
(3) The Bank may require the calculation to be carried out according to one particular method among those described in this Schedule if the financial conglomerate concerned is headed by an authorised regulated entity. If a financial conglomerate is not headed by a regulated entity any of the methods described in this Schedule may be used except when the Bank is the sole competent authority involved, in which case the Bank shall determine the method to be used.
Technical principles: Supplementary capital adequacy requirements calculation
3. (1) Whichever method is used to calculate the supplementary capital adequacy requirements of a regulated entity that is a subsidiary of an undertaking and that has a solvency deficit, the total solvency deficit of the subsidiary must be taken into account.
(2) Whichever method is used to calculate the supplementary capital adequacy requirements of a non-regulated financial sector entity that is a subsidiary and that has a notional solvency deficit, the total notional solvency deficit of the subsidiary must be taken into account.
(3) If, in either case, the responsibility of the parent undertaking that owns a share of the capital is limited strictly and unambiguously to that share, the co-ordinator of the financial conglomerate concerned may permit the solvency deficit or notional solvency deficit of the subsidiary concerned to be taken into account on a proportional basis.
(4) If there are no capital ties between the entities that comprise a financial conglomerate, the co-ordinator of the conglomerate shall, after consulting the other relevant competent authorities, decide which proportional share will have to be taken into account, having regard to the liability to which the existing relationship gives rise.
Application of other technical principles
4. (1) The co-ordinator of a financial conglomerate and the other competent authorities concerned shall ensure that the following principles are applied to and in respect of the conglomerate:
(a) the multiple use of eligible elements 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;
(b) in order to ensure the elimination of multiple gearing and the intra-group creation of own funds, the relevant competent authorities must apply by analogy the relevant principles prescribed by the relevant Sectoral Rules;
(c) pending further harmonisation of the Sectoral Rules, the solvency requirements for each different financial sector represented in the conglomerate must be covered by own funds elements in accordance with the relevant Sectoral Rules;
(d) if there is a deficit of own funds at the level of the conglomerate, only own funds elements that are eligible according to each of the Relevant Sectoral Rules (cross-sector capital) qualify for verification of compliance with the additional solvency requirements;
(e) when the relevant Sectoral Rules provide for limits on the eligibility of certain own funds instruments (which would qualify as cross-sector capital) those limits are to similarly apply when own funds are calculated at the level of the conglomerate;
(f) when calculating own funds at the level of the conglomerate, the relevant competent authorities must also take into account the effectiveness of the transferability and availability of the own funds across the different legal entities within the group, given the objectives of the capital adequacy rules;
(g) the notional solvency requirement of a mixed financial holding company is to be calculated according to the relevant Sectoral Rules of the most important financial sector within the financial conglomerate.
(2) Subparagraph (1) has effect irrespective of the method used for calculating the supplementary capital adequacy requirements of the regulated entities within a financial conglomerate as prescribed by paragraphs 6 to 9 of this Schedule.
5. The following are the methods that can be used for calculating capital adequacy requirements:
(a) the accounting consolidation method (method 1);
(b) the deduction and aggregation method (method 2);
(c) the book value/requirement deduction method (method 3);
(d) a combination of methods 1, 2 and 3 (method 4).
Use of method 1 (the accounting consolidation method)
6. (1) If method 1 is used, the supplementary capital adequacy requirements of the regulated entities in a financial conglomerate must be calculated on the basis of the conglomerate's consolidated accounts. Those requirements are to be calculated as the difference between—
(a) the own funds of the conglomerate calculated on the basis of the consolidated position of the group, with the eligible elements being those qualifying in accordance with the relevant Sectoral Rules, and
(b) the sum of the solvency requirements for each different financial sector represented in the group, with the solvency requirements for each such sector being calculated in accordance with the relevant Sectoral Rules.
The difference may not be negative.
(2) For the purposes of subparagraph (1), the relevant Sectoral Rules are—
(a) Directive 2000/12/EC, Title V, Chapter 3, in relation to credit institutions, and
(b) Directive 98/78/EC in relation to insurance undertakings, and
(c) Directive 93/6/EEC in relation to credit institutions and investment firms.
(3) A notional solvency requirement must be calculated in respect of a non-regulated financial sector entity that is not included in the sectoral solvency requirement calculations.
Use of method 2 (the deduction and aggregation method)
7. (1) If method 2 is used, the supplementary capital adequacy requirements of the regulated entities within a financial conglomerate must be calculated on the basis of the accounts of each of the entities within the group. Those requirements are to be calculated as the difference between—
(a) the sum of the own funds of each regulated and non-regulated financial sector entity within the financial conglomerate, with the eligible elements being those qualifying in accordance with the relevant Sectoral Rules, and
(i) the solvency requirements for each regulated and non-regulated financial sector entity within the group, those requirements being calculated in accordance with the relevant Sectoral Rules, and
(ii) the book value of the participatory interests in other entities of the group.
(2) A notional solvency requirement must be calculated in respect of a non-regulated financial sector entity.
(3) For the purpose of paragraph (1), own funds and solvency requirements are to be taken into account for their proportional share as provided for in Regulation 8(6) and in accordance with the technical principles prescribed by this Schedule.
Use of method 3 (the book value/requirement deduction method)
8. (1) If method 3 is used, the supplementary capital adequacy requirements of the regulated entities in a financial conglomerate must be calculated on the basis of the accounts of each of the entities within the group. Those requirements are to be calculated as the difference between—
(a) the own funds of the parent undertaking or the entity at the head of the financial conglomerate, with the eligible elements being those qualifying in accordance with the relevant Sectoral Rules, and
(i) the solvency requirement of the parent undertaking or entity, and
(ii) the higher of the book value of the participatory interest that that undertaking or entity has in other entities within the group and the solvency requirements of those entities.
(2) The solvency requirements of the entities referred to in sub-subparagraph (1)(b)(ii) must be taken into account for their proportional share as provided for in Regulation 8(6) and in accordance with the technical principles prescribed by this Schedule.
(3) A notional solvency requirement must be calculated in respect of non-regulated financial sector entities.
(4) When valuing the elements eligible for the calculation of the supplementary capital adequacy requirements, participatory interests may be valued by the equity method in accordance with the option specified in Article 59(2)(b) of Directive 78/660/EEC.
Use of method 4 (combination of methods 1, 2 and 3)
9. The co-ordinator of a financial conglomerate may, with the agreement of the other relevant competent authorities, allow the use of a combination of methods 1, 2 and 3, or a combination of two of those methods.
TECHNICAL APPLICATION OF THE PROVISIONS ON INTRA-GROUP TRANSACTIONS AND RISK CONCENTRATION
[ Regulations 9 and 10 ]
Identifying kinds of transactions and risks that regulated entities within the conglomerate are required to report on
1. (1) The co-ordinator of a financial conglomerate shall, after consulting the other relevant competent authorities, identify the kinds of transactions and risks that regulated entities within the conglomerate are required to report in accordance with Regulations 8 and 9 concerning the reporting of intra-group transactions and risk concentration.
(2) When defining, or giving its opinion about, the kinds of transactions and risks referred to in subparagraph (1), the co-ordinator and the relevant competent authorities shall take into account the specific group and risk management structure of the financial conglomerate concerned. In order to identify significant risk concentration and significant intra-group transactions that are required to be reported in accordance with Regulations 8 and 9, the co-ordinator shall, after consulting the other relevant competent authorities and the conglomerate, define appropriate thresholds based on regulatory own funds or technical provisions, or both.
Monitoring and assessing intra-group transactions and risk concentrations of the regulated entities
2. When monitoring and assessing intra-group transactions and risk concentrations of the regulated entities within the financial conglomerate, the co-ordinator and the relevant competent authorities shall, in particular, take into account the following risks:
(a) the possible risk that problems arising in one sector of the conglomerate would, or could, be transmitted to other sectors of the conglomerate;
(b) the risk of a conflict of interests;
(c) the risk of circumvention of the relevant Sectoral Rules;
(d) the level and volume of risks.
Co-ordinator may apply Sectoral Rules relating to intra-group transactions and risk concentration
3. The co-ordinator of a financial conglomerate may apply at the level of the Financial Conglomerate those provisions of the Sectoral Rules that relate to intra-group transactions and risk concentration, in particular to prevent circumvention of those rules.
This 19th day of November 2004.
These Regulations give effect to 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 of the European Parliament and of the Council.
The Regulations puts new rules in place regarding the supplementary supervision of regulated entities in a financial conglomerate. A financial conglomerate is a major financial group which provides products and services in different financial sectors.