Draft Directive on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate and amending Directives 73/239/EEC, 79/267/EEC, 92/49/EEC, 92/96/EEC, 93/6/EEC, 93/22/EEC, 98/78/EC and 2000/12/EC.
|Legal base:||Article 47(2) EC; consultation; qualified majority voting
|Basis of consideration:
||Minister's letter of 18 February 2002 |
|Previous Committee Report:
||HC 152ix (200102), paragraph 1(5 December 2001)
|To be discussed in Council:
|Committee's assessment:||Legally and politically important
8.1 Under the present regulatory regime, financial institutions
such as credit institutions, investment firms and insurance companies
are regulated under specific sectoral directives. The rules which
apply to these groups do not, however, specifically address groups
which combine the services of investment firms, banks and insurance
companies. The result is a limited framework for the supervision
of such financial institutions. In particular, gaps exist in that
certain types of financial group are not covered by the existing
directives, and important rules on prudential matters which cover
firms subject to the sectoral directives do not cover financial
are also overlaps under the present system in that inconsistencies
arise in the treatment of similar prudential questions, and the
same financial group can be covered by different sectoral directives.
8.2 A regulatory framework for financial conglomerates
has been identified as a priority under the Financial Services
Action Plan. In December, we left uncleared a document that would
introduce comprehensive rules for the supervision of financial
conglomerates. We requested further information on the proposed
treatment of third country financial conglomerates and on the
effects, if any, of the Directive on the operation of the Financial
Services and Markets Act 2000.
The Minister's letter of 18 February 2002
8.3 As regards the proposed treatment of third country
financial conglomerates, the Economic Secretary to the Treasury
(Ruth Kelly) says that the Government's commitment to preserve
the UK's central role in financial markets was underlined in the
earlier Explanatory Memorandum and adds:
"As currently drafted, the Directive proposes that credit
institutions, insurance companies and financial institutions in
the EU, which are part of a group which is headed by a firm which
is outside the EU (3rd country groups), are covered by the Directive.
Consolidated supervision of these groups will ensure that risks
to financial stability are addressed as these risks are not limited
by EU boundaries. In particular, the Directive proposes that national
competent authorities consider whether the supervision of such
groups is equivalent to consolidated supervision carried out in
the EU. The current lack of consolidated supervision in the US
raises concerns about the impact of the directive on US firms
operating in the UK."
8.4 As regards the effects, if any, of the Directive
on the operation of the Financial Services and Markets Act 200,
the Minister says:
"the Explanatory Memorandum also emphasised that 'it
will be essential to ensure that the terms of the directive, as
finally agreed, do not undermine or constrain the operation of
the Financial Services and Markets Act. My purpose in drawing
attention to this was to underline the Government's continuing
commitment to the terms of the Act and to signal that as discussions
on the directive get underway, the new FSMA regime will need to
be borne closely in mind in the course of negotiation through
the Council Working Group and debates in the European Parliament.
"There is, in fact, no reason to expect that the directive
will constrain or undermine FSMA. As with many EU financial services
directives, we need to be aware of the interaction between this
directive and FSMA.
"You will understand that until it is ready for adoption
the Directive's final form cannot be foreseen; that stage may
not be reached for many months and there may be further changes
to the text. I will inform you and your Committee if changes emerged
which either materially constrained or undermined FSMA or could
undermine the UK position as a key financial sector, because of
the proposed treatment to third country groups."
8.5 In our earlier report, we noted that the Directive
would fill gaps in the current regulatory framework and reduce
overlaps and inconsistencies, but agreed with the Government that
the Directive must be flexible, proportionate and effective. We
thank the Minister for the further information and her undertaking
to inform us about changes made to the text during negotiations.
8.6 We clear the document.
document gives the example of the elimination of multiple gearing
of regulatory capital, that is, the same capital being counted
twice over and used simultaneously as a buffer against risk in
different entities in the same financial conglomerate. Back