The European Scrutiny Committee has made further
progress in the matter referred to it and has agreed to the following
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.
||Article 47(2) EC; consultation; qualified majority voting
||24 April 2001|
|Forwarded to the Council:
||25 April 2001|
|Deposited in Parliament:
||20 June 2001|
|Basis of consideration:
||EM of 5 July 2001
|Previous Committee Report:
|To be discussed in Council:
||Legally and politically important
||Not cleared; further information requested
1.1 The Commission argues that increasing
consolidation in the financial services market has led to the
emergence of financial conglomerates, defined as firms combining
services in differing sectors including the insurance, banking
and investment sectors. The importance of such financial conglomerates
varies throughout the EU with the Benelux and Scandinavian Member
States containing a large concentration of such firms.
A regulatory framework for financial conglomerates has been identified
as a priority under the Financial Services Action Plan.
1.2 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 conglomerates.
There 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.
1.3 The aim of the document is to introduce
comprehensive rules for the supervision of financial conglomerates.
It is being supplemented by a mapping exercise which the Commission
is undertaking in order to obtain a better assessment of the importance
of such groups in the EU.
1.4 The starting point of the Directive
is the definition of a financial conglomerate, set out in Articles
2 and 3.
1.5 Articles 5 and 6 set out measures to
secure capital adequacy. The Directive aims to ensure that entities
have sufficient capital even if they are part of a cross-sector
financial conglomerate. It proposes to do this by preventing multiple
gearing (where the same capital is used simultaneously as a buffer
against risk in two or more entities in the conglomerate) and
excessive leveraging (where the parent company issues debt and
down streams the proceeds as equity to its regulated subsidiaries).
1.6 Another provision is the regulation
of intra-group transactions and risk exposures (Article 6). This
is to be based on an internal management policy (subject to overview
by the supervisory authorities), reporting requirements to supervisors,
and effective supervisory enforcement powers.
1.7 The Directive recognises the importance
of coordination and information sharing between supervisory authorities
to ensure effective group-wide supervision of financial conglomerates.
The advantages of this would be that all aspects of the supervision
of financial conglomerates would be covered, duplication of the
supervisory tasks would be avoided with attendant cost savings,
and there would be a simplified supervision structure.
The Government's view
1.8 In her Explanatory Memorandum dated
5 July 2001, the Economic Secretary to the Treasury (Ruth Kelly)
states that the government broadly supports the Directive and
its objectives so long as they are :
" flexible and market responsive:
it will be important that the new regulatory framework should
be responsive to and capable of adapting to the changing market;
it should not constrain market developments;
" appropriate and proportionate:
the directive needs to focus on material inconsistencies
and be capable of being agreed and implemented efficiently; it
will be important to ensure that the new framework does not place
undue regulatory burdens or increased costs on the financial services
" effective and efficient:
in particular, the directive should lay down principles for the
appointment of a 'lead co-ordinator' that is, ensuring
that there are agreed arrangements for a supervisory authority
to lead in the exchange of information and co-ordination of activities
(few other EU Member States have the single cross-sector supervisory
authority embodied in the FSA)."
1.9 The Minister also states that:
"It will also 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. In particular, careful consideration will need to be given
to the directive's proposed treatment of third country groups.
It will be important to ensure that the directive does not create
disincentives to firms based outside the EU which wish to establish
within: and specifically, does not undermine London's or elsewhere
in the UK's position as a key financial centre."
1.10 The Directive would fill gaps in
the current regulatory framework and reduce overlap and inconsistency,
but we agree with the Government that the Directive must be flexible,
proportionate and effective. We request further information from
the Minister 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.
Meanwhile, we do not clear the document.
1 As the Commission is unaware of the actual importance
of these firms in individual Member States, a mapping exercise
is being carried out with the aim of assessing the status and
significance of such firms. Back
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