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The Council today1 adopted a directive amending the financial conglomerate directive in order to close loopholes and ensure appropriate supplementary supervision of financial entities in a financial conglomerate (PE-CONS 39/11 + 15670/11 ADD 1). The new directive also adapts the supervision of financial conglomerates to the EU's new supervisory structure.
The financial conglomerate directive (FICOD), adopted at the end of 2002, gave national financial supervisors additional powers and tools to watch over conglomerates and apply supplementary supervision on them, in addition to specific banking and insurance supervision. The objective of supplementary supervision was to control group risks2 and the risk arising from double gearing (i.e. multiple use of capital within a conglomerate), whereby a number of companies pool their overall risk by placing capital with each other.
The revision of FICOD also amends the relevant legislation on banking and insurance supervision, namely the capital requirements directive (2006/48/EC and 2006/49/EC) and the directive on supplementary supervision of insurance undertakings in insurance groups (98/78/EC).
A financial conglomerate is a group that combines different types of regulated financial firms (bank, securities firm, insurance company) and is therefore exposed to two or more sector-based regulatory regimes.
The amendments to FICOD include:
- the inclusion of asset management companies in the threshold tests for identifying a conglomerate;
- a waiver for smaller groups if the relevant supervisor assesses the group risks to be negligible;
- allowing for risk-based assessments, in addition to existing definitions relating to size, in identifying financial conglomerates;
- allowing for both sector-specific (banking and insurance) supervision and supplementary
- supervision of the conglomerate's parent entity, also if it concerns a holding company. Under the current rules, supervisors have to choose which supervision they apply when a group acquires a significant stake in another sector and when the parent entity is a holding company.
1 The decision was taken without discussion at a meeting of the Economic and Financial Affairs Council.
2 i.e. the risks of contagion, management complexity, concentration, and conflicts of interest, which could arise when several licenses for different financial services are combined.
