Clive Briault, Director of Prudential Standards at the FSA, said: "Regulators need to keep pace with the development of cross sector financial groups, many of which also operate in more than one country. These proposals are designed to protect consumers and to improve the safety and soundness of the financial system through group capital adequacy and systems and controls requirements, and through enhanced international supervisory co-operation. In addition, these proposals will introduce greater cross-sector consistency, including a requirement for insurance groups to meet capital adequacy standards for the overall group."
These proposals follow internationally agreed principles and global minimum standards for the supervision of financial groups. Under the proposals, EU regulators will appoint a designated co-ordinator for each financial group, which will establish a more consistent approach to their regulation whilst improving international regulatory co-operation.
The proposals extend the scope of current supervisory oversight of banking, investment and conglomerates groups to include parent companies located outside the EU, as is already the case for insurance groups. But where such a non-EEA group is already subject to equivalent supervisory requirements in its home country, the need for regulation from the EU falls away.
The proposals also provide a more consistent approach between the banking and insurance sectors by requiring 'pure' insurance groups to meet FSA capital requirements for the overall group, as is already the case for banking groups. It is proposed that this requirement should be introduced in stages, in line with our proposals for enhanced capital requirements for insurance firms at the solo level.
The Financial Groups Directive must be implemented during 2005. It updates existing sector specific Directives (Banking Consolidation, Insurance Groups and Capital Adequacy) to establish a cross sector approach.
Background
- This is a joint consultation by the FSA and HM Treasury on proposals to implement the Financial Groups Directive in the FSA Handbook and HM Treasury Regulations. It also consults on wider FSA proposals for insurance groups.
- Part 1 explains FSA proposals and contains the proposed Handbook text with which firms should comply.
- Part 2 explains HM Treasury proposals to legislate for procedural aspects of the Directive and contains the proposed Statutory Instrument.
- The Joint Forum on Financial Conglomerates(which comprises the Basel Committee on Banking Supervision, the International Organisation of Securities Commissions and the International Association of Insurance Supervisors) issued documents in February 1999 setting out principles and minimum standards for the supervision of financial conglomerates.
- A group will be a financial conglomerate if at least 40% of its business is financial and at least 10% or €6 billion of its financial business is in each of the insurance and the combined banking/investment sectors.
- The Financial Groups directive was published in final form in February 2003. It is also sometimes referred to as the Financial Conglomerates Directive.
- In detail the proposals will:
- Require minimum group capital levels;
- Require improved monitoring of risk concentrations and intra-group exposures;
- Eliminate double counting of capital in subsidiaries;
- Designate an appointed EU cross-sector supervisory co-ordinator for each conglomerate group, and
- Establish procedures for assessing third country supervisory equivalence.
- Our proposals on insurance regulation, including the Enhanced Capital Requirement, were set out in CP190 and CP195.
- The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
- The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.
