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Financial conglomerates – supervision

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Financial conglomerates – supervision

SUMMARY OF:

Directive 2002/87/EC — supervision of financial conglomerates

SUMMARY

WHAT DOES THIS DIRECTIVE DO?

  • It seeks to enhance the effective supervision of financial conglomerates — large financial groups (banking groups, insurance groups, investment firm groups) which are active in different financial sectors, often across borders.
  • Its overall aim is to contribute to greater financial stability and consumer protection.

KEY POINTS

The directive sets out specific requirements:

  • on solvency, specifically to prevent the same capital being used more than once as a buffer against risk in different entities in the same conglomerate (‘multiple gearing of capital’) and to prevent ‘downstreaming’ by parent companies, whereby they issue debt and then use the proceeds as equity for their regulated subsidiaries (‘excessive leveraging’);
  • on the suitability and professionalism of the conglomerate’s management;
  • to ensure appropriate risk management and internal control systems within the conglomerate;
  • stipulating that a single supervisory authority should be appointed to coordinate the overall supervision of a conglomerate which may involve many different authorities dealing with different parts of the conglomerate’s activities;
  • for information sharing and cooperation among the supervisors (including those in non-EU countries) of the regulated entities in a financial conglomerate.

Directive 2011/89/EU introduced amendments giving national financial supervisors new powers to better oversee the conglomerates’ parent entities, such as holding companies. In this way, supervisors may obtain better information at an earlier stage, should a financial conglomerate run into trouble, and be better equipped to intervene.

FROM WHEN DOES THE DIRECTIVE APPLY?

It applies from 11 February 2003. EU countries had to incorporate it into national law by 10 August 2004.

BACKGROUND

For more information, see: ‘Financial Conglomerates’ on the European Commission’s website.

ACT

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 (OJ L 35, 11.2.2003, pp. 1-27)

Subsequent amendments to Directive 2002/87/EC have been incorporated into the basic text. This consolidated version is of documentary value only.

last update 11.04.2016

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