The Financial Conglomerates Directive (FCD) introduces specfic legislation for the prudential supervision of financial conglomerates and financial groups involved in cross-sectorial activities to foster stability of the financial system.

The main objectives of the FCD are to:

  • Ensure that financial conglomerates are adequately capitalised, preventing the same capital being counted twice over and so used simultaneously as a buffer against risk in different entities.
  • Introduce methods for calculating a conglomerate’s overall solvency position.
  • Provide for the establishment of a single lead regulator for financial conglomerates.

The Committee of European Banking Supervisors (CEBS) and the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) have published joint advice to the European Commission following a review of the FCD.

CEBS and CEIOPS have identified four issues where the FCD may not achieve its objectives:

  • Definitions of different types of holding companies and their impact on the application of sectoral group supervision.
  • The definition of 'financial sector' and the application of the threshold conditions in Article 3 FCD.
  • Implications of different treatments of participations for the identification and scope of supplementary supervision of financial conglomerates.
  • The treatment of ‘participations’ in risk concentrations (RC), intra-group transactions (IGT) supervision and internal control mechanisms.

CEBS and CEIOPS have set out a number of recommendations for addressing the issues it has identified. These include:

  • The definitions of ‘insurance holding company’ (IHC) and ‘financial holding company’ (FHC) are amended to allow an IHC or FHC to constitute a ‘mixed financial holding company’ (MFHC) at the same time.
  • A legal change is proposed to allow supervisors to waive small and heterogeneous groups if their risk profile justifies exemption.
  • In cases where a group has only participations in another sector, a legal change introducing supervisory discretion not to treat a group as a conglomerate is recommended.

View Advice to the European Commission on the review of the Financial Conglomerates Directive, 30 October 2009