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The Joint Committee of the European Supervisory Authorities’ Sub-Committee on Financial Conglomerates (JCFC) received a Call for Advice from the European Commission in April 2011 to look at (A) the scope of application, especially the inclusion of non-regulated entities; (B) internal governance requirements and sanctions, and (C) supervisory empowerment of Directive 2002/87/EC on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate. This advice is to contribute to the European Commission’s fundamental review of the FICOD, following the short technical review, resulting in Directive 2011/89/EU (FICOD1).
As a result of its analysis, the EBA, EIOPA and ESMA (the ESAs) propose the following answers to the questions risen by the Commission in its fourth Call for Advice ( CfA):
What should be the perimeter of supervision, when a financial conglomerate is supervised on a group wide basis?
The perimeter of supervision should be enlarged to ensure a more thorough group-wide supervision and avoid possible regulatory arbitrage, by enhancing the groups of entities that can be included in the identification of a financial conglomerate. Accordingly, the ESAs suggest allowing for a more consistent and broader identification of financial conglomerates to modify the definition of “financial sector” [according to Article 2 (8) FICOD] and/or the definition of “regulated entities” [according to Article 2 (4) FICOD]. Therefore, the definition of financial sector [Article 2 (8) FICOD] should be enlarged to include insurance ancillary services undertakings and all special purpose vehicles/entities to enable a broader identification of financial conglomerates, and to enable that the risks are appropriately captured.
The ESAs have assessed whether Institutions for Occupational Retirement Provision (IORPs) should be included as part of a financial conglomerate, and are mindful of the national specificities of IORPs.