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The Financial Conglomerates Directive (FICOD) came into effect in 2005. It applies supplementary prudential supervision to mixed financial groups that carry out both banking/investment firm activities and insurance activities of a significant size.
FSA and HM Treasury must implement rules transposing FICOD by 10 June 2013. They have little scope for discretion in how they do this therefore they intend to broadly take an approach of copying the Directive text into FSA Handbook. However, there are two areas in which FSA and HM Treasury have exercised a degree of discretion; these include proposals for choosing a conglomerate capital calculation methodology and undertaking conglomerate stress tests.
This consultation sets out the way in which the UK intends to implement the amending Directive. Responsibility for this is shared between HM Treasury, which is required to amend secondary legislation including the Financial Conglomerates and Other Financial Groups Regulations 2004, and the FSA which is required to amend the FSA Handbook.
This joint consultation paper contains two parts, each dealing with the separate areas of responsibility of the FSA and HM Treasury.
The key amendments are changes to the application of conglomerate supervision to ensure it does not substitute sectoral supervision when a group is headed by a bank, or insurance holding company. Amendments to conglomerate capital calculations methodology, the inclusion of asset management companies and alternative investment fund managers within the conglomerate identification process, and changes to conglomerate identification thresholds triggers. Proposals are also made for conglomerate stress testing.
This CP is relevant to financial conglomerates and financial groups that carry out activities in both banking/investment and insurance sectors.