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CEBS and CEIOPS published their recommendations to address the consequences of the differences in sectoral rules on the calculation of own funds of financial conglomerates, as approved by the Interim Working Committee on Financial Conglomerates (IWCFC).
The recommendations focus on the four main differences that were gathered during the analysis: the treatment of hybrids, revaluation reserves/latent gains, deduction of holdings and the differences in consolidation approaches and methods foreseen by the Financial Conglomerates Directive.
On the treatment of hybrids the IWCFC proposes to harmonize sectoral rules and that hybrid instruments that meet certain requirements should be eligible for inclusion, at the latest, with the implementation of Solvency II in the insurance sector taken into account both current work of CEBS and CEIOPS.
On the treatment of revaluation reserves and latent gains the IWCFC recommends striving for consistency in the national transposition of the sectoral directives and the national application of prudential filters across the EU.
On the deduction of holdings in banks and insurers the IWCFC sets out the possible directions the alignment of the treatment of those holdings could take without recommending one single option as no regulatory arbitrage has yet been demonstrated.
As for the method of calculating the capital requirement for financial conglomerates the accounting consolidation method is being proposed as the default method. However, the supervisory authorities should have the discretion to require companies to use the deduction and aggregation method or a combination of methods.