Joint Guidelines on the convergence of supervisory practices relating to the consistency of cooperation agreements for financial conglomerates

JC/GL/2014/01
22 December 2014

Joint Guidelines on the convergence of supervisory practices relating to the consistency of cooperation agreements for financial conglomerates

Status of these guidelines
This document contains guidelines issued pursuant to Articles 16 and 56, first subparagraph, of Regulation (EU) No 1093/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Banking Authority), amending Decision No 716/2009/EU and repealing Commission Decision 2009/78/EZ; Regulation (EU) No 1094/2010 establishing a European Supervisory Authority (European Insurance and Occupational Pensions Authority); and Regulation (EU) No 1095/2010 establishing a European Supervisory Authority (European Securities and Markets Authority) - hereinafter: the ESA Regulations. Pursuant to Article 16(3) of the ESA Regulations, competent authorities and financial institutions must make efforts to comply with these guidelines. The guidelines set out the view of the ESAs on relevant supervisory practices within the European System of Financial Supervision or how Union law should be applied in a given area. Competent authorities to which the guidelines apply shall comply with their provisions by incorporating them into their supervisory practices in an appropriate manner (e.g. by amending their legal framework or supervisory procedures), including where the guidelines are primarily directed at institutions.

Reporting requirements
Pursuant to Article 16(3) of the ESA Regulations, competent authorities must notify the relevant ESA whether they comply or intend to comply with the provisions of these guidelines, or otherwise state their reasons for non-compliance by 23 February 2015. In the absence of such notification within that period, the relevant ESA shall consider that competent authorities do not comply with those provisions. Notifications should be sent to compliance@eba.europa.eu, ficodguidelines.compliance@eiopa.europa.eu and compliance.ficod@esma.europa.eu with the reference “JC/GL/2014/01”. Notifications should be submitted by persons with appropriate reporting authority on behalf of their competent authorities. Notifications will be published on the ESAs' websites, in accordance with Article 16(3).

Chapter I. - Subject matter and scope

1. These guidelines meet the requirement set out in Article 11(1) of Directive 2002/87/EC (FICOD) for the ESAs, through the Joint Committee, to develop guidelines to achieve convergence of supervisory practices regarding the consistency of cooperation agreements in accordance with Article 116 of Directive 2013/36/EU and Article 248(4) of Directive 2009/138/EU.
2. The objective of the guidelines is to clarify and improve cooperation between competent authorities on a cross-border and intersectoral basis, and to complement the functioning of sectoral colleges (where they exist) where a cross-border group has been identified as a financial conglomerate under Directive 2002/87/EC. These guidelines also aim to improve the level playing field in the internal market by ensuring consistent supervisory cooperation.
3. Article 11(1) of Directive 2002/87/EC sets out the tasks of the competent authority responsible for performing additional supervision (the coordinator) and requires that authority, together with other relevant competent authorities and, where necessary, other interested competent authorities, to have established cooperation agreements.
4. The guidelines are addressed to the competent authorities as defined in Article 2(16) of Directive 2002/87/EC, and to the ECB in accordance with Article 4 of Council Regulation 1024/2013/EU.
5. Unless otherwise stated, references in these guidelines relate to the relevant provision of Directive 2002/87/EC.

Chapter II. - Allocation procedure, cooperation structure and cooperation agreements
6. The allocation procedure is the process of collecting and analysing information necessary to identify those entities that constitute a financial conglomerate in accordance with Article 3 of Directive 2002/87/EC, through which competent authorities should perform additional supervision via cooperation agreements under Article 11(1) of Directive 2002/87/EC.

[Footnotes]
1 Directive 2002/87/EC of the European Parliament and of the Council of 16 December 2002 on supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate (OJ L 35, 11.02.2003, p. 1).
2 Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms (OJ L 176, 27.06.2013, p. 338).
3 Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (OJ L 335, 17.12.2009, p. 1).
4 Commission Delegated Regulation (EU) No 342/2014 of 21 January 2014 supplementing Directive 2002/87/EC and Regulation (EU) No 575/2013 as regards regulatory technical standards for the application of capital adequacy calculation methods for financial conglomerates (OJ L 100, 03.04.2014, p. 1).

Allocation procedure
7. The coordinator should carry out the allocation procedure in cooperation with other competent authorities that have granted authorisations to regulated entities forming part of the financial conglomerate. Those competent authorities should use the results of the allocation procedure to determine the appropriate scope of additional supervision based on the organisation, size and complexity of the financial conglomerate.
8. The allocation procedure should be carried out with due regard to the identification process described in Article 4 of Directive 2002/87/EC. Similarly, the results of the allocation procedure should be used in annual updates to the identification process for financial conglomerates.
9. The allocation procedure should include collecting and analysing information necessary to identify the competent authorities that, in accordance with Article 11(1) of Directive 2002/87/EC, should have concluded cooperation agreements.
10. The coordinator should ensure the execution of the allocation procedure based on the following preconditions:
a) the financial conglomerate has already been identified in accordance with Article 4 of Directive 2002/87/EC and through the cooperation of competent authorities; b) a sectoral college has been established pursuant to Article 116 of Directive 2013/36/EU or Article 248(2) of Directive 2009/138/EZ; and the coordinator has been appointed in accordance with Article 10 of Directive 2002/87/EC.
11. The allocation procedure should:
a) take into account the results of allocation procedures carried out at the sectoral level; b) focus on intersectoral links, such as close links and participating holdings, between regulated entities in the financial conglomerate, mixed financial holding company or other entities of the financial conglomerate relevant for supervision.
12. To prepare a draft allocation and transmit it to the relevant competent authorities for input parameters provided by them, the coordinator should engage in dialogue with the regulated entity within its supervisory area that is the leading entity of the conglomerate; where a financial conglomerate is not led by a regulated entity, the coordinator should, in addition to the leading entity of the conglomerate, also engage in dialogue with the regulated entity within its supervisory area as referred to in Article 10(2)(b) of Directive 2002/87/EC.
13. Allocation should be updated regularly, at least once a year, taking into account changes in the structure of the financial conglomerate. All updates to the initial allocation should be provided to all relevant competent authorities.
14. Allocation should take into account all entities that are relevant for supervision within the group, and it should indicate in which of the following financial sectors each regulated entity belongs:
a) insurance and reinsurance undertakings; or b) credit institutions and investment firms.
15. For entities relevant for supervision referred to in point 14, allocation should identify:
a) all subsidiaries in the EEA; b) branches in the EEA that are either significant for the local market or important for the sectoral group, according to the definition of such branches determined in the relevant sectoral directives; c) subsidiaries and branches that are not in the EEA, relevant for the sectoral group; and d) a list of relevant participating holdings within the group in the sense of Article 2(11) and (12) of Directive 2002/87/EC.
16. The coordinator should determine allocation using the template in Annex 1.

Cooperation structure
17. The coordinator should decide, based on the results of executing allocation, whether to add a specific item to the agenda of its sectoral college established pursuant to Article 116 of Directive 2013/36/EU or Article 248(2) of Directive 2009/138/EZ, or to establish other procedural arrangements such as special meetings dedicated to additional supervision of financial conglomerates, or other forms of regular communication between relevant competent authorities. The coordinator should invite the ESAs to relevant meetings and include the ESAs in other forms of regular communication between relevant competent authorities.
18. The number of participants at meetings or in activities related to additional supervision should be appropriate for the set objectives. The coordinator should ensure that other competent authorities are informed in a timely and complete manner about the activities and results of the sectoral college.

Written cooperation agreements between coordinator and competent authorities
19. Written cooperation agreements established for sectoral supervision should be supplemented with all necessary annexes to enable effective additional supervision of the financial conglomerate.
20. These annexes should be adapted to reflect the type, size and complexity of the financial conglomerate. These annexes to written cooperation agreements should include at least procedures followed in exceptional situations, where a higher frequency of contacts and faster response is required.
21. Conversely, the coordinator and competent authorities may agree to establish new written cooperation agreements at the financial conglomerate level, which should include the scope and frequency of information exchange and refer to points 24 and 25 regarding cooperation and information exchange for undertakings operating permanently and in exceptional situations, and point 33 regarding the assessment of the conglomerate's financial position.

Cooperation agreements with supervisory authorities of third countries
22. If a financial conglomerate has significant entities in third countries, the coordinator should include third-country supervisory authorities in cooperation agreements for the financial conglomerate, pursuant to Article 19 of Directive 2002/87/EC and sectoral rules on equivalent supervisory approach and comparable confidentiality agreements.

Chapter III. – Coordination of information exchange in normal and exceptional situations
Scope and frequency
23. The scope of information exchange between competent authorities should include all relevant or material information necessary for the tasks set out in Article 11 of Directive 2002/87/EC. Where applicable, it should include information relevant for stress testing of financial conglomerates as determined in Article 9(b) of Directive 2002/87/EC.
24. Information exchange between the coordinator and competent authorities should reflect the needs of the involved supervisors. While coordinating information flows, the coordinator should pay due regard to the type of supervised entities in the financial conglomerate, their relevance within the conglomerate and the significance of their local markets.
25. Competent authorities should agree on the frequency, formats and templates for regular information exchange. The coordinator and competent authorities should reach agreement on templates, especially for the purposes of collecting information on risk concentrations and intra-group transactions.
26. If a competent authority receives a request for relevant information from another competent authority, it should provide that information without undue delay. Any other material information that may affect the financial position of either the conglomerate as a whole or any of its individual undertakings should be reported to the coordinator or the relevant competent authority as soon as possible.

Information collection
27. Competent authorities should collect information from entities under their supervision and provide it to the coordinator and other competent authorities, unless there are specific agreements that another competent authority collects the relevant information from those entities.
28. The coordinator should lead information requests regarding the financial conglomerate. The coordinator and competent authorities should ensure that existing statutory reporting is used to the greatest possible extent and that double reporting is avoided.

Communication channels
29. Competent authorities and the coordinator should consider using the full range of communication channels (including college meetings, official letters, electronic mail, telephone/video calls/conferences, and internet platforms) and should reach agreement on which communication channels to use for collecting and distributing information regarding the financial conglomerate. All confidential and sensitive information should be shared via a secured communication channel. In particular, competent authorities should use secured internet communication platforms where available.

Communication with the financial conglomerate
30. The coordinator should be responsible for communicating with the parent undertaking leading the group or, in the absence of a parent undertaking, with the regulated entity having the largest total balance sheet amount in the largest financial sector in the group. Competent authorities should notify the coordinator before directly communicating with that parent undertaking or regulated entity. If exceptional circumstances do not allow sending prior notice, competent authorities should notify the coordinator without undue delay about the type and outcome of that communication.

Communication in exceptional situations
31. A competent authority identifying an exceptional situation affecting regulated entities in the financial conglomerate should alert the coordinator and other competent authorities whose supervised entities may be affected by that situation. Competent authorities should cooperate more closely whenever necessary and actively exchange relevant information. The coordinator should ensure that, where appropriate, the ESAs are informed of all relevant events in accordance with Article 18(1) of the ESA Regulations.

Chapter IV. - Supervisory assessment of financial conglomerates
Assessment of the financial position of the financial conglomerate
32. The coordinator should engage in dialogue with relevant competent authorities to carry out the supervisory requirement and assessment of the financial position of the financial conglomerate. Taking into account the group structure, in accordance with the agreement reached when executing allocation, the coordinator should assess the overall risk profile of the financial conglomerate.
33. The coordinator should ensure that this dialogue identifies:
a) the main vulnerabilities and shortcomings of financial conglomerate entities, paying special attention to their intersectoral links; and b) risk control and management issues regarding compliance with capital requirements, risk concentrations and intra-group transactions.

Assessment of capital adequacy policies
34. The coordinator and relevant competent authorities should review the capital planning policies of regulated entities in the financial conglomerate. The group-wide assessment should take into account and build upon similar analyses carried out at the sectoral level and on an individual entity basis.
35. Such assessments do not prejudice the capital adequacy conditions as described in sectoral legislation and should not repeat the calculation of the financial conglomerate's capital adequacy in accordance with the delegated regulation of the European Commission supplementing Directive 2002/87/EC.
36. The coordinator is responsible for assessing the conglomerate's policies regarding capital adequacy. To prepare this assessment, the coordinator should take into account assessments of such policies provided by competent authorities.
37. Regarding the calculation of capital adequacy, the coordinator should consult with relevant competent authorities regarding exemptions of entities from that calculation; see point 58(a) of these guidelines.

Assessment of risk concentration
38. To perform additional supervision of risk concentrations of regulated entities in the financial conglomerate, the coordinator should cooperate with relevant competent authorities to supervise how risk concentrations may create potential contagion effects in the financial conglomerate, conflicts of interest and circumvention of sectoral rules.
39. Taking into account the structure of the financial conglomerate, the coordinator and relevant competent authorities should agree whether it is necessary, for effective assessment of risk concentration, to request information from regulated entities within the financial conglomerate to supplement information already available through reporting requirements.
40. Information exchanged between the coordinator and competent authorities may include, if available, the following:
a) how regulated entities within the financial conglomerate manage risk exposures that interact in different risk categories; b) analysis and assessment, by competent authorities, of internal reporting and sub-group or individual entity limits in the financial conglomerate; c) intersectoral risk concentrations, except for risk concentrations already assessed at the cross-border level within each sector.
41. The coordinator and competent authorities should inform each other of any supervisory activity or measures taken against entities within the financial conglomerate regarding risk concentrations. The coordinator should be ready to enable identification of common supervisory measures against an entity.

Assessment of intra-group transactions
42. To perform additional supervision of intra-group transactions of regulated entities in the financial conglomerate, the coordinator should, in cooperation with relevant competent authorities, supervise how intra-group transactions may create potential contagion effects within the conglomerate, conflicts of interest and circumvention of sectoral rules.
43. The coordinator and competent authorities should decide whether it is necessary to request additional information from regulated entities within the financial conglomerate as a supplement to information already collected through existing reporting in different jurisdictions and sectors, taking into account the structure of the financial conglomerate.
44. The coordinator and competent authorities should agree on:
a) types of intra-group transactions to be supervised, taking into account the structure of the financial conglomerate, as well as the definition of intra-group transaction under Article 2(18) of Directive 2002/87/EC; and b) the reporting threshold for intra-group transactions, based on solvency capital and/or technical provisions.
45. The coordinator and competent authorities should inform each other of any supervisory activity or measures taken against entities within the financial conglomerate regarding intra-group transactions. The coordinator should be ready to enable identification of common supervisory measures against an entity.

Assessment of internal control mechanisms and risk management procedures
46. For the purposes of assessing risk management procedures and internal control mechanisms, the coordinator should cooperate with relevant competent authorities.
47. Competent authorities should provide the coordinator with relevant information regarding their assessment of risk management procedures and internal control mechanisms of regulated entities (either on an individual or sub-consolidated basis), identified significant shortcomings, and methodologies used in carrying out their assessments.
48. The coordinator should discuss individual assessments and the overall assessment with relevant competent authorities to:
a) assess the suitability of sectoral risk management and control mechanisms for mitigating the impact of significant conglomerate risks and identifying potential contagion channels; and b) achieve a consistent position among competent authorities involved in the control and risk management systems of the financial conglomerate.

Chapter V. – Supervisory planning and coordination of supervisory activities in normal and exceptional situations
Planning and coordination of supervisory activities
49. Following the analysis carried out in accordance with Chapter IV, the coordinator should include planning and coordination of supervisory activities for monitoring the financial conglomerate in the adopted college working procedure in cooperation with relevant competent authorities.
50. When specific procedural plans described in point 17 exist, the coordinator should organise at least one personal college meeting per year.
51. When no specific item has been added to the agenda of the sectoral college for additional supervision, the coordinator, as chairperson of the sectoral college, should at least ---