Guidelines on the application of the group capital test for investment firm groups

EBA/GL/2024/03
11/04/2024
Final report
Guidelines on the application of the group capital test for investment firm groups in accordance with Article 8 of Regulation (EU) 2033/2019

FINAL REPORT ON THE GUIDELINES ON THE APPLICATION OF THE GROUP CAPITAL TEST Contents

1. Executive summary 3
2. Background and rationale 5
3. Guidelines on the application of the group capital test under Regulation (EU) 2019/2033 13
4. Guidelines 17
5. Accompanying documents 24

FINAL REPORT ON THE GUIDELINES ON THE APPLICATION OF THE GROUP CAPITAL TEST

1. Executive summary
   The application of the group capital test (GCT) provision pursuant to Article 8 of Regulation (EU) 2019/2033 (IFR) appearsto be subject to different interpretations from competent authorities. This is particularly relevant as, since the date of application of the IFR, an increasing number of investment firms appear to be interested in obtaining an authorisation for the use of the GCT. In addition, the implementation of this provision seems to be uneven across Member States, and there is a lack of clarity around the conditions necessary to fulfil the criteria set out in the IFR. To ensure a harmonised interpretation and implementation in the Union, the EBA has developed guidelines addressed to competent authorities on the application of the group capital test for investment firm groups. The guidelines are intended to set objective thresholds and criteria that competent authorities should consider for the purpose of assessing whether the conditions set out in Article 8(1) and 8(4) of the IFR for obtaining the derogation are met. Given the wide variety of group structures and the significant diversity within the investment firm population, the guidelines introduce some flexibility allowing deviations from the given thresholds under specific conditions. The guidelines are structured as follows:

• The first part (Section 4.2) provides a simplified and proportional approach applicable to
  investment firm groups constituted exclusively of small and non-complex investment firms and ancillary services undertakings.
• The second part (Section 4.3) sets out the conditions necessary to consider the structure of
  an investment firm group as ‘sufficiently simple’, providing quantitative thresholds (number of undertakings and of levels in the group, materiality of intragroup transfer of activities) and qualitative criteria (transparency of the ownership structure and of the intragroup arrangements) that the competent authority should assess before granting the use of the GCT.
• The third part (Section 4.4) sets out the conditions for assessing the significance of the risks
  to clients or to the market stemming from the investment firm group as a whole. This
  section introducesthe comparison between own funds calculated according to the GCT and
  the own funds requirements calculated in accordance with the methods for prudential consolidation pursuant to Article 7 of the IFR (i.e. the potential premium or discount on the level of own funds granted by the application of the GCT compared to prudential consolidation). The same section considers other criteria, such as the presence of clearing members in the group, the issuance to retail clients of financial instruments that are not listed on a regulated exchange, as well as the presence of enforcement proceedings applying to any undertakings of the group.