Q&A on applying for the group capital test under the IFR

Q&A

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Question:

How can an investment firm apply for permission to use the group capital test instead of prudential consolidation?

Published: 05 October 2020

Answer:

In derogation of the standard method of prudential consolidation in accordance with Article 7 of the IFR we may permit investment firms to calculate their group-level capital requirements based on the group capital test in accordance with Article 8 of the IFR. The group capital test may be permitted for group structures that are considered sufficiently simple, and provided that there are no significant risks to customers or to the market stemming from the investment firm group as a whole that would otherwise require supervision on a consolidated basis.

Investment firms wishing to use the group capital test must submit the following information when applying for permission:

An up-to-date organisation chart of the investment firm group.

An up-to-date overview of all (financial) intra-group exposures.

A calculation of actual solvency at group level.

A calculation of the consolidated capital requirements in accordance with Article 7 of the IFR.

A calculation of the group capital test for each parent company in the group in accordance with Article 8(3) of the IFR.

An explanation of whether or not the investment firm wishes to use the alternative calculation referred to in Article 8(4) of the IFR.

If the investment firm wishes to use the alternative calculation: a calculation of the group capital test for each parent company in the group in accordance with Article 8(4) of the IFR.

An explanation demonstrating that the conditions of Article 8 are met, according to the applicant.

We will then assess whether the application meets the conditions of Article 8 of the IFR before granting permission to use the group capital test and, where relevant, to apply the alternative calculation method. We will formally decide on applications for permission after the IFR/IFD have entered into force in the Netherlands. If we grant permission, Article 7 of the IFR does not apply to the investment firm group in question.

If the investment firm wishes to use the alternative calculation method for the group capital test in accordance with Article 8(4) of the IFR, the notional own fund requirements that are calculated for subsidiaries located in third countries as referred to in that paragraph must ensure a satisfactory level of prudence to cover for the risks arising from those subsidiaries. We will grant permission to use notional own fund requirements for subsidiaries located in third countries provided they are calculated in accordance with the requirements at the individual level pursuant to the IFR.

To harmonise the group capital test, EBA has issued guidelines that set criteria to help competent authorities assess the simplicity of the group structure and the level of risk to clients and the market. DNB recognises the value of these guidelines and will therefore incorporate them into its supervisory practice.

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Final guidelines on GCT for investment firms (Refers to an external site)

Base law

IFR/IFD (Refers to an external site)

IFD (Refers to an external site)

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