ESAs published the final draft implementing technical standards on reporting of intra-group transactions and risk concentration of financial conglomerates subject to the supplementary supervision in EU. The standards are intended for the supplementary supervision of credit institutions, insurance undertakings, and investment firms under the Financial Conglomerates Directive or FICOD. The implementing standards provide the foundation for harmonization of reporting, with one set of templates, along with the common definitions and instructions to fill in the templates, as set out in the Annex to the implementing standards. As mentioned in the report of ESAs, the implementing technical standards will enter into force on January 01, 2022.
The draft implementing standards set out harmonized templates for the reporting of intra-group transactions and risk concentration by financial conglomerates. For the purpose of the reporting, the Financial Conglomerates Directive does not specify a default threshold for the determination of the significance of risk concentrations to be reported. The threshold may be introduced by the coordinator, in coordination with the relevant competent authorities and the conglomerate. The published Templates FC07 and FC08 are based on all the exposures of the conglomerate. The coordinator may define the number of items reported under the risk concentration templates. The decision regarding the frequency of the reporting (for example, quarterly, semi-annually, yearly) is within the remit of coordinator and should be notified to the financial conglomerate in due course. Yet, as required by the Directive, the reporting shall be addressed at least annually to the coordinator in an electronic format. For annual reporting, reference date should be December 31, unless the financial conglomerate uses a different reporting date.
The harmonized templates aim to align reporting under the Financial Conglomerates Directive to enhance supervisory convergence on group-specific risks, particularly the contagion risk. The mixed financial holding companies are prone to contagion effects and defaults arising from undertakings of the group and spread risks within the financial conglomerate. Significant transactions between the mixed financial holding companies and non-regulated entities are, therefore, an important element for the ability of the supervisor to identify at a group-wide level the possible contagion effects, circumvention of sectoral rules, or conflicts of interests within financial conglomerates. The intra-group transactions that would need to be reported are those that are significant between:
- Regulated entities of different sectors belonging to the same financial conglomerate
- Regulated entities of the same sector belonging to the same financial conglomerate
- Regulated entity and a non-regulated entity belonging to the same financial conglomerate
- Regulated entity and any natural or legal person linked to the undertakings of the financial conglomerate by close links
The harmonization will also increase comparability among financial conglomerates of different member states, thus improving supervisory consistency. The harmonized templates are expected to help coordinators and other relevant competent authorities to identify relevant issues and exchange information more efficiently. The draft implementing standards have been submitted to EC for endorsement in the form of a delegated regulation. Following the EC endorsement, the standards will be subject to non-objection by the Parliament and the Council of the European Union.
Effective Date: January 01, 2022
Keywords: Europe, EU, Banking, Insurance, Securities, Reporting, Intra-Group Transaction, FICOD, Risk Concentration, Solvency II, CRR, IFR, ESAs
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