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July 04, 2017

ECB published an interview with Sabine Lautenschläger, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB. This interview was conducted by Claire Jones and Caroline Binham of the Financial Times. She spoke about Brexit in the context of the Single Supervisory Mechanism’s (SSM) expectations for UK institutions looking to establish a base in the eurozone. Challenges regarding supervision of subsidiaries and third-country branches, in the light of Brexit, represented another key area of discussion.

During the interview, Ms. Lautenschläger elaborated on the issue of third-country branches versus subsidiaries, in terms of understanding the difference. She highlighted that how supervision is done can be different, “depending on where you would establish a third-country branch” and it is not harmonized. European rules on establishing a subsidiary are very clear and until now the UK has followed and complied with them. According to Ms. Lautenschläger “… you have your capital requirements and you have your liquidity standards. It’s very clear that the supervisory approach in the euro area for subsidiaries is the same. When a subsidiary is a significant one, it is supervised by us according to our standards; when the subsidiary is less significant it is supervised by the national competent authorities (NCAs), but according to our standards. We have a joint supervisory approach. If it is a third-country branch or if it is an investment firm, it’s under national supervision and under a national regime with regard to capital or liquidity, and you might have countries where you have similar or even the same capital or liquidity demands and, in other countries, it is quite different from a subsidiary.”

 

The rules around the third-country branches are different because of the national regimes. She thinks that this loophole regarding branches needs to be addressed, “... especially when we are talking about systemic third-country branches... . There are third-country branches under a national regime, which might be very relevant. Then there are subsidiaries of investment firms that can do everything except deposit-taking under a national regime too. And then you have different intragroup exposure rules in the different countries, which are very important too. When you try to book activities in different entities of one structure in the euro area, it might be relevant what kind of intragroup rules and limits you have—these are partly national, partly harmonized.” She also mentioned that the U.S., Switzerland, the UK, and Japan currently have third-country branches in Europe and these are “the most important.”

 

Related Link: Interview of Sabine Lautenschläger

Keywords: Europe, ECB, Banking, Brexit, Third-Country Branches, Banking Supervision, SSM

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