EBA published a report on the treatment of incoming third-country branches under the national law of member states. The report, which is addressed to the European Parliament, the Council, and the Commission, is the result of a stock-taking exercise conducted with competent authorities about their national regulations and supervisory practices and of a mapping of third-country branches established in the member states. Considering the increased volume of activities carried out by third country branches in the context of regulatory fragmentation across EU, the report offers 14 high-level policy recommendations for further harmonization of the law in EU.
In light of the results of the stocktaking exercise and data collection, the proposals for further EU harmonization rely on a mix of branch and subsidiary‐like approaches in accordance with the principle of proportionality, coupled with risk prevention and mitigation measures. Such recommendations focus on EU-centralized equivalence assessment, effective cooperation supported by the conclusion of memoranda of understanding with third-country home authorities, the scope of authorization, and prudential requirements (notably capital, liquidity, and internal governance), Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) aspects, reporting, booking arrangements, and recovery plans.
The recommendations introduce a subsidiarization mechanism as a risk prevention and mitigation measure. This mechanism should apply to third-country branches reaching a certain size and/or other quantitative and qualitative risk indicators as well as to third-country branches carrying out deposit-taking activity of covered deposits. The identification and calibration of the relevant thresholds should be based on an impact assessment. EBA highlighted the importance of a continuous supervisory dialog with the third-country branches and third-country credit institutions and of an effective mutual cooperation with the third-country home authority. Such cooperation is crucial for devising potential mitigation measures that could ensure a safe and sound prudential management of the third-country branch activities and associated risks. In this context, EBA carefully considered the interaction with the framework related to the intermediate parent undertaking. While assets held by the third-country branches are computed to determine whether an intermediate parent undertaking needs to be established, the third-country branches are not included within the intermediate parent undertaking consolidated perimeter.
Keywords: Europe, EU, Banking, Third Country Branches, CRD, Proportionality, AML/CFT, Governance, Reporting, Recovery Planning, Subsidiarization Mechanism, EBA
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