Relevance of IWCFC - PowerPoint PPT Presentation
1 / 13
Title:
Relevance of IWCFC
Description:
... rules (banking/securities versus insurance) for eligibility of capital ... additional prudential risks, stemming from the combination of different licenses ... – PowerPoint PPT presentation
Number of Views:17
Avg rating:3.0/5.0
Title: Relevance of IWCFC
1
- Relevance of IWCFCs Capital Advice
- for the Financial Conglomerates Directive
- Roundtable on the Review of the Financial
Conglomerates Directive - 8 September 2008
- Brussels
2
IWCFC Mandate
- European Commissions Call for Technical Advice
(No.1) to IWCFC of 12 June 2007 - Part A - Comparison of the sectoral rules
(banking/securities versus insurance) for
eligibility of capital instruments published
in January 2007 - Part B - Impact of the sectoral differences for
the supervision of financial conglomerates
published in August 2007 - Part C - Recommendations on how to address the
sectoral differences published in April 2008
3
Part A and B (1)
- Conclusions from Parts A and B
- A lot of commonalities
- Four main areas of differences
- Eligibility of hybrid capital instruments
- Revaluation reserves/unrealised gains
- Deduction of participations/holdings
- Consolidation approaches and methods
4
Part A and B (2)
- Conclusions from Parts A and B (continued)
- FCD does not affect the differences in capital
that are created by the sectoral differences. - Sectoral differences can have an impact on the
composition and amount of regulatory capital of a
conglomerate. In theory, this may create
distortions and influence the placing of certain
assets or transactions within a conglomerate.
However, market participants do not consider this
a strong driver for management decisions.
5
Part A and B (3)
- Conclusions from Parts A and B (continued)
- Whether the parent of a conglomerate is a bank or
an insurance undertaking only matters under the
third FCD method (book value/requirement
deduction) which requires that regulatory capital
is calculated on the basis of the rules
applicable to the parent. This method proved not
to be a useful basis for analysis as it does not
recognise surpluses in subsidiaries. - Market participants flagged concerns about the
differences in the national implementation of the
sectoral directives.
6
Part C (Objectives of the Recommendations)
- Enhancement of the level playing field within
financial conglomerates and between financial
conglomerates and pure banking or insurance
groups. - Avoidance of undue burdens for financial
conglomerates stemming from the application of
different provisions on the banking and the
insurance parts of the financial conglomerate. - Ensuring that the risks stemming from the
activities of the conglomerate as a group are
adequately covered by regulatory capital.
7
Part C (General Conclusions of the
Recommendations)
- Inconsistent application of the sectoral rules
across the EU seems to create greater problems
for financial conglomerates than differing
cross-sectoral rules and at the same time
complicate further convergence of the
cross-sectoral rules. - Amendments to sectoral provisions that are also
relevant from a cross-sectoral perspective should
be closely aligned and not conducted in
isolation.
8
Part C (Recommendations) - Details (1)
- Hybrids
- Common principles and requirements for
eligibility of hybrid capital instruments
recommended at the sectoral level. - Harmonisation to be attempted by CRD amendment
and Solvency II. - Revaluation reserves and unrealised gains
- Different sectoral valuation methods might
justify different treatment. - No concrete action recommended for the time
being. - Follow up with current debate on valuation rules.
- Enhance consistency in national application of
the sectoral directives and prudential filters
across the EU.
9
Part C (Recommendations)- Details (2)
- Deduction of holdings/participations
- Difference in quantitative thresholds gives
opportunities for theoretical regulatory
arbitrage, but there is no clear evidence for
such practice. - Concern raised with regard to different
application of qualitative criteria (e.g. durable
link). - Enhance consistency in national transposition of
the sectoral directives.
10
Part C (Recommendations)- Details (3)
- Consolidation approaches and methods
- Method 1 (accounting consolidation) as the
default method. - Supervisory authorities should have discretion to
choose adequate method on a case-by-case basis. - Method 3 (book value/requirement deduction) is
too simplistic and leads to distorted calculation
results.
11
Objectives of the FCD
- Recitals (1) to (3) of the FCD
- Introduction of supplementary supervision of
financial conglomerates on a group-wide basis to
address - loopholes in sectoral legislation
- additional prudential risks, stemming from the
combination of different licenses in on group - Supplementary Supervision focuses on solvency
position, risk concentration, intra-group
transactions, internal risk management processes
and fit and proper character of the management. - Ultimate goal is to ensure financial stability in
the EU.
12
IWCFC Recommendations in the light of the FCD
Objectives
- Loopholes/Level Playing Field
- Harmonisation of thresholds for deduction of
participations / holdings to avoid possibilities
of regulatory arbitrage - Ensure consistent application of the durable link
criteria - Delete Calculation method 3 as it creates
distortions depending on whether the parent of a
conglomerate is a bank or an insurance - Financial Stability
- Not affected
13
- Thank you for your attention.
- Any questions?
Recommended
CrystalGraphics Presentations
