GDV

1
GDVs Comments on the FCD EFCC Roundtable
Session Scope

• Dr. Axel Wehling
• 08.09.2008, Brussels

2
FCD review Heading to an economic view?
level of alignment
full economic view(capital requirements and own
funds)
2015
2012
?
economic view
2009
Solvency II
?
accounting view
Basel II(CRD)
2005
FCD
2002
Basel I
Solvency I
1970
banking regulation
insurance regulation
financial conglomerateregulation
3
Current situation in identifying a financial
conglomerate(Art. 3 FCD) is not in line with an
economic view

• Main criteria in identifying a financial
  conglomerate
• activities mainly in the financial sector (gt 40
  of balance sheet total)
• significant activities in different financial
  sectors
• (balance sheet of sector/total balance sheet
  SCR of sector/total SCR)/2 gt 10 or
• balance sheet total of smallest financial sector
  gt 6 billion
• supervisors may decide not to regard a group as
  financial conglomerate if only b) is fulfilled
  taking into account the relative size (lt 5 ) and
  the market share in MS (lt 5 )
• The current identification of financial
  conglomerates is
• not in line with an economic view (but based on
  arbitrary accounting figures) and
• not sufficiently risk based putting the FCD
  objectives in question.

4
GDVs position on the scope define financial
conglomerates by proportionality and allow opt-in

• for groups running no material risks and without
  impact on the stability of the financial market,
  supplementary financial conglomerate supervision
  is not necessary
• the GDV advocates to apply the proportionality
  principle taking into account the nature, scale
  and complexity on the basis of a consolidated
  economic view
• using risk based measures (e. g. Solvency II
  capital requirements) would be more appropriate
  than purely accounting figures (if available,
  market consistent valuation is preferable instead
  of book values according to local GAAP)
• the flexible application of the proportionality
  principle should not hinder to be subject of a
  financial conglomerate supervisory regime
  voluntarily (opt-in clause) if the group falls
  below a certain threshold (say, 10 billion ).

5
Review of the Scope of FCD - When is financial
conglomerate supervision needed at top?

• if the nature, scale and complexity of risks (
  proportionality) of financial institutions is not
  captured adequately by
• solo supervision
• sectoral group supervision
• therefore, financial conglomerate supervision
  should result from the application of the
  proportionality principle based on a consolidated
  view on the group
• since financial conglomerates do manage risks in
  an integrated manner, supervision should reflect
  this way of management congruently

6
Back-up
7
Review of the Scope of FCD Which
entities/participations should fall in the scope
of a financial conglomerate?

• the overall risk position of a financial
  conglomerate is mostly a result of the risk
  exposure by its relevant entities
• as regard capital adequacy calculations including
  other irrelevant entities does not change the
  picture and would only result in additional
  burden for groups
• a too wide interpretation of the term
  participation in financial conglomerate
  supervision is not appropriate and would not
  reflect the proportionality principle

relevant entities?
8
Conclusions on the scope of financial
conglomerate supervision

• applying the proportionality principle restricts
  the scope of entities being supervised
  additionally within a financial conglomerate
• a too wide interpretation of participations is
  not appropriate and results in distortions
• the costs of financial conglomerate supervision
  have to be minimised without loss of reliability
  and relevance