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CEA Comments on the Review of FCD Summary

Core Content and Main Views

CEA (Centre d'Études et d'Analyses de la Sécurité Sociale) has provided detailed comments on the Review of the Financial Conglomerates Directive (FCD), emphasizing the importance of consistency with Solvency II and the need for harmonization across member states in the application of financial conglomerate supervision.

CEA supports the technical review of the FCD and agrees that important issues need to be resolved, but is concerned about potential inconsistencies with sectoral directives, especially Solvency II and CRD (Capital Requirements Directive). They highlight that Solvency II is a Lamfalussy-style directive, allowing for optional Level 2 measures, while the FCD and CRD are not, which could create regulatory challenges in the future.

CEA also stresses that changes to the FCD should not interfere with the sectoral definitions of Financial Holding Companies (FHC) and Insurance Holding Companies (IHC), particularly in cases where mixed-activity holding companies hold equal-sized participations in multiple sectors. These companies should not be subject to group supervisory tools unless their activities are dominated by one sector.

Key Issues and Recommendations

Chapter 2: Definitions of Holding Companies

• Q1: CEA agrees with the analysis that the issue should be addressed but states there is no empirical evidence of regulatory arbitrage by insurance groups.
• Q2: CEA is concerned that the proposed solution may interfere with sectoral definitions of FHC/IHC and could lead to duplications in supervision. They support the proposals for banking-led and insurance-led conglomerates but recommend avoiding unnecessary duplications.
• Other Comments: CEA suggests that legislative changes should also affect Solvency II Directive (Article 210), specifically the definitions of insurance holding company and mixed-activity holding company.

Chapter 3: Definition of "Financial Sector" and Threshold Conditions

• Q3: CEA agrees that clarity is needed on the inclusion of Asset Management Companies (AMCs) and supports harmonization across member states.
• Q4: CEA does not oppose the inclusion of AMCs but cautions that outsourced capital management should be distinguished from proprietary asset management. They propose that AMCs with a main business in proprietary asset management should be excluded from the identification of financial conglomerates.
• Q5: CEA agrees that there is ambiguity in the FCD regarding the inclusion of AMCs and supports harmonization.
• Q6: CEA suggests excluding AMCs managing proprietary assets from the quantitative threshold calculations.
• Q7: CEA reiterates their comments from Q6 and supports the inclusion of a waiver for AMCs whose main business is proprietary asset management.
• Q8: CEA notes that AMCs in insurance groups often manage assets of the insurance group and thus play a different role than those in banking groups.
• Q9: CEA agrees that quantitative thresholds should be risk-based and that the current absolute threshold is too low.
• Q10: CEA supports a combination of options 2 and 3, proposing an absolute threshold of €10bn to reflect market growth and inflation since 2002. They also suggest excluding intra-group financial services from the threshold calculation.
• Q11: CEA reiterates their comments from Q10.

Chapter 4: Treatment of Participations

• Q12: CEA agrees that different interpretations of "participations" and "durable link" prevent the FCD from achieving its objectives.
• Q13: CEA supports IFRS definitions as a starting point for regulatory definitions. They also suggest that legislative change to remove the "durable link" criterion may be necessary. They agree with the proposed recommendations for Part 2 aspects a) and b), which allow exclusion of participations in the smaller sector if they are not significant.
• Q14: CEA reiterates their comments from Q13.

Chapter 5: Risk Concentration and Intra-Group Transactions

• Q15: CEA supports the analysis that undertakings struggle to comply with RC and IGT requirements when they do not control participations.
• Q16: CEA agrees that Level 3 guidance is needed but cannot provide more specific comments without seeing the content.
• Q17: CEA suggests that Level 3 guidance should address access to all relevant information and the treatment of unregulated participations. They also request consistency with Solvency II and its Level 2 measures.

Annex I: Definitions

• CEA notes that Solvency II definitions such as "parent undertaking" and "subsidiary" are missing in the current FCD framework, which could lead to ambiguity in the application of group supervision.

Conclusion

CEA emphasizes the need for consistency between sectoral directives and the FCD, particularly with Solvency II. They support a risk-based approach to supplementary supervision, but caution against potential duplications and regulatory conflicts. They also advocate for clearer definitions and exclusions for AMCs and mixed-activity holding companies to ensure harmonized and effective supervision of financial conglomerates.