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CEBS Draft Guidelines on Joint Assessment and Joint Decision for Cross-Border Groups (CP39) Summary

Core Content

The CEBS draft guidelines (CP39) aim to enhance supervisory cooperation for EU cross-border banking groups by promoting joint assessment and joint decision-making on capital adequacy. These guidelines are issued under Article 129 of CRD, as amended by Directive 2009/111/EC, and seek to ensure that capital requirements are evaluated at both consolidated and solo levels. The document outlines the role of the consolidating supervisor (CS) and emphasizes the need for common definitions, methodologies, and templates to improve consistency across EU supervisors.

Main Views and Key Points

1. Scope of Application

• The proposed scope of the guidelines is appropriate, covering both consolidated and solo level capital adequacy assessments.
• Joint assessments and decisions should include risk factors and risk management elements covered by SREP (Supervisory Review and Evaluation Process).
• The guidelines encourage voluntary joint decisions on prudential measures under Article 136(1) of CRD.

2. Role of the Consolidating Supervisor (CS)

• The CS is envisioned as the leader of the College of Supervisors (CoS).
• It is necessary to clearly define the decision-making process and the CS’s leadership role.
• The future role of the European Banking Authority (EBA) and the parent company as a single entry point for CoS decisions and inputs should be emphasized.

3. Aims and Objectives

• The guidelines are seen as a step towards a common approach among EU supervisors for group capital adequacy.
• A common rulebook, common methodologies, and clear dispute resolution mechanisms are essential for achieving this goal.
• It is crucial to repeal national discretions and eliminate differences in national accounting regimes to ensure uniformity.

4. Solo Level Assessment

• The CoS, under the guidance of the CS, must decide how to handle intra-group positions from a capital requirement perspective.
• The consolidated approach (elimination of all intra-group positions) should be verified by the CoS based on the group's self-assessment.
• The position of extra-EU entities and their supervisors should be considered during the joint assessment process.

Specific Comments

1. Chapter 2: Common Template

• The proposed common template should also be used to identify divergences in the application of EU prudential provisions.
• A common language and consistent definitions are necessary for the template to be effective.
• The risk list should be decided based on a proposal from the CS, within a timely timeframe for capital adequacy evaluation.
• The joint assessment should take into account quantitative thresholds and qualitative criteria, and highlight the weight of each specific risk.

2. Chapter 3: Common Reporting and ICAAP

• Common reporting should be used within the CoS and by the consolidating and host supervisors.
• The ICAAP framework should be assessed at both group and solo levels, with supervisory dialogue being a key element.
• The CS should have a stronger coordination role, and CEBS should act as a mediator until the EBA is established.
• The SREP should consider the parent company's role as a coordinator.
• The ICAAP methodologies should reflect the benefits of consolidated diversification.

3. Chapter 4: Common Language and Methodologies

• The effectiveness of the common template depends on the adoption of a common language and analysis methodologies.
• CEBS/EBA should start a homogenisation process of supervisors' language and analysis methodologies by the end of 2011, as per Article 74 of CRD.
• Harmonised supervisory practices and validation criteria are essential to prevent competitive distortion.

4. Chapter 5: Pillar 1 and Pillar 2 Balance

• ABI proposes a balanced approach between Pillar 1 and Pillar 2 capital requirements to facilitate supervisory cooperation.
• This balance would help in coordinating remedial actions and evaluating diversification effects.
• The Italian regulatory framework provides useful experience in reconciling total capital with supervisory capital, including the use of capital instruments not included in supervisory capital to cover total internal capital.

Conclusion

The CEBS draft guidelines on joint assessment and joint decision-making for cross-border banking groups are a positive step towards harmonization and consistency in EU banking supervision. ABI supports the consolidated and solo level assessments, the role of the CS, and the need for common templates and methodologies. However, it stresses the importance of clear definitions, forward-looking development, and elimination of national differences to achieve the ultimate goal of a common supervisory approach across the EU.