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Status: Please note you should read all Brexit changes to the FCA Handbook and BTS alongside the main FCA transitional directions. Where these directions apply the 'standstill', firms have the choice between complying with the pre-IP completion day rules, or the post-IP completion day rules. To see a full list of Handbook modules affected, please see Annex B to the main FCA transitional directions.

You are viewing the version of the document as on 2021-01-01.

Preamble

THE EUROPEAN COMMISSION,

Having regard to the Treaty on the Functioning of the European Union,

Having regard to Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 and in particular Article 49(6) thereof,

Having regard to Directive 2002/87/EC of the European Parliament and of the Council of 16 December 2002 on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate and amending Council Directives 73/239/EEC, 79/267/EEC, 92/49/EEC, 92/96/EEC, 93/6/EEC and 93/22/EEC, and Directives 98/78/EC and 2000/12/EC of the European Parliament and of the Council and in particular to Article 21a(3) thereof,

Whereas:

  1. (1)

    For financial conglomerates which include significant banking or investment business and insurance business, multiple use of elements eligible for the calculation of own funds at the level of the financial conglomerate that is to say, multiple gearing as well as any inappropriate intra-group creation of own funds should be eliminated in order to accurately reflect the availability of conglomerates' own funds to absorb losses and to ensure supplementary capital adequacy at the level of the financial conglomerate.

  2. (2)

    It is important to ensure that own funds in excess of sectoral solvency requirements are only included at conglomerate level if there are no impediments to the transfer of assets or repayment of liabilities across different conglomerate entities, including across sectors.

  3. (3)

    A financial conglomerate should only include own funds that exceed sectoral solvency requirements in the calculation of its own funds if those funds are transferable across entities within the financial conglomerate.

  4. (4)

    Appropriate rules should take into account that sector-specific own funds requirements are designed to cover risks relating to that sector, and are not intended to cover risks outside that sector.

  5. (5)

    To ensure consistent application of the supplementary capital adequacy calculation the sectoral requirements which comprise solvency requirements for this purpose should be listed. Those requirements should be without prejudice to the sectoral provisions concerning the measures to be taken following a breach of sectoral solvency requirements. In particular, where a deficit arises at the level of a financial conglomerate due to a breach in the combined buffer requirement under Chapter 4 of Title VII of Directive 2013/36/EU of the European Parliament and of the Council, the necessary measures required should be based on those set out in that Chapter.

  6. (6)

    When calculating the supplementary capital adequacy requirement of a financial conglomerate, both a notional solvency requirement and a notional level of own funds should be calculated for non-regulated financial entities within the financial conglomerate.

  7. (7)

    Part II of Annex I to Directive 2002/87/EC sets out three technical methods for calculating capital adequacy requirements at the level of the financial conglomerate: "Accounting consolidation method" (method 1), "Deduction and aggregation method" (method 2) and "Combination method" (method 3), allowing the combination of method 1 and method 2. The technical calculation methods 1 and 2 should be specified to ensure their consistent application. In addition, the circumstances for the use of method 3 should be specified and it should be ensured that the competent authorities permit the use of that method in similar circumstances, apply common criteria and require that method to be applied in a way which is consistent across financial conglomerates. The competent authorities should only allow the application of method 3 where a financial conglomerate can demonstrate that the application of method 1 or 2 alone would not be reasonably feasible. The use of method 3 should be consistent over time to ensure equivalent conditions. As the technical calculation methods are carried out in accordance with the technical principles referred to in Part I of Annex I to Directive 2002/87/EC, it is necessary to specify those principles as well.

  8. (8)

    Method 1 for calculating group solvency, as set out in Directive 2009/138/EC of the European Parliament and of the Council and method 1 for calculating supplementary capital adequacy requirements, as set out in Directive 2002/87/EC should be considered equivalent since both methods are consistent with the main objectives of supplementary supervision. Both methods ensure the elimination of intra-group creation of own funds and the calculation of own funds in accordance with the definitions and limits established in the relevant sectoral rules.

  9. (9)

    The empowerment to adopt regulatory technical standards in Article 49(6) of Regulation (EU) No 575/2013 is closely linked with the empowerment in Article 21a(3) of Directive 2002/87/EC, since both deal with consistent application of the methods of calculation laid down in the Annex to that Directive. To ensure coherence in the methods of calculation specified for the purpose of those legislative acts and to facilitate a comprehensive view and compact access to them by persons subject to those obligations it is desirable to lay down the regulatory technical standards adopted pursuant to those empowerments in a single Regulation.

  10. (10)

    This Regulation should be based on the new sectoral solvency regimes that have been established in the Union in order to ensure the most consistent application of the calculation methods. This Regulation should therefore not apply before the date of application of Regulation (EU) No 575/2013. The rules dependent on the application of Directive 2009/138/EC should begin to apply from the date of application of that Directive. Existing national implementation of the calculation of supplementary capital adequacy requirements should therefore continue to be used in those areas that have not been harmonised by this Regulation in the period before it applies in full, and underlying calculations that are based on insurance sectoral rules should be based on the insurance sectoral rules that apply at the time of that calculation.

  11. (11)

    This Regulation is based on the draft regulatory technical standards submitted jointly by the European Supervisory Authority (European Banking Authority) (EBA), European Supervisory Authority (European Insurance and Occupational Pensions Authority) (EIOPA) and European Supervisory Authority (European Securities and Markets Authority) (ESMA) to the Commission.

  12. (12)

    The EBA, EIOPA and ESMA have conducted open public consultations on the draft regulatory technical standards on which this Regulation is based, analysed the potential related costs and benefits, in accordance with Article 10 of Regulation (EU) No 1093/2010 of the European Parliament and of the Council, Article 10 of Regulation (EU) No 1094/2010 of the European Parliament and of the Council and Article 10 of Regulation (EU) No 1095/2010 of the European Parliament and of the Council, and requested the opinion of the Banking Stakeholder Group established in accordance with Article 37 of Regulation (EU) No 1093/2010, Insurance and Reinsurance Stakeholder Group established in accordance with Article 37 of Regulation (EU) No 1094/2010 and Securities and Markets Stakeholder Group established in accordance with Article 37 of Regulation (EU) No 1095/2010,

HAS ADOPTED THIS REGULATION: