i . crd iv and crr scope of consolidation
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I . CRD IV and CRR scope of consolidation. Highlights of CRD IV + CRR prudential consolidation CRD IV + CRR are applied on solo (“individual”) and several consolidated bases. - PowerPoint PPT PresentationTRANSCRIPT
Inside EEA
I. CRD IV and CRR scope of consolidationHighlights of CRD IV + CRR prudential consolidation• CRD IV + CRR are applied on solo (“individual”) and
several consolidated bases.• The solo (individual) application is based on the
unconsolidated accounts of the legal entity which is licensed as an institution.
• Consolidated application starts by consolidating several relevant legal entities within a financial group into a single (hypothetical) consolidated entity, on which the CRD IV + CRR are applied.
• On one financial group several levels of consolidation may be applicable.
• The levels of consolidation are applied for a number of prudential topics (parts) of CRD IV + CRR framework.
• The application of consolidated supervision and the determination of the consolidated situation are dependent on a number of characteristics of the financial group such as: legal relation between the entities, activities/licenses and location of the entity.
• Prudential consolidation differs from accounting consolidation on several accounts.
Examples of consolidation scopesThe following figures are examples of applicable scopes of consolidation given characteristics of a banking group.
Credit institution
Credit institution
100%
B
E
Inside EEA Outside EEA
Financial holding company
Inside EEAA
Corporate
100%
C
Investment firm
100%
D
100%
Example of subsidiaries in the scope of consolidationThis example below shows several entities included (B,D,E) in the scope of consolidation (blue area) of a relevant parent entity (A). Corporate subsidiaries (C) arenot included. The CRD IV + CRR applies on this consolidated entity (A) as well as solo on those institutions (B,D) which are located in any Member State of the European Economic Area (EEA).
II. Key factors in consolidationConsolidation levels in the CRD IV + CRR frameworkThe application of CRD IV requirements on consolidation levels is additional to the application of CRD IV to the unconsolidated legal entity (“solo” = “individual”). However on the solo level, depending on the situation, waiver (CRR.7+8) may be granted. Within a complex banking group each of these levels may be applicable, however for less complex groups, some levels may not be applicable / coincide with other levels.• EU consolidation level• Member State consolidation level• CRR.22 sub-consolidation level• Specific liquidity sub-consolidation level
Inclusion of an entity in the scope of consolidationAn entity which is a subsidiary of a consolidating parent entity has to be included in the scope of consolidation, depending on a number of factors (non-exhaustive list):• Type (activities and licenses) of the parent
undertaking• Location of the subsidiary• Type (activities and licenses) of the subsidiary• Size and risk of the subsidiary• Relation between the parent and the subsidiaryIt should be noted that the parent undertaking is not necessarily the consolidating entity or itself subject to consolidated supervision.
Relevant entity
Relevant entity
Relevant entity
100%
100%100%
B
E
D
F
Any EEA Member State
Other EEA Member State Non – EEA state
Relevant entity
100%
Any EEA Member State
A
EU consolidation group
CRR. 22 sub-consolidation group
Member State consolidation group
Relevant entity
Relevant entity
Liquidity sub consolidation group
B
C
100%
III. Relevant definitions(21) “mixed financial holding company” means mixed financial holding company as defined in point (15) of Article 2 of Directive 2002/87/EC;
(28) “parent institution in a Member State” means an institution in a Member State which has a institution or a financial institution as a subsidiary or which holds a participation in such an institution or financial institution, and which is not itself a subsidiary of another institution authorised in the same Member State, or of a financial holding company or mixed financial holding company set up in the same Member State; (29) “EU parent institution” means a parent institution in a Member State which is not a subsidiary of another institution authorised in any Member State, or of a financial holding company or mixed financial holding company set up in any Member State; (30) “parent financial holding company in a Member State” means a financial holding company which is not itself a subsidiary of an institution authorised in the same Member State, or of a financial holding company or mixed financial holding company set up in the same Member State; (31) “EU parent financial holding company” means a parent financial holding company in a Member State which is not a subsidiary of an institution authorised in any Member State or of another financial holding company or mixed financial holding company set up in any Member State; (32) “parent mixed financial holding company in a Member State” means a mixed financial holding company which is not itself a subsidiary of an institution authorised in the same Member State, or of a financial holding company or mixed financial holding company set up in that same Member State;
(33) “EU parent mixed financial holding company” means a parent mixed financial holding company in a Member State which is not a subsidiary of an institution authorised in any Member State or of another financial holding company or mixed financial holding company set up in any Member State;
CRR.4.1 – relevant definitions for this purpose
(3) “institution” means a credit institution or an investment firm; (15) “parent undertaking” means: (a) a parent undertaking within the meaning of Articles 1 and 2 of Directive 83/349/EEC; (b) irrelevant (16) “subsidiary” means: (a) a subsidiary undertaking within the meaning of Articles 1 and 2 of Directive 83/349/EEC; (b) a subsidiary undertaking within the meaning of Article 1(1) of Directive 83/349/EEC and any undertaking over which a parent undertaking effectively exercises a dominant influence. Subsidiaries of subsidiaries shall also be considered to be subsidiaries of the undertaking that is their original parent undertaking; (18) “ancillary services undertaking” means an undertaking the principal activity of which consists of owning or managing property, managing data-processing services, or a similar activity which is ancillary to the principal activity of one or more institutions;
(20) “financial holding company” means a financial institution, the subsidiaries of which are exclusively or mainly institutions or financial institutions, at least one of such subsidiaries being an institution, and which is not a mixed financial holding company;
(26) “financial institution” means an undertaking other than an institution, the principal activity of which is to acquire holdings or to pursue one or more of the activities listed in points 2 to 12 and point 15 of Annex I to Directive 2013/36/EU, including a financial holding company, a mixed financial holding company, a payment institution within the meaning of Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007 on payment services in the internal market (1), and an asset management company, but excluding insurance holding companies and mixed-activity insurance holding companies as defined, respectively, in points (f) and (g) of Article 212(1) of Directive 2009/138/EC;
IV. EU consolidation level
Relevant entity
Relevant entity
Relevant entity
Relevant entity
100%
100%100%
B
D
C
E
Any EEA Member State
Other EEA Member State Non – EEA state
Relevant entity
100%
Any EEA Member State
A
EU consolidation CRR.11.3 + CRD.111
Trigger of consolidation• EU consolidation is triggered by the presence of at
least one institution within the EEA.
Level of consolidation• EU level consolidation is applicable on the highest
level of a group within the EEA (ultimate parent):• Special case if institutions are located in several
MS controlled by a single non-EEA entity (CRD.111).
• The highest level of a banking group at the EU consolidation level, could be a:• (Mixed) financial holding company• Institution.
Scope of consolidation• Within the scope of consolidation are all relevant
entities, which are a subsidiary of the ultimate parent.• The location of those subsidiaries is irrelevant.• Relevant entities for EU consolidation are:
• Financial institutions (including holding companies)• Institutions• Ancillary service undertakings
• Consolidation of a subsidiary is evaluated from the perspective of the ultimate parent.
V. Member State consolidation levelMember State consolidation CRR.11.1 + CRR.1.2
Trigger of consolidation• MS consolidation is triggered by the presence of at
least one institution in the Member State concerned.
Level of consolidation• MS level consolidation is applicable on the highest
level of a group within the Member State (MS parent):• Note: if MS level is identical to EU level, both apply• Note: MS level also triggers if there are no subs..
• The highest level of a banking group at the MS consolidation level, could be a:• (Mixed) financial holding company• Institution.
Scope of consolidation• Within the scope of consolidation are all relevant
entities, which are a subsidiary of the MS parent.• The location of those subsidiaries is irrelevant.• Relevant entities for MS consolidation are:
• Financial institutions (including holding companies)• Institutions• Ancillary service undertakings.
• Consolidation of a subsidiary is evaluated from the perspective of the MS parent.
Relevant entity
Relevant entity
Relevant entity
Relevant entity
100%
100%100%
B
D
C
E
Member State concerned
Other EEA Member State Non – EEA state
Irrelevant entity
100%
Location irrelevant
A
VI. CRR.22 sub-consolidation levelCRR.22 sub-consolidation CRR.22
Trigger of consolidation• CRR.22 sub-consolidation is triggered by the
presence of an institution in the MS concerned and if there are any relevant non-EEA subsidiaries of any entity in the concerned MS.
Level of consolidation• CRR.22 sub level consolidation is applicable on the
direct parent level of a sub-group (local parent).• Note: if CRR.22 is identical to MS level, both apply• Note: there are other separate cases of sub-
consolidated supervision, not discussed here.• The highest level could be a:
• (Mixed) financial holding company• Institution.
Scope of consolidation• Within the scope of consolidation are all relevant
entities, which are a subsidiary of the local parent.• The location of those subsidiaries is irrelevant.• Relevant entities for CRR.22 sub-consolidation are:
• Financial institutions (including holding companies)• Institutions• Ancillary service undertakings.
Irrelevant entity
Irrelevant entity
Relevant entity
Relevant entity
100%
100%100%
B
D
C
E
Member State concerned
Other EEA Member State Non – EEA state
Irrelevant entity
100%
Location irrelevant
A
VII. Liquidity specific sub-consolidationLiquidity specific sub-consolidation CRR.8
Trigger of consolidation• Liquidity specific sub-consolidation is triggered by a
granted waiver under CRR.8.2 or CRR.8.3, and waives the solo liquidity application on those entities.
• Upon granting the waiver, several institutions within the EEA (CRR.8.3 = sub-group 2) or within the same MS (CRR.8.2 = sub-group 1) form a single liquidity sub-group for the purpose of meeting CRR liquidity requirements:• Note a sub-group including subsidiaries in another
MS may apply for a waiver as of 2015 (CRR.8.3).
Level of consolidation• Liquidity specific sub-consolidation is applicable on
the direct parent level of the single liquidity sub-group:• Note: several liquidity groups could be formed.
• The highest level of a banking group at the liquidity specific sub-consolidation level, could only be an:• Institution (CRR definition).
Scope of consolidation• Only those institutions which are in scope of the single
liquidity sub-group are consolidated for this purpose.
Relevant entity
Relevant entity
Relevant entity
Irrelevant entity
100%
100%100%
B
E
D
F
Member State concerned
Other EEA Member State Non – EEA state
Irrelevant entity
100%
Location irrelevant
A
Relevant entityC
Single liquidity sub-group 2.
100%
Single liquidity sub-group 1.