We see a clear imbalance between the supervision of cross-border branches and the supervision of cross-border subsidiaries. The fact that the supervision of branches is entrusted almost solely with the home authorities may lead to less intensive supervision of branches as compared to subsidiaries even though the activities of an institution do not depend on its legal structure. Branches can be of crucial importance to the host state financial stability and the ‘branchification’ trend shows no signs of slowing down.
Since we think that proper prudential supervision of branches that are truly significant to the host state financial stability is crucial, we welcome the EBA’s work on the matter. The draft guidelines bring significant clarifications and improvements to the current framework and ensure more extensive cooperation between home and host state authorities.
However, we see a need for more analysis of adjustments to be made to the Level 1 text, too. Proper prudential supervision of systemically significant institutions must be ensured regardless of the legal structure they choose for their cross-border operations.
There are many important elements included in the test, particularly the ones referring to critical functions in the host state, the GDP of the host state and whether or not the branch would be considered an O-SII if the institution had chosen a subsidiary legal structure. However, we wonder whether the test would benefit from a clear reference the institution’s market share in the host state, such as the 2 per cent mark in Article 51 CRD IV.
We consider that a branch that would be identified as an O-SII if it had been established through a subsidiary legal structure should always be determined significant-plus.
We see the proposed approach as a significant improvement. It is important that the risks the branch poses to the host state financial stability are assessed as part of the process.
It is important to ensure proper flow of information between all authorities involved in the supervision of branches. Furthermore, it must be kept in mind that there is still much work to be done in relation to proportionality in the context of reporting. Unnecessary duplicative reporting requirements must be avoided.
We believe that it is important to ensure that the messages to the institution are consistent. Therefore, it should be considered whether the senior management of the institution (not only the branch) should be invited to the annual joint meeting, too.
We see more room for improvement in recovery planning. The guidelines could ensure more ambitious cooperation between the home and host authorities. The home state authorities should duly consider possible recovery measures for the significant-plus branch in cooperation with the host state authorities.