2015_2366 Application of Article 11 CRR in terms of determining the scope of application for multi-national banking groups

Question ID:

2015_2366

Legal Act:

Regulation (EU) No 575/2013 (CRR)

Topic:

Other issues

Article:

COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations:

Not applicable

Article/Paragraph:

Disclose name of institution / entity:

Yes

Name of institution / submitter:

Deutsche Bundesbank

Country of incorporation / residence:

Germany

Type of submitter:

Competent authority

Subject Matter:

Application of Article 11 CRR in terms of determining the scope of application for multi-national banking groups

Question:

Could you clarify whether there is a difference in treatment concerning the scope of application at national level between a) groups which have a parent institution at its top and b) groups which have a parent financial holding company at its top?

Background on the question:

According to Article 11(1) CRR, parent institutions in a Member State shall comply, to the extent and in the manner prescribed in Article 18, with the obligations laid down in Parts Two to Four and Part Seven of the CRR on the basis of their consolidated situation. In multi-national banking groups Article 11(1) CRR might apply to more than one institution. As a consequence of this is the obligations laid down in Parts Two to Four and Part Seven of the CRR would apply on a group-wide basis but also, where the subsidiaries of the group are also parent institutions in a Member State, at a sub-consolidated, national basis. However, if a group has at its top a parent financial holding company there may apply a different treatment. According to Article 11(2) sentence 1 CRR, institutions controlled by a parent financial holding company or a parent mixed financial holding company in a Member State shall comply, to the extent and in the manner prescribed in Article 18, with the obligations laid down in Parts Two to Four and Part Seven of the CRR on the basis of the consolidated situation of that financial holding company or mixed financial holding company. In multi-national financial holding groups the first sub-paragraph of Article 11(2) CRR might apply more than once, as well, but Article 11(2) sentence 2 CRR limits its application. According to the second sub-paragraph of Article 11(2) CRR where more than one institution is controlled by a parent financial holding company or by a parent mixed financial holding company in a Member State, the first subparagraph of Article 11(2) CRR shall apply only to the institution to which supervision on a consolidated basis applies in accordance with Article 111 CRD IV. According to second sub-paragraph of Article 111(3) CRD IV where the parent undertakings of institutions authorised in two or more Member States comprise more than one financial holding company or mixed financial holding company with head offices in different Member States and there is a credit institution in each of those States, supervision on a consolidated basis shall be exercised by the competent authority of the credit institution with the largest balance sheet total. As a consequence, one interpretation of the application of the obligations laid down in Parts Two to Four and Part Seven of the CRR could be only required on a group-wide, consolidated basis, as opposed to the treatment of banking groups described before according to the first sub-paragraph of Article 11(2) CRR . The reason for this is that the scope of Article 11(2) CRR is limited to the institution with the largest balance sheet total within a corporate structure, even when sentence 1 of this article is met more than once, whereas the scope of Article 11(1) CRR is not limited in this way. A difference in treatment concerning the sub-consolidated scope of application between a) groups which have a parent institution at its top and b) groups which have a parent financial holding company at its top may foster complex corporate structures as it may be an incentive for multi-national banking groups to introduce a parent financial holding company in order to avoid sub-consolidation in accordance with Article 11(1) CRR.

Date of submission:

01/10/2015

Final Answer:

There is no difference in treatment between Article 11(1) and Article 11(2) of Regulation (EU) No 575/2013 (CRR).

The second sub-paragraph of Article 11(2) CRR establishes the institution which shall comply with the obligations laid down in Parts Two to Four and Part Seven on the basis of the consolidated situation of the financial holding company or mixed financial holding company when more than one than one institution is controlled by a parent financial holding company or by a parent mixed financial holding company in a Member State.

According to Article 4(1)(30) of the CRR a "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. In addition, Article 4(1)(32) of the CRR provides the definition of a "parent mixed financial holding company in a Member State".

Therefore, if there is a group with parent institutions or parent financial holding companies in several Member States, the parent institution or the institution controlled by a parent financial holding company in each Member state will need to comply with the requirements of the CRR on the basis of the consolidated situation of the parent institution or of the parent financial holding company.

In addition, Article 11(1) and Article 11(2) of the CRR would also be applicable on the basis of the consolidated situation of the ultimate parent institution or parent financial holding company of the group in the EU ("EU parent institution" or the "EU parent financial holding company").

Status: