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  1. Home
  2. Single Rulebook Q&A
  3. 2019_4716 Prudential consolidation: definition of "undertaking" and "dominant influence"
Question ID
2019_4716
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Own funds
Article
18
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
Not applicable
Type of submitter
Competent authority
Subject matter
Prudential consolidation: definition of "undertaking" and "dominant influence"
Question

For the purpose of the application of CRR Article 18(1) and CRR Article 18(8) could you clarify whether:

- the term “undertaking” means necessarily “entity” having a legal personality;

- the term “dominant influence” has to be understood in a broader sense than within the meaning of the Article 1(1) of the Directive 83/349/EEC;

Background on the question

The starting point for the prudential consolidation is the Article 18 CRR. It specifies the general rules which has be applied by institutions to identify entities that form part of the consolidated situation. In particular the Article 18(1) requires a full consolidation of all “institutions and financial institutions that are its subsidiaries”. In addition CRR Article 18(8) lays down “ Where consolidated supervision is required pursuant to Article 111 of Directive 2013/36/EU, ancillary services undertakings … shall be included in consolidations in the cases, and in accordance with the methods, laid down in this Article.”

The Article 4 (16) CRR defines 'subsidiary' as follows:

 (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.

But CRR leaves room for interpretation for the two following terms: “undertaking” and “dominant influence”. Although different interpretations could be given, the proposed interpretations are deemed as reflecting both the spirit and the letter of the current regulation, and aligned with the recently published Draft Regulatory Technical Standards (9th November 2017) on the methods of prudential consolidation under Article 18 of Regulation (EU) No 575/2013 (Capital Requirements Regulation - CRR).

Meaning of “Dominant influence”

For the purpose of the article 18, the term “subsidiary” has to be understood either within the meaning of article 1 of the Directive 83/349/EEC or, as any undertaking over which a parent undertaking effectively exercises a dominant influence (second part of the point b of the article 4 (16) CRR). As regards the second point mentioned above, although the CRR doesn’t specify the situations where a parent undertaking institution is deemed to effectively exercise a dominant influence over an undertaking, the meaning of “dominant influence” in that context shall not be restricted within the meaning of the Directive 83/349/EEC. As a matter of fact the second part of the point b of the article 4 (16) CRR doesn’t refer to the Directive aforementioned.

Against this background it can be deducted that the second part of the point b of the article 4 (16) CRR is extending the concept of significant influence beyond the formal definition of control introduced by the Directive 83/349/EEC.

As a result of the above, the meaning of the concept of influence as per the second part of the point b of the article 4 (16) CRR, shall be read as any situations where a parent undertaking institution is deemed to effectively exercises a dominant influence over an undertaking irrespective of whether the parent undertaking is a shareholder in or member of its subsidiary undertaking. This reading is supported by the published Draft RTS on the methods of prudential consolidation under Article 18 of CRR. The draft RTS can be summarized as follows: legal aspect shall not prevail over the degree of risks transfer, the real substance of the subsidiaries, or the existence of step-in risk.

Submission date
14/05/2019
Rejected publishing date
11/02/2022
Rationale for rejection

Please note that as part of adjustments to the Single Rulebook Q&A process, agreed by the EBA and the European Commission, it has been decided to reject outstanding questions submitted before 1 January 2020, when the Q&A process was updated as part of the last ESAs Review. In particular, the question that you have submitted has now regrettably been rejected and will not be addressed.

If you believe your question would still benefit from clarification, you are invited to resubmit your question, adapting it to reflect any legislative, regulatory or other relevant developments that may have occurred since the initial date of submission. The EBA will aim to address resubmitted questions as a matter of priority. When considering to resubmit, you are kindly requested to observe the updated admissibility criteria agreed in the context of the adjustment of the Q&A process, available in the Additional background and guidance for asking questions. We hope for your understanding.

For further information please refer to the press release and the updated Q&A page.

Status
Rejected question

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