- Question ID
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2023_6779
- Legal act
- Regulation (EU) No 2019/2033 (IFR)
- Topic
- Prudential consolidation
- Article
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4
- Paragraph
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1
- Subparagraph
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11 and 23
- COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
- Not applicable
- Article/Paragraph
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Not applicable
- Name of institution / submitter
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De Nederlandsche Bank
- Country of incorporation / residence
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Netherlands
- Type of submitter
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Competent authority
- Subject matter
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Discrepancy between definition of ‘investment holding company’ and ‘consolidated situation.’
- Question
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Could a financial institution the subsidiaries of which are mainly tied agents or ancillary services undertakings, but which also has at least one investment firm as subsidiary, be considered an investment holding company as referred to in Article 4(1)(23) IFR?
- Background on the question
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Under the definition of ‘consolidated situation’ as provided by Article 4(1)(11) of the IFR, tied agents and ancillary service undertakings are explicitly drawn within the scope of prudential consolidation of a Union parent investment firm, Union parent investment holding company or Union parent mixed financial holding company.
At the same time, the definition of ‘investment holding company’ in Article 4(1)(23) of the IFR means a financial institution, the subsidiaries of which are exclusively or mainly investment firms or financial institutions, at least one of such subsidiaries being an investment firm, and which is not a financial holding company.
Hence, while tied agents and ancillary service undertakings are part of the scope of consolidation, a financial institution which has subsidiaries which are tied agents and ancillary service undertakings, but which (as a result) does not have subsidiaries which are mainly investment firms or financial institutions, does not seem to qualify as an investment holding company.
This seems to lead to the discrepancy that while, on the one hand, tied agents and ancillary service undertakings are meant to fall within the scope of prudential consolidation when applying the requirements of the IFR to a Union parent investment holding company, these entities are, on the other hand, not (explicitly) listed in the definition of investment holding company. As such, a financial institution the subsidiaries of which are mainly tied agents or ancillary services undertakings, but which also has at least one investment firm as subsidiary, seems not to qualify as a Union parent investment holding company and, therefore, there would be no prudential consolidation.
There are two possible options that could resolve the discrepancy that exists between the necessary features of an investment holding company according to its definition and the scope of prudential consolidation.
- Submission date
- Final publishing date
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- Final answer
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In accordance with point (23) of Article 4(1) of Regulation (EU) 2019/2033, an ‘investment holding company’ is defined as a financial institution, the subsidiaries of which are exclusively or mainly investment firms or financial institutions, at least one of such subsidiaries being an investment firm, and which is not a financial holding company as defined in point (20) of Article 4(1) of Regulation (EU) No 575/2013.
As the question raised by the requester is linked to the notion of “exclusively or mainly”, a useful reference can be made to Q&A 2014_796 that was raised in the context of Regulation (EU) 575/2013 and that applied also to investment firms. According to this Q&A, the term 'mainly' should be understood to refer to a situation where more than 50 % of the equity, consolidated assets, revenues, personnel or another indicator deemed relevant by the competent authority of a holding company are associated with subsidiaries that are institutions (in the present case, read “investment firms”) or financial institutions.
Noting that ancillary services undertakings, in accordance with point (1) of Article 4(1) of Regulation (EU) 2019/2033, are performing activities or services which are ancillary to the principal activity of one or more investment firms and that tied agents, in accordance with point (29) of Article 4(1) of Directive 2014/65/EU, act under the full and unconditional responsibility of only one investment firm, the notion of “exclusively” is already fulfilled where only one subsidiary is an investment firm and all other subsidiaries are ancillary services undertakings and/or tied agents because these ancillary services undertakings and/or tied agents should be considered as an integral part of the investment firm’s activities.
This would mean that in the case presented by the requester of an investment firm group composed by a parent undertaking having only one investment firm, and otherwise tied agents and ancillary services undertakings as subsidiaries, the parent undertaking should be considered as an investment holding company even when the investment firm on a standalone basis is associated with less than 50 % of the equity, consolidated assets, revenues, personnel or another indicator deemed relevant by the competent authority of the parent undertaking.
This interpretation is confirmed by the definition of a ‘consolidated situation’ in accordance with point (11) of Article 4(1) of Regulation (EU) 2019/2033 which refers to the situation that results from applying the requirements of this Regulation in accordance with Article 7 to a Union parent investment firm, Union parent investment holding company or Union parent mixed financial holding company as if that undertaking formed, together with all the investment firms, financial institutions, ancillary services undertakings and tied agents in the investment firm group, a single investment firm. For the purpose of this definition, the terms ‘investment firm’, ‘financial institution’, ‘ancillary services undertaking’ and ‘tied agent’ shall also apply to undertakings established in third countries, which, were they established in the Union, would fulfil the definitions of those terms.
This definition suggests considering the composition of a group made of various categories of undertakings instead of its form. One should therefore look at the activities performed by the undertakings within the group rather than how these activities are attributed among multiple undertakings within the same group.
Considering that the activities and services performed by ancillary services undertakings and/or tied agents within the investment firm group are supporting those of the investment firm within the group, it is argued – based on the principles set out in the definition of a consolidated situation – that the investment firm together with the tied agents and the ancillary services undertakings should be seen as a single investment firm. In such a case, the parent undertaking is de facto heading a single investment firm, thereby qualifying for the definition of an investment holding company based on the notion of “exclusively”.
The answers clarify provisions already contained in the applicable legislation. They do not extend in any way the rights and obligations deriving from such legislation nor do they introduce any additional requirements for the concerned operators and competent authorities. The answers are merely intended to assist natural or legal persons, including competent authorities and Union institutions and bodies in clarifying the application or implementation of the relevant legal provisions. Only the Court of Justice of the European Union is competent to authoritatively interpret Union law. The views expressed in the internal Commission Decision cannot prejudge the position that the European Commission might take before the Union and national courts.
- Status
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Final Q&A
- Answer prepared by
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Answer prepared by the European Commission because it is a matter of interpretation of Union law.
Disclaimer
The Q&A refers to the provisions in force on the day of their publication. The EBA does not systematically review published Q&As following the amendment of legislative acts. Users of the Q&A tool should therefore check the date of publication of the Q&A and whether the provisions referred to in the answer remain the same.