Article 411(1) CRR defines "financial customer" as an entity that performs one or more of the activities listed in Annex I to Directive 2013/36/EU as its main business. The phrase "main business" is not defined. This Q&A submission seeks clarification of the existing meaning of that phrase as it applies to the specific scenario described.

Non-financial corporate groups may establish dedicated legal entities (‘treasury centers’), whose sole purpose is to centralise and optimise the management of the group's internal finances. These entities typically may perform functions such as:

• Centralised cash pooling and liquidity management on behalf of group entities
• Intragroup lending and borrowing
• Intragroup foreign exchange and interest rate risk management

However, these treasury centers are not licensed credit institutions or investment firms. They do not offer services to third parties (neither wholesale nor retail), and they have no external 3rd party customers who pay for their goods or services. Their activities are exclusively directed at entities within the same non-financial corporate group, and their existence is ancillary to the primary non-financial business of the group.

The ordinary meaning of "main business",  i.e. the primary purpose for which an entity exists, implies that the activity in question constitutes the entity's primary, independent function. An entity that exists solely to serve the internal financial management needs of a non-financial group does not have an independent "business" in the ordinary sense. Its activities are not its "main business" as they are the means by which the group's non-financial main business is supported and optimised.

Additionally, the activities listed in Annex I to Directive 2013/36/EU are activities ‘subject to mutual recognition’ i.e. when performed as a business directed at external counterparties they are subject to authorisation/recognition under the CRD framework within the EU. Intragroup financial management functions whether that is lending to subsidiaries, pooling group cash, etc.  fall outside of this perimeter because they are not performed “as a business” directed at external counterparties and are purely instrumental and ancillary to a non-financial group's actual main business operations. As such these activities do not fall under intention of the CRD framework and its mutual recognition mechanism as referred to in Annex I.

This question is not to revisit the principle established in Q&A 2016_2996 that intragroup activities are included in the "main business" assessment. This question sets a distinct threshold to question whether the "main business" criterion can be satisfied at all by an entity whose activities are exclusively intragroup and have otherwise no independent business purpose. The question also notes that Q&A 2013_364 (captive finance companies) is distinguishable it whereby captive finance companies typically have a degree of external-facing activity or independently commercial purpose.