explanation of scope of consolidation

Report
I. CRD IV and CRR scope of consolidation
Highlights of CRD IV + CRR prudential consolidation
• CRD IV + CRR are applied on solo (“individual”) and
several consolidated bases.
• The solo (individual) application is based on the
unconsolidated accounts of the legal entity which is
licensed as an institution.
• Consolidated application starts by consolidating
several relevant legal entities within a financial group
into a single (hypothetical) consolidated entity, on
which the CRD IV + CRR are applied.
• On one financial group several levels of consolidation
may be applicable.
• The levels of consolidation are applied for a number of
prudential topics (parts) of CRD IV + CRR framework.
• The application of consolidated supervision and the
determination of the consolidated situation are
dependent on a number of characteristics of the
financial group such as: legal relation between the
entities, activities/licenses and location of the entity.
• Prudential consolidation differs from accounting
consolidation on several accounts.
Example of subsidiaries in the scope of consolidation
This example below shows several entities included (B,D,E)
in the scope of consolidation (blue area) of a relevant parent
entity (A). Corporate subsidiaries (C) arenot included. The
CRD IV + CRR applies on this consolidated entity (A) as well
as solo on those institutions (B,D) which are located in any
Member State of the European Economic Area (EEA).
Inside EEA
A
100%
B
Inside EEA
100%
C
Corporate
100%
D
Examples of consolidation scopes
The following figures are examples of applicable scopes
of consolidation given characteristics of a banking group.
Credit institution
Financial holding
company
Investment firm
Inside EEA
100%
E
Credit institution
Outside EEA
II. Key factors in consolidation
Consolidation levels in the CRD IV + CRR framework
The application of CRD IV requirements on consolidation
levels is additional to the application of CRD IV to the
unconsolidated legal entity (“solo” = “individual”).
However on the solo level, depending on the situation,
waiver (CRR.7+8) may be granted. Within a complex
banking group each of these levels may be applicable,
however for less complex groups, some levels may not
be applicable / coincide with other levels.
• EU consolidation level
• Member State consolidation level
• CRR.22 sub-consolidation level
• Specific liquidity sub-consolidation level
Any EEA Member State
A
EU
consolidation group
Any EEA Member State
B
100%
Inclusion of an entity in the scope of consolidation
An entity which is a subsidiary of a consolidating parent
entity has to be included in the scope of consolidation,
depending on a number of factors (non-exhaustive list):
• Type (activities and licenses) of the parent undertaking
• Location of the subsidiary
• Type (activities and licenses) of the subsidiary
• Size and risk of the subsidiary
• Relation between the parent and the subsidiary
It should be noted that the parent undertaking is not
necessarily the consolidating entity or itself subject to
consolidated supervision.
Relevant entity
C
Relevant entity
Member State
consolidation group
Liquidity sub
consolidation group
Relevant entity
100%
E
100%
Relevant entity
Other EEA Member State
100%
D
Relevant entity
CRR. 22 subconsolidation group
F
100%
Relevant entity
Non – EEA state
III. Relevant definitions
CRR.4.1 – relevant definitions for this purpose
(21) “mixed financial holding company” means mixed financial holding
company as defined in point (15) of Article 2 of Directive 2002/87/EC;
(3) “institution” means a credit institution or an investment firm;
(15) “parent undertaking” means: (a) a parent undertaking within the meaning
of Articles 1 and 2 of Directive 83/349/EEC; (b) irrelevant
(16) “subsidiary” means: (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.
Subsidiaries of subsidiaries shall also be considered to be subsidiaries of the
undertaking that is their original parent undertaking;
(18) “ancillary services undertaking” means an undertaking the principal
activity of which consists of owning or managing property, managing dataprocessing services, or a similar activity which is ancillary to the principal
activity of one or more institutions;
(20) “financial holding company” means a financial institution, the
subsidiaries of which are exclusively or mainly institutions or financial
institutions, at least one of such subsidiaries being an institution, and which is
not a mixed financial holding company;
(26) “financial institution” means an undertaking other than an institution, the
principal activity of which is to acquire holdings or to pursue one or more of the
activities listed in points 2 to 12 and point 15 of Annex I to Directive
2013/36/EU, including a financial holding company, a mixed financial holding
company, a payment institution within the meaning of Directive 2007/64/EC of
the European Parliament and of the Council of 13 November 2007 on payment
services in the internal market (1), and an asset management company, but
excluding insurance holding companies and mixed-activity insurance holding
companies as defined, respectively, in points (f) and (g) of Article 212(1) of
Directive 2009/138/EC;
(28) “parent institution in a Member State” means an institution in a Member
State which has a institution or a financial institution as a subsidiary or which
holds a participation in such an institution or financial institution, and which is not
itself a subsidiary of another 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;
(29) “EU parent institution” means a parent institution in a Member State which
is not a subsidiary of another institution authorised in any Member State, or of a
financial holding company or mixed financial holding company set up in any
Member State;
(30) “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;
(31) “EU parent financial holding company” means a parent financial holding
company in a Member State which is not a subsidiary of an institution authorised
in any Member State or of another financial holding company or mixed financial
holding company set up in any Member State;
(32) “parent mixed financial holding company in a Member State” means a
mixed 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 that same Member State;
(33) “EU parent mixed financial holding company” means a parent mixed
financial holding company in a Member State which is not a subsidiary of an
institution authorised in any Member State or of another financial holding
company or mixed financial holding company set up in any Member State;
IV. EU consolidation level
EU consolidation
Any EEA Member State
A
B
Trigger of consolidation
• EU consolidation is triggered by the presence of at
least one institution within the EEA.
Relevant entity
Any EEA Member State
100%
Relevant entity
100%
C
100%
D
Relevant entity
Other EEA Member State
Level of consolidation
• EU level consolidation is applicable on the highest
level of a group within the EEA (ultimate parent):
• Special case if institutions are located in several MS
controlled by a single non-EEA entity (CRD.111).
• The highest level of a banking group at the EU
consolidation level, could be a:
• (Mixed) financial holding company
• Institution.
Relevant entity
100%
E
CRR.11.3 + CRD.111
Relevant entity
Non – EEA state
Scope of consolidation
• Within the scope of consolidation are all relevant
entities, which are a subsidiary of the ultimate parent.
• The location of those subsidiaries is irrelevant.
• Relevant entities for EU consolidation are:
• Financial institutions (including holding companies)
• Institutions
• Ancillary service undertakings
• Consolidation of a subsidiary is evaluated from the
perspective of the ultimate parent.
V. Member State consolidation level
Member State consolidation
Location irrelevant
A
B
Trigger of consolidation
• MS consolidation is triggered by the presence of at
least one institution in the Member State concerned.
Irrelevant entity
Member State concerned
100%
Relevant entity
100%
C
100%
D
Relevant entity
Other EEA Member State
Level of consolidation
• MS level consolidation is applicable on the highest
level of a group within the Member State (MS parent):
• Note: if MS level is identical to EU level, both apply
• Note: MS level also triggers if there are no subs..
• The highest level of a banking group at the MS
consolidation level, could be a:
• (Mixed) financial holding company
• Institution.
Relevant entity
100%
E
CRR.11.1 + CRR.1.2
Relevant entity
Non – EEA state
Scope of consolidation
• Within the scope of consolidation are all relevant
entities, which are a subsidiary of the MS parent.
• The location of those subsidiaries is irrelevant.
• Relevant entities for MS consolidation are:
• Financial institutions (including holding companies)
• Institutions
• Ancillary service undertakings.
• Consolidation of a subsidiary is evaluated from the
perspective of the MS parent.
VI. CRR.22 sub-consolidation level
CRR.22 sub-consolidation
Location irrelevant
A
B
Trigger of consolidation
• CRR.22 sub-consolidation is triggered by the
presence of an institution in the MS concerned and if
there are any relevant non-EEA subsidiaries of any
entity in the concerned MS.
Irrelevant entity
Member State concerned
100%
Irrelevant entity
100%
C
100%
D
Irrelevant entity
Other EEA Member State
Relevant entity
100%
E
CRR.22
Relevant entity
Non – EEA state
Level of consolidation
• CRR.22 sub level consolidation is applicable on the
direct parent level of a sub-group (local parent).
• Note: if CRR.22 is identical to MS level, both apply
• Note: there are other separate cases of subconsolidated supervision, not discussed here.
• The highest level could be a:
• (Mixed) financial holding company
• Institution.
Scope of consolidation
• Within the scope of consolidation are all relevant
entities, which are a subsidiary of the local parent.
• The location of those subsidiaries is irrelevant.
• Relevant entities for CRR.22 sub-consolidation are:
• Financial institutions (including holding companies)
• Institutions
• Ancillary service undertakings.
VII. Liquidity specific sub-consolidation
Liquidity specific sub-consolidation
Location irrelevant
A
Irrelevant entity
Member State concerned
B
100%
Relevant entity
100%
C
E
Trigger of consolidation
• Liquidity specific sub-consolidation is triggered by a
granted waiver under CRR.8.2 or CRR.8.3, and
waives the solo liquidity application on those entities.
• Upon granting the waiver, several institutions within
the EEA (CRR.8.3 = sub-group 2) or within the same
MS (CRR.8.2 = sub-group 1) form a single liquidity
sub-group for the purpose of meeting CRR liquidity
requirements:
• Note a sub-group including subsidiaries in another
MS may apply for a waiver as of 2015 (CRR.8.3).
100%
Relevant entity
100%
Single liquidity
sub-group 1.
CRR.8
D
Single liquidity
sub-group 2.
Relevant entity
Other EEA Member State
Relevant entity
100%
F
Irrelevant entity
Non – EEA state
Level of consolidation
• Liquidity specific sub-consolidation is applicable on the
direct parent level of the single liquidity sub-group:
• Note: several liquidity groups could be formed.
• The highest level of a banking group at the liquidity
specific sub-consolidation level, could only be an:
• Institution (CRR definition).
Scope of consolidation
• Only those institutions which are in scope of the single
liquidity sub-group are consolidated for this purpose.

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