These proposals implement the EU Financial Groups Directive. The new rules will require mixed financial groups to hold adequate capital and to monitor and control their group wide risks. They will also introduce greater cross-sector consistency in the treatment of financial groups.
Clive Briault, Director of Prudential Standards at the FSA, said:
"Regulators need to keep pace with the development of cross sector financial groups, many of which also operate in more than one country. These proposals are designed to protect consumers and to improve the safety and soundness of the financial system through group capital adequacy and systems and controls requirements, and through enhanced international supervisory co-operation. In addition, these proposals will introduce greater cross-sector consistency, including a requirement for insurance groups to meet capital adequacy standards for the overall group."
These proposals follow internationally agreed principles and global minimum standards for the supervision of financial groups. Under the proposals, EU regulators will appoint a designated co-ordinator for each financial group, which will establish a more consistent approach to their regulation whilst improving international regulatory co-operation.
The proposals extend the scope of current supervisory oversight of banking, investment and conglomerates groups to include parent companies located outside the EU, as is already the case for insurance groups. But where such a non-EEA group is already subject to equivalent supervisory requirements in its home country, the need for regulation from the EU falls away.
The proposals also provide a more consistent approach between the banking and insurance sectors by requiring ‘pure’ insurance groups to meet FSA capital requirements for the overall group, as is already the case for banking groups. It is proposed that this requirement should be introduced in stages, in line with our proposals for enhanced capital requirements for insurance firms at the solo level.
The Financial Groups Directive must be implemented during 2005. It updates existing sector specific Directives (Banking Consolidation, Insurance Groups and Capital Adequacy) to establish a cross sector approach.
