LegalizeCommission Delegated Regulation (EU) 2024/1771 of 13 March 2024 on supplementing Regulation (EU) 2019/2033 of the European Parliament and of the Council with regard to regulatory technical standards specifying the details of the scope and methods for prudential consolidation of an investment firm group
THE EUROPEAN COMMISSION,
Having regard to the Treaty on the Functioning of the European Union,
Having regard to Regulation (EU) 2019/2033 of the European Parliament and of the Council of 27 November 2019 on the prudential requirements of investment firms and amending Regulations (EU) No 1093/2010, (EU) No 575/2013, (EU) No 600/2014 and (EU) No 806/2014 (1), and in particular Article 7(5), third subparagraph, thereof,
Whereas:
(1) To specify the details of the scope of prudential consolidation of an investment firm group as referred to in Article 7 of Regulation (EU) 2019/2033, it is necessary to determine, on the basis of Directive 2013/34/EU of the European parliament and of the Council (2), the links on the basis of which ancillary services undertakings, financial institutions, investment firms, and tied agents related to a particular investment firm, investment holding company or mixed financial holding company, should be included in that scope.
(2) To ensure the effectivity and neutrality of the supervision on a consolidated basis, it is necessary to lay down criteria for competent authorities to determine where parent-subsidiary links exist for all investment firm groups across the Union.
(3) To take into account the links for consolidated supervision, ancillary services undertakings, financial institutions, investment firms, and tied agents should be included in the scope of prudential consolidation of the Union parent undertaking where control is established, dominant influence is exercised, or unified management or horizontal links are identified.
(4) To respect the principle of proportionality, and in particular to take into account the diversity in size of undertakings and their scale of operations, a Union parent undertaking should be allowed to exclude small undertakings from the scope of prudential consolidation.
(5) Pursuant to Article 22(2), point (b), of Directive 2013/34/EU, the scope of prudential consolidation of an investment firm group is to include cases where investment firm group entities are managed on a unified basis. To determine that such entities are managed on a unified basis, competent authorities should have concrete evidence that there is an effective coordination of the financial and operating policies of such entities.
(6) Pursuant to Article 22(7), points (a) and (b), of Directive 2013/34/EU, the scope of prudential consolidation of an investment firm group is to include cases of horizontal links where two entities are related, whereby one entity is not a subsidiary of the other and it thus is impossible to determine a Union parent undertaking. In such cases, the competent authority or, where applicable, the group supervisor as defined in Article 3(1), point (15), of Directive (EU) 2019/2034 of the European Parliament and of the Council (3) should determine the entity that should perform the consolidation and take on the role of Union parent undertaking.
(7) To ensure effective application of the prudential requirements at consolidated level, full consolidation of all entities included within the scope of prudential consolidation should be applied as a general rule. Where two undertakings are related as referred to in Article 22(7) of Directive 2013/34/EU, consolidation in accordance with Article 22(8) and (9) of Directive 2013/34/EU should be applied (‘aggregation method’).
(8) It is necessary to prevent the multiple use of elements eligible for own funds’ calculation. Union parent undertakings, when calculating the consolidated permanent minimum capital requirement for an investment firm group, should therefore add the individual permanent minimum capital requirements for individual investment firms to the initial capital of those financial institutions that are subject to that type of capital requirement, in particular asset management companies, payment institutions, and electronic money institutions.
(9) Consolidated expenditure figures from the application of the relevant accounting framework do not exist in every case. To determine the consolidated fixed overheads requirement for the purpose of prudential consolidation, a Union parent undertaking should therefore calculate the amount of expenditure needed by the investment firm group by adding up the expenditure of the Union parent undertaking, and of the entities that are prudentially consolidated in the investment firm group and, where not already included in the costs of the investment firms, the costs of tied agents.
(10) Changes, including shifts in business models, or mergers and acquisitions, may result in significant variations in the projected fixed overhead. For the determination of own funds requirements on the basis of fixed overheads, it is therefore necessary to establish objective thresholds of projected fixed overheads.
(11) For the calculation of the consolidated K-factors, those activities and services that are included in Annex I to Directive 2014/65/EU of the European Parliament and of the Council (4), or associated activities and services, should also be taken into account, regardless of whether those activities and services are carried out or performed by the investment firms or by other entities of the investment firm group. It is therefore necessary to include in the calculation of the consolidated K-factors the activities and services referred to in Article 6(3), points (a), (b)(i), and (b)(ii), of Directive 2009/65/EC of the European Parliament and of the Council (5) and in Article 6(4), points (a), (b)(i), (b)(ii), and (b)(iii), of Directive 2011/61/EU of the European Parliament and of the Council (6) carried out or performed by any entities of the investment firm group included in the consolidation.
(12) According to the definition of ‘consolidated situation’, laid down in Article 4(1), point (11), of Regulation (EU) 2019/2033, financial institutions are part of the scope of consolidation of an investment firm group. However, not all activities carried out by different financial institutions contribute to the calculation of consolidated K-factor requirements. It is therefore necessary to specify which activities of those financial institutions are relevant for specific K-factors.
(13) It is necessary to avoid the double-counting of elements eligible for own funds’ calculation. Intragroup services and transactions should therefore be excluded for the calculation of certain consolidated K-factor requirements, and more in particular for the calculation of the K-factors ‘assets safeguarded and administered’ (K-ASA), ‘client orders handled’ (K-COH), and ‘daily trading flow’ (K-DTF).
(14) An investment firm can delegate assets’ management to another entity that is part of the same investment firm group. To avoid double-counting, it is necessary to specify how those assets should be accounted for in the total amount of assets under management when calculating the consolidated K-factor ‘assets under management’ (K-AUM).
(15) Client money held by entities in the scope of consolidation may derive from the services and activities referred to in Annex I to Directive 2014/65/EU or from other services and activities which entities in the investment firm group lawfully perform. It is therefore necessary to ensure that the calculation of the K-factor ‘client money held’ (CMH) does not include client money derived from services and activities other than the ones listed in Annex I to that Directive. Against that background, ‘client money held’ (CMH) of the investment firm group should be the sum of the CMH of all group entities included in the consolidation other than payment institutions and asset management companies.
(16) To ensure proportionality and to avoid double counting, intra-group activities and services taken into account for the calculation of the K-AUM of an investment firm group should be excluded from the calculation of K-COH.
(17) Dealing on own account and providing underwriting or placement services presents the same risk when performed by entities of an investment firm group included in the consolidation, regardless of whether those entities are investment firms or financial institutions. For that reason, when calculating the consolidated K-factor ‘net position risk’ (K-NPR), Union parent undertakings should take all such activities and services into account, having also regard to Article 325b of Regulation (EU) No 575/2013 of the European Parliament and of the Council (7), in accordance with which the use of positions in one entity of the group to offset positions in another entity of that group is only allowed where the Union parent undertaking has obtained the permission of the relevant competent authority.
(18) This Regulation is based on the draft regulatory technical standards submitted to the Commission by the European Banking Authority.
(19) The European Banking Authority has conducted open public consultations on the draft regulatory technical standards on which this Regulation is based, analysed the potential related costs and benefits and requested the advice of the Banking Stakeholder Group established in accordance with Article 37 of Regulation (EU) No 1093/2010 of the European Parliament and of the Council (8),
HAS ADOPTED THIS REGULATION:
Article 1
Definitions
For the purposes of this Regulation, the following definitions shall apply:
(1) ‘Union parent undertaking’ means a Union parent investment firm, a Union parent investment holding company, or a Union parent mixed financial holding company, that is responsible for the prudential consolidation of the investment firm group pursuant to Article 7(1) of Regulation (EU) 2019/2033;
(2) ‘relevant entity’ means an ancillary service undertaking, a financial institution, an investment firm, or a tied agent;
(3) ‘capital ties’ means the ownership, direct or indirect, of voting rights or capital of an undertaking, including a participation as defined in Article 2, point (2), of Directive 2013/34/EU.
Article 2
Scope of prudential consolidation
Competent authorities shall include in the scope of prudential consolidation of a Union parent undertaking the following relevant entities:
(a) a relevant entity in which the Union parent undertaking or another relevant entity that belongs to the same investment firm group has the majority of the shareholders’ or members’ voting rights;
Meeting the condition set out in point (d)(i) shall not be required where an undertaking outside the investment firm group has the rights referred to in points (a), (b) or (c) with regard to that relevant entity.
In addition to the relevant entities referred to in paragraph 1, competent authorities shall determine whether the following relevant entities may be included in the scope of prudential consolidation of a Union parent undertaking:
(a) a relevant entity over which the Union parent undertaking or another relevant entity of the investment firm group has the power to exercise, or actually exercises, dominant influence or control, regardless of whether any capital ties between those relevant entities exist;
(b) a relevant entity with which the Union parent undertaking or another relevant entity of the investment firm group are managed on a unified basis as referred to in Article 4, regardless of whether capital ties between the relevant entities exist.
In addition to the relevant entities referred to in paragraphs 1 and 2, a competent authority shall determine whether the following relevant entities may be included in the scope of prudential consolidation:
(b) a relevant entity, other than a relevant entity as referred to in paragraph 1 or paragraph 2 or paragraph 3(a), of which the majority of the members of the administrative, management, or supervisory body of a relevant entity, is, on the basis of the its most recent financial statements, made up by the same persons that are also members of the administrative, management or supervisory body of the Union parent undertaking or of another relevant entity of the investment firm group.
Article 3
Exemptions from prudential consolidation
Competent authorities may exempt a Union parent undertaking from prudentially consolidating a relevant entity as referred to in Article 2 where the sum of its total assets and of its off-balance sheet items, excluding assets under management or safekeeping, is less than the smaller of the following thresholds:
(a) EUR 10 million;
(b) 1 % of the total amount of consolidated assets and consolidated off-balance sheet items of the Union parent undertaking, excluding that relevant entity’s assets under management and assets and off-balance sheet items.
Competent authorities cannot exempt the Union parent undertaking from prudentially consolidating entities referred to in paragraph 1 where the sum of total assets and of off-balance sheet items, excluding assets under management of these entities exceeds any of the thresholds referred to in paragraph 1, points (a) or (b).
Competent authorities may exempt a Union parent undertaking from prudentially consolidating a relevant entity as referred to in Article 2 where any of the following conditions is met:
(a) the relevant entity is situated in a third country where there are legal impediments to the transfer of the information needed for the prudential consolidation;
(b) the relevant entity is of negligible interest only with respect to the objectives of supervision of the investment firm group;
(c) the consolidation of the financial situation of the relevant entity would be inappropriate or misleading as far as the objectives of the supervision of the investment firm group are concerned.
Article 4
Management on a unified basis
For the purposes of Article 2(2), point (b), a competent authority shall determine that two or more relevant entities are managed on a unified basis where all of the following conditions are met:
(a) the financial and operating policies of the relevant entities concerned are effectively coordinated;
(b) the relevant entities are not related as referred to in Article 22(1), Article 22(2), point (a), and Article 22(7), point (b), of Directive 2013/34/EU.
For the purposes of paragraph 1, point (a), competent authorities may, in particular, take into account the following elements:
(a) whether the relevant entities concerned are controlled, directly or indirectly, by the same natural person or persons, or by the same undertaking or undertakings;
(b) whether the majority of the members of the administrative, management or supervisory body of, on the one hand, those relevant entities and, on the other hand, of the Union parent undertaking, or of another parent undertaking, is appointed by the same natural person or persons or by the same undertaking or undertakings, even where those members are not the same persons.
Article 5
Modality of application of Article 2(3)
Where consolidation is required pursuant to Article 2(3), the following entity shall be responsible for consolidating all relevant entities in the investment firm group and for applying Articles 8 to 11:
(a) where there is only one investment firm among the relevant entities referred to in Article 2(3), that investment firm;
(b) where there is more than one investment firm among the relevant entities referred to in Article 2(3), the investment firm with the largest amount of total assets.
For the purposes of the first subparagraph, point (b), the investment firm shall calculate the amount of total assets on the basis of the latest audited financial statements or, where consolidated financial statements are not required to be prepared in accordance with the applicable accounting framework, the latest audited individual financial statement of the investment firm.
By way of derogation from paragraph 1, the competent authorities or, where applicable, the group supervisor, may designate as responsible for the prudential consolidation of all relevant entities in the investment firm group and for applying Articles 8 to 11, an investment firm or a financial institution in the group if that relevant entity already has the duty to prepare the consolidated financial statements for the investment firm group.
Article 6
Method for prudential consolidation
The Union parent undertaking, or the relevant entity designated in accordance with Article 5, shall consolidate the entities referred to in Article 2(1) and (2) in accordance with Article 22(6) of Directive 2013/34 EU (full consolidation), and the entities referred to in Article 2(3) in accordance with Article 22(8) and (9) of that Directive (aggregation method).
By way of derogation from paragraph 1, the group supervisor may, regarding the relevant entities meeting the criteria in Article 2(3), allow the application to one or more of those relevant entities the consolidation method set out in Article 22(8) and (9) of Directive 2013/34/EU.
Article 7
Methods and necessary details for the recognition in consolidated own funds of minority interest and additional Tier 1 and Tier 2 instruments
Institutions shall treat the minority interests and additional Tier 1 and Tier 2 instruments in accordance with Part Two, Title II, of Regulation (EU) No 575/2013 and Article 34a of Commission Delegated Regulation (EU) No 241/2014 (9).
Where the consolidation method is the one provided for in Article 6(2), the minority interests and additional Tier 1 and Tier 2 instruments that are issued by entities that are included in the scope of the prudential consolidation in accordance with Article 2 may be included in that consolidation provided that those minority interests and additional Tier 1 and Tier 2 instruments cover the losses of all the relevant entities included in the prudential scope of consolidation.
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