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The Financial Conglomerates
Directive
from the Basel
ii Compliance Professionals Association (BCPA)
the largest Association
of Sarbanes Oxley professionals in the
world
Article 3
Thresholds for identifying a financial
conglomerate
1. For the purposes of determining whether the
activities of a group mainly occur in the financial sector, within
the meaning of Article 2(14)(c), the ratio of the balance sheet
total of the regulated and non-regulated financial sector entities
in the group to the balance sheet total of the group as a whole
should exceed 40 %.
2. For the purposes of determining whether activities
in different financial sectors are significant within the meaning of
Article 2(14)(e), for each financial sector the average of the ratio
of the balance sheet total of that financial sector to the balance
sheet total of the financial sector entities in the group and the
ratio of the solvency requirements of the same financial sector to
the total solvency requirements of the financial sector entities in
the group should exceed 10 %.
For the purposes of this Directive, the smallest
financial sector in a financial conglomerate is the sector with the
smallest average and the most important financial sector in a
financial conglomerate is the sector with the highest average.
For the purposes of calculating the average and for
the measurement of the smallest and the most important financial
sectors, the banking sector and the investment services sector shall
be considered together.
3. Cross-sectoral activities shall also be presumed to
be significant within the meaning of Article 2(14)(e) if the balance
sheet total of the smallest financial sector in the group exceeds
EUR 6 billion.
If the group does not reach the threshold referred to
in paragraph 2, the relevant competent authorities may decide by
common agreement not to regard the group as a financial
conglomerate, or not to apply the provisions of Articles 7, 8 or 9,
if they are of the opinion that the inclusion of the group in the
scope of this Directive or the application of such provisions is not
necessary or would be inappropriate or misleading with respect to
the objectives of supplementary supervision, taking into account,
for instance, the fact that:
(a) the relative size of its smallest financial sector
does not exceed 5 %, measured either in terms of the average
referred to in paragraph 2 or in terms of the balance sheet total or
the solvency requirements of such financial sector;
or
(b) the market share does not exceed 5 % in any Member
State, measured in terms of the balance sheet total in the banking
or investment services sectors and in terms of gross premiums
written in the insurance sector.
Decisions taken in accordance with this paragraph
shall be notified to the other competent authorities
concerned.
4. For the application of paragraphs 1, 2 and 3, the
relevant competent authorities may by common
agreement:
(a) exclude an entity when calculating the ratios, in
the cases referred to in Article 6(5);
(b) take into account compliance with the thresholds
envisaged in paragraphs 1 and 2 for three consecutive years so as to
avoid sudden regime shifts, and disregard such compliance if there
are significant changes in the group's
structure.
Where a financial conglomerate has been identified
according to paragraphs 1, 2 and 3, the decisions referred to in the
first subparagraph of this paragraph shall be taken on the basis of
a proposal made by the coordinator of that financial
conglomerate.
5. For the application of paragraphs 1 and 2, the
relevant competent authorities may, in exceptional cases and by
common agreement, replace the criterion based on balance sheet total
with one or both of the following parameters or add one or both of
these parameters, if they are of the opinion that these parameters
are of particular relevance for the purposes of supplementary
supervision under this Directive: income structure,
off-balance-sheet
activities.
6. For the application of paragraphs 1 and 2, if the
ratios referred to in those paragraphs fall below 40 % and 10 % respectively for
conglomerates already subject to supplementary supervision, a lower
ratio of 35 % and 8 % respectively shall apply for the following
three years to avoid sudden regime shifts.
Similarly, for the application of paragraph 3, if the
balance sheet total of the smallest financial sector in the group
falls below EUR 6 billion for conglomerates already subject to
supplementary supervision, a lower figure of EUR 5 billion shall
apply for the following three years to avoid sudden regime
shifts.
During the period referred to in this paragraph, the
coordinator may, with the agreement of the other relevant competent
authorities, decide that the lower ratios or the lower amount
referred to in this paragraph shall cease to
apply.
7. The calculations referred to in this Article
regarding the balance sheet shall be made on the basis of the
aggregated balance sheet total of the entities of the group,
according to their annual accounts.
For the purposes of this calculation, undertakings in
which a participation is held shall be taken into account as regards
the amount of their balance sheet total corresponding to the
aggregated proportional share held by the group.
However, where consolidated accounts are available,
they shall be used instead of aggregated accounts. The solvency
requirements referred to in paragraphs 2 and 3 shall be calculated
in accordance with the provisions of the relevant sectoral
rules.
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