The IWCFC has the pleasure of launching the formal consultation on its advice to the European Commission (EC) on recommendations for action that the IWCFC considers appropriate to address the consequences of the differences in sectoral rules on eligible capital for the supervision of financial conglomerates. The advice forms the conclusion to its previous reports analysing the existence and impact of the sectoral differences published in January and August 2007.
On the basis of the final deadline of the end of March 2008 imposed by the EC, the IWCFC members have agreed to hold a six weeks public consultation on the recommendations from 28 January 2008 till 7 March 2008. At the same time, in order to intensify the consultation, relevant stakeholders are being invited to a meeting on 19 February in Frankfurt, to discuss the advice with the IWCFC experts. Following the consultation, the IWCFC intends to adopt the final advice at its meeting on 19 March 2008, and following adherence to final procedural steps within CEBS and CEIOPS have been taken into account, the advice will be sent to the EC on 31 March 2008, respecting the EC deadline.
In order to allow for a focused consultation, the IWCFC has developed some concrete questions on which it would be very keen to hear market participants’ views. Participants are of course welcome to raise any other issues they think are relevant.
Industry representatives are invited to send their comments by 7 March 2008 to following email address: conglomerates@c-ebs.org.
Questions to the industry:
On the recommendation on hybrids:
Do you agree that level playing field among insurers, banks and conglomerates should be ensured via the adoption of a common set of rules with regard to Tier 1 hybrids? Do you agree with the recommendation that such rules should be closely modelled to current CEBS’ proposals? What are your views on the timing?
On the recommendation on the treatment of participations:
From a financial conglomerates’ perspective, the different thresholds for deductions of holdings in banks are only critical if they provide room for regulatory arbitrage. Taking into account that the difference in sectoral rules only encompasses those with holdings in banks between 10-20 %, which are not already deducted because of a durable link, the IWCFC currently regards the potential for regulatory arbitrage as low. Therefore the IWCFC would propose neither amendments of the sectoral rules, nor the implementation of a financial conglomerate specific rule. The IWCFC would rather leave it to the supervisory discretion to intervene, if necessary, on a case-by-case basis to avoid arbitrage.
• What are your views on this conclusion?
• You are invited to provide evidence of the practical relevance of the sectoral differences from a financial conglomerate point of view. What are the elements you take into account when deciding to allocate a holding/participation in one part of the financial conglomerate rather than another? Do the current thresholds/ rules cause any difficulties/prevent you from taking a stake in a bank or insurance company? How many holdings in banks between 10 and 20 % does your financial conglomerate actually hold?
On the recommendation on unrealised gains:
With respect to the sectoral differences in the valuation methods, the IWCFC currently sees no necessity for changing the current rules. Instead, the IWCFC recommends striving for more consistency in the national transposition of the sectoral rules and the application of the prudential filters. As far as problems/shortcomings are identified at financial conglomerate level the supervisor should again be able to intervene on a case-by-case basis.
• What are your views on this conclusion?
• Do you agree that further steps to be taken at sectoral level that could help identifying possible concerns to be addressed at the conglomerate level?
On the recommendation on the calculation method:
Do you agree with the recommendation that the consolidation method should be the calculation method by default? Do you have any other concerns?