Does consolidated supervision of a bank exist in your jurisdiction? If so, what are the consequences?

Banking & Finance (2nd edition)

Israel Small Flag Israel

The BoI recognizes the need to consider banking group consideration, for purposes of stability, risk management and exposure. Therefore, in several PMB's issued by the BoI, it is stipulated that the banking corporation's board of directors will take into account in its policy and strategy the banking corporation's group structure, and the ability to control and manage risks in the group. Similarly, the risk management policy of the banking corporation should take into account its subsidiaries and the board of directors shall determine general instructions for corporate governance and control in the banking corporations' subsidiaries including subsidiaries and branches outside of Israel.
For that purpose, the board of directors of a banking corporation is required to create a supervision mechanism, which will ensure fluent transfer of information and ensure that the banking corporation internal auditor shall receive all required information, on his discretion, which will allow him to conduct examinations and other procedures in other corporations in the group. In addition, the banking corporation's audit committee is required to refer to the suitable scope of internal audit in the banking corporations' subsidiaries and to recommend it to the board of directors.

Austria Small Flag Austria

Parent institutions in a Member State have to comply with the consolidation obligations laid down in the CRR. The parent undertakings and their subsidiaries subject to the CRR must implement proper organizational structures and appropriate internal control mechanisms, to ensure that the data required for consolidation is duly processed and forwarded.

Cyprus Small Flag Cyprus

Consolidated supervision of banks exists in the Republic of Cyprus and is carried out by the CBC. Consolidated supervision is exercised when the parent undertaking of an ACI incorporated in the Republic is a parent credit institution established in another member state in relation to an ACI incorporated in the Republic of Cyprus which has a parent financial holding company or a parent mixed financial holding company Where the ACI incorporated in the Republic of Cyprus has a parent financial holding company or a parent mixed financial holding company which is a member state or which is established in the European Union, the CBC shall exercise supervision on a consolidated basis.

The consequences of carrying out a consolidated supervision are:

  • Coordination of the gathering and sharing of important information in going concern and emergency situations.
  • Planning and coordination the supervision of activities in going concern situations, in cooperation with the competent authorities involved.
  • Planning and coordination, in cooperation with the competent authorities involved or in emergency situations the European Central Bank and other national central banks, of supervisory activities.

Finland Small Flag Finland

The requirements and regional dimension regarding supervision of a consolidated group are regulated by the Capital Requirements Regulation.

A consolidation group refers to a group comprising the parent company, which may be a Finnish or a foreign credit institution or financial holding company, together with its subsidiaries that are credit institutions, financial institutions or ancillary banking services undertakings. Credit institutions acting as the parent company of a consolidation group are subject to supervision by the FFSA on a consolidated basis with respect to risk management, exposures to clients, monitoring large exposures as well as restrictions on large holdings and possession of real estate. Consequently, financial ratios must be reported on a consolidated basis. A parent company of a consolidation group and the subsidiaries in the consolidation group must not take such a risk that would endanger the consolidated capital adequacy.

France Small Flag France

Banking groups supervised on a consolidated basis shall:

- implement the necessary means to ensure compliance, in entities controlled exclusively or jointly, the provisions of the Order of November 3, 2014 relating to the internal control of banks and, where appropriate, European provisions, unless their application would be unlawful under a State outside of EU or EEA in which a subsidiary is established;
- ensure that the systems put in place within these banks are coherent with each other in order to measure, monitor and control the risks incurred at the consolidated level;
- verify the establishment of an organisation, a control system and the adoption within those enti-ties of adequate procedures in order to product information necessary for the exercise of the monitoring on a consolidated basis.

These banking groups are supervised by the BCE or the ACPR (where the parent company is a French credit institution or investment firm) depending of their seize.
Supervision on a consolidated basis affects all the entities of the group and involves that the ACPR, where appropriate, ensures with the competent authorities concerned:

- Coordination of the collect and publication of relevant or essential information (especially with on-site control missions);
- Planning and coordination of prudential supervision activities.

Turkey Small Flag Turkey

In line with the Basel requirements to ensure quantitative consolidated supervision of banks, Banking Law and the secondary legislation issued thereunder require consolidated supervision of banks. Consolidated supervision is required when:

(i) the relevant bank is the parent; or

(ii) the relevant bank is not the parent; but is part of a group the parent of which is a bank or financial holding company incorporated in Turkey.

Pursuant to the Banking Law, the local and foreign subsidiaries, branches and facility offices of a parent bank and any institutions being controlled together with a bank are subject to consolidated supervision and audit of the BRSA. The consolidated supervision extends to the overview of the transactions between the relevant bank and the institutions subject to consolidated supervision together with such bank as per the statutory limits (credit and specific limits pertaining to certain transaction types, such as donations) stipulated for the respective risk group consisting of the relevant bank and the entities subject to consolidated supervision therewith and their internal systems including internal control, audit and risk management units. Turkish banking legislation also requires that the capital adequacy ratios, leverage ratios and liquidity coverage ratios be calculated separately on a consolidated and unconsolidated basis.

Consolidated supervision of banks also envisages certain accounting and reporting requirements to be undertaken by the relevant bank and the entities subject to consolidated supervision together with such bank. Pursuant to the Communiqué on Preparation of Consolidated Financial Statements by Banks, banks shall prepare consolidated financial statements incorporating data related to (i) their subsidiaries or affiliates qualified as credit or financial institutions, including insurance companies, institutions engaged in capital market activities, development and investment banks and financial holding companies, at the end of each quarter and (ii) all of their subsidiaries or affiliates regardless of whether these are qualified as credit or financial institutions, on an annual and semi-annual basis.

Switzerland Small Flag Switzerland

FINMA may subject a financial group or financial conglomerate to its group or conglomerate supervision.

Under Swiss standards of consolidated supervision, it is required that the financial group is adequately organised; has an adequate internal control system; adequately records, mitigates and monitors risks in connection with its business activities; is managed by persons who can guarantee proper business con-duct; complies with the duty of segregation of duties between management and the governing body for the guidance, supervision and control; adheres to the capital adequacy and risk diversification regula-tions; has adequate liquidity; correctly applies the accounting regulations on financial statement ac-counting; and has a recognised, independent and competent auditor.

Slovakia Small Flag Slovakia

Yes, consolidated supervision exits in the Slovak Republic. If NBS declares that it will exercise supervi-sion on a consolidated basis it triggers further scrutiny for the bank. A person included in a consolidated group shall create control mechanisms to ensure that the information provided for the purposes of su-pervision on a consolidated basis is correct, and shall also ensure that the control mechanisms are suffi-ciently harmonized within the internal control system and that the information required for supervision on a consolidated basis is accessible and correct. For the purposes of supervision on a consolidated ba-sis, persons included in a consolidated group shall provide each other with the information required to meet the obligations arising from their inclusion in the consolidated group.

Consequence of exercising supervision on a consolidated basis means that a person included in a con-solidated group and its parent companies/bank, shall produce and submit to NBS, either directly or indi-rectly through a parent company/bank etc., any statements, reports, and other disclosures required for the exercise of supervision on a consolidated basis, in the stipulated manner within the stipulated time limits. Their structure, scope, contents, form, classification, deadlines, method, procedure, and place of presentation, including the methodology of preparation, are stipulated by NBS in a decree.

In case of breach of the above mentioned obligations, NBS has a wide scope of measures to ensure their remedy (from imposing an obligations through imposing fines to limitation or suspension of bank-ing license).

Germany Small Flag Germany

As stated above, the CRR directly applies in Germany. As a consequence, the provisions dealing with regulatory consolidation, ie Art. 11 et seqq CRR, apply. This means that, in principle, capital and liquidity requirements have to be met on a consolidated basis. Further, the competent regulatory authorities shall coordinate their work so that only one authority is the main point of contact and responsible for the group.

Singapore Small Flag Singapore

Yes.

Consistent with international standards, MAS, as the home supervisor of local financial groups, adopts an integrated supervisory approach, evaluating local financial groups on a whole-of-group basis, taking into account all of their banking, insurance and securities activities. Financial groups are also supervised on a consolidated basis, with both local and overseas operations taken into consideration.

For foreign banks and financial institutions, MAS will make sure that they are similarly subject to consolidated supervision by their respective home regulators.

MAS also cooperates and shares information with counterpart foreign regulators regularly to ensure that there is effective supervision of cross-border activities.

Japan Small Flag Japan

A holding company that holds more than 50% of the voting rights of a bank must obtain an authorisation to be a bank holding company, which is regulated by the Banking Act on a consolidated basis (e.g., maintenance of capital adequacy on a consolidated basis, and refraining from engaging in businesses other than banking and other financial businesses through its subsidiaries). Similar consolidated supervision also applies to banks that have subsidiaries.

Oman Small Flag Oman

The CBO obliges all Omani banks to apply all the ceilings and supervisory ratios at the consolidated level of the bank and its group (i.e. including all branches and/or subsidiaries inside and outside Oman). The CBO also conducts onsite and offsite supervision in relation to the operations of Omani banks and their group in Oman and in any other jurisdiction in which an Omani bank may be conducting banking business.

Georgia Small Flag Georgia

Yes, pursuant to Article 2 of Organic Law of Georgia on National Bank, the Consolidated Supervision is the supervision process which encompasses the imposition of the supervisory requirements and carrying out supervisory authorities/activities with respect to the any member of the banking group individually and/or with the members of the banking group (jointly) for the purposes of stability of the banking sector and the enhancement of the supervisory process of the commercial bank(s) being the members of the banking group.

Liechtenstein Small Flag Liechtenstein

Yes. The provisions of the CRD/CRR and MIFID II framework apply as well as the provisions on financial conglomerates.

Luxembourg Small Flag Luxembourg

Yes, Article 49 of the Financial Sector Law provides for the supervision of the CRR institutions on a con-solidated basis. The CSSF exercises its supervision on both stand-alone and a consolidated basis, mostly via periodic reporting by the supervised institutions.

The rules of the consolidated supervision are set out in the CRR Regulation. The main prudential stand-ards and norms that an institution or a financial holding company at a consolidated level must comply with are the following:

  • consolidated own funds;
  • observance of the consolidated solvency ratios;
  • large exposure limits on a consolidated basis;
  • arrangements concerning exposures to transferred credit risk;
  • consolidated liquidity;
  • consolidated leverage ratio; and
  • the information to be published (Pillar 3).

One of the consequences of the consolidated supervision in Luxembourg is that the CSSF pays particu-lar attention to the “group head” function exercised by the parent institution.

Portugal Small Flag Portugal

Banco de Portugal is the national competent authority for the supervision of credit institutions on a consolidated basis.

Credit institutions under such supervision are obliged to submit to Banco de Portugal all information required for supervision and relating to undertakings in which they own holdings. Hence, undertakings in which institutions own holdings are obliged to provide those credit institutions with all necessary information for the purpose of supervision on a consolidated basis.

In addition, when the parent undertaking of one or more credit institutions is a financial holding company, a mixed-activity holding company or a mixed financial holding company, these and their subsidiaries, including those not included in the framework of supervision on a consolidated basis, shall provide Banco de Portugal with any information and clarification relevant for the purpose of supervision. Subsidiaries of a credit institution, financial holding company or mixed financial holding company not included in the scope of the supervision shall provide Banco de Portugal with all the relevant information.

Where deemed necessary for the supervision on a consolidated basis of credit institutions, Banco de Portugal may carry out on-the-spot inspections of financial holding companies, mixed-activity holding companies or mixed financial holding companies and their subsidiaries, as well as in ancillary services companies.

Malta Small Flag Malta

Yes and the relevant provisions are set out in the Supervisory Consolidation Regulations 2014 (L.N. 31 of 2014), which implement the relevant articles of the CRD on the matter. In terms of these Regulations, the MFSA shall exercise supervision on a consolidated basis in the follow-ing circumstances:

a) where the parent undertaking is a parent institution or an EU parent institution, licensed in terms of the Banking Act;

b) where the parent of an institution licensed in terms of the Banking Act is a parent financial holding company or parent mixed financial holding company in a Member State or an EU parent financial holding company or EU parent mixed financial holding company;

c) where institutions authorised in two or more Member States, and one of the institutions is an institution licensed in terms of the Banking Act, have as their parent the same parent financial holding company, the same parent mixed financial holding company in a Member State, the same EU parent financial holding company or the same EU parent mixed financial holding company established in Malta;

d) where institutions authorised in two or more Member States, one of which is Malta, have as their parent more than one financial holding company or mixed financial holding company with head offices in different Member States, one of which is Malta and there is a credit insti-tution in each of these Member States and the credit institution which is licensed in Malta has the largest balance sheet total;

e) where the parent financial holding company or parent mixed financial holding company is established in a Member State other than Malta and it has more than one institution authorised in the European Union other than the Member State where the financial holding company is set up, one of which is licensed in Malta, and the institution licensed in Malta has the largest balance sheet total.

In addition to the obligations imposed by the provisions of the Banking Act and any regula-tions or Rules made thereunder transposing the requirements of the CRD, and by the CRR, the MFSA acting as consolidating supervisor, shall carry out the following tasks:

  • coordination of the gathering and dissemination of relevant or essential information in going concern and emergency situations;
  • planning and coordination of supervisory activities in going concern situations, includ-ing in relation to the activities relating to supervision on a consolidated basis in coop-eration with the European regulatory authorities;
  • planning and coordination of supervisory activities in cooperation with the European regulatory authorities involved, and if necessary with European System of Central Banks, in preparation for and during emergency situations, including adverse develop-ments in institutions or in financial markets using, where possible, existing channels of communication for facilitating crisis management;
  • have written coordination and cooperation arrangements in place with European regula-tory authorities responsible for supervising the other members of the group; and
  • establish colleges of supervisors.

Qatar Small Flag Qatar

Principle 6 of the Guidelines provides, inter alia, that risk management policy should be applied on a consolidated basis for the whole banking group, taking into account the potential risks arising from the bank’s external activities and the bank’s head office shall be responsible for applying the policy to the whole group.

Banks are required to take into consideration the potential future changes when assessing credit risk at the levels of individual clients, their borrower groups, economic sectors and products, country, group of countries or overall portfolio. These changes should be considered when assessing the levels of specific provisions or any other potential provisions necessary to cover the credit risk in a consolidated basis.

Romania Small Flag Romania

Banks supervision is performed by the competent authority on a consolidated basis based on the EU regulatory requirements and EU level banking sector guidelines.

Serbia Small Flag Serbia

Consolidated jurisdiction of banks exists in our jurisdiction. The bank is obligated to submit to the National Bank of Serbia consolidated financial statements of the banking group with the report of the external auditor, for the previous business year – within 150 days from the end of such year. In case the National Bank of Serbia determines that the audit of the bank, banking holding or banking group was not performed in line with the provisions of applicable law and by-laws, especially in case it is determined, in the control procedure or in any other manner, that the auditor’s report is not based on true and objective facts – the National Bank of Serbia will not accept such audit report and shall demand audit of another auditor, at the expense of the bank.

United Kingdom Small Flag United Kingdom

Yes. Consolidated supervision in the UK is derived from the requirements set by the Basel Committee on Banking Supervision. It enables prudential supervision of a bank to look to the strength of the bank's group and not just the entity itself. Following the CRR regime, calculations are required of group capital requirements and resources and reporting is made at both group and entity level.

United States Small Flag United States

The BHC Act requires the FRB to supervise all domestic bank holding companies on a consolidated basis, encompassing the parent company and all subsidiaries, which allows the FRB to understand the organization’s structure, activities, resources and risks and address deficiencies more efficiently. Under the International Banking Act of 1978, the FRB is also responsible for the oversight and supervision of the US operations of foreign banking institutions with a US banking presence (including institutions that meet the definition of “qualifying foreign banking organizations,” the bulk of whose banking operations are located offshore). Consolidated supervision means not only that the FRB views the organizations it regulates comprehensively, but that subject organizations are charged to maintain comprehensive oversight and management of their aggregate risk exposures and identify concentrations quickly and accurately at the bank group level, across business lines and between legal entities. In the case of a bank that is not part of a bank holding company, the bank and all of its subsidiaries are subject to consolidated supervision by the bank’s primary federal regulator.

Italy Small Flag Italy

Yes. The banking groups are supervised pursuant to the provisions set out under articles 65-69bis of the Italian Banking Act. In particular, the consolidated supervision is structured on three levels:

(i) the Bank of Italy requires to the members of the relevant banking group the transmission of, also on a periodic basis, situations and data, as well as any other useful information;

(ii) the Bank of Italy has the power to give instructions to the parent company concerning, inter alia, the capital adequacy, the containment of risk, the admissible shareholdings and the corporate governance;

(iii) the Bank of Italy has the power to carry out inspections towards the supervised entities.

Thailand Small Flag Thailand

Yes. BoT, as the home supervisor of financial business groups, adopts an integrated supervisory approach, evaluating the financial business groups on a whole-of-group basis, taking into account all of their banking, insurance, securities activities and other businesses as stipulated by BoT. Financial business groups are also supervised on a consolidated basis, with both local and overseas operations taken into consideration.

For branches of foreign commercial banks, such regulation does not apply.

Slovenia Small Flag Slovenia

Bank of Slovenia is responsible for supervision on a consolidated basis in case that (i) a bank is a parent bank in Slovenia or an EU parent bank or (ii) a bank is a subsidiary of a parent financial holding company or mixed financial holding company in Slovenia or an EU parent financial holding company or an EU parent mixed financial holding company.

Subsidiaries must forward to the parent bank in a group or a bank that is controlled by a parent financial holding company or parent mixed financial holding company all information that the latter requires to fulfil its obligations on a consolidated basis. Banks under the consolidated supervision must then forward all the required information to the Bank of Slovenia. Bank of Slovenia then reviews their operations for the purpose of verifying the forwarded information. The consolidated supervision is carried out in the extent and in the manner prescribed in CRR.

Updated: May 14, 2019