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The future of group supervision?
Practical Law UK Legal Update 2-385-5650 (Approx. 2 pages)
The future of group supervision?
by Simon Lovegrove, Norton Rose LLP
| Published on 02 Apr 2009 |
Speedread
The FSA has proposed legislative change in the UK and elsewhere to ensure that unregulated parent holding companies for financial services groups become subject to direct regulatory supervision so that they comply with prudential regulatory requirements.
Chapter 6 of the Turner Review discusses the scope of regulation, including a brief discussion of unregulated activities within regulated groups.
Almost invariably regulated firms and large, cross-border financial institutions are part of a group. Sometimes the ultimate parent company in the group will be unregulated with its business being to hold shares in, and control, its investments in the companies that comprise the group. Many of the companies within the group may be regulated so that ultimately there is an unregulated entity exercising control over a regulated entity.
While the ultimate parent company has a pivotal role within the group the FSA has very limited direct powers over it, unless it is itself carrying on a regulated activity.
The FSA states in the Turner Review that it has a number of concerns regarding the current position and these include:
- Regulators having little or no ability to prevent or control the activities of an unregulated holding company that increases the complexity of the group and the risks it poses to regulated subsidiaries.
- For multi-jurisdictional groups, mismatches can occur between the global outlook of the holding company's board and senior management and the local focus of the regulated entities in the jurisdiction in which the ultimate holding company is incorporated.
In the Turner Review the FSA advocates legislative change in the UK and elsewhere to ensure that unregulated parent holding companies for financial services groups are subject to direct regulatory supervision so that they comply with prudential regulatory requirements.
The Turner Review also sets out another angle to group supervision. This concerns unregulated entities that exist elsewhere within a financial services group. The key for the FSA is to ensure that regulators who supervise regulated entities within a financial services group have sufficient information on unregulated entities (obtained through supervisory reporting or the provision of management information) so that they have a clear understanding of both the:
- Solo and group level implications of any relationship between regulated and unregulated entities.
- Aggregate exposures of the group to unregulated activities.