FSA Publishes Rules Implementing Financial Groups Directive

by Robin Pilgrim, LawAndTax-News.com, London

23 July 2004

The UK's Financial Services Authority (FSA) on Wednesday issued a joint policy statement with the Treasury Department detailing its final rules for financial groups.

These rules are intended to implement the requirements of the EU's Financial Groups Directive, which introduces for the first time a financial regime for financial conglomerates – those firms whose activities span both the banking and investment sectors, and the insurance sector.

The key requirements of the new rules are that financial conglomerates must:

• Hold a minimum level of capital;
• Monitor risk concentrations and intra-group exposures;
• Eliminate both the double counting of capital and the excessive leveraging of capital where debt is down-streamed as equity;
• Have adequate systems and controls to monitor risks in their business.

Speaking following the publication of the new regulations, Michael Folger, Director of Wholesale and Prudential Policy at the FSA, explained that:

“The final rules that we have published today mark an important step forward in ensuring the financial soundness of large, complex financial groups. A growing number of such groups operate across different sectors within the financial services industry, and across national borders. These rules will enable us to regulate on the basis of the whole group, rather than regulating different sectors of the business independently of each other. And applying these new requirements will promote greater co-operation between international regulators."

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