On Jul. 25, EBA proposed guide on application of group capital test.
Guidelines on the application of the group capital test for investment firm groups.
Group Capital Test
These proposed guidelines aim at setting harmonized criteria to address the observed diversity in the application of the group capital test across the EU.
In particular, they identify criteria to assist NCAs in their assessment of the simplicity of the group structure and the significance of the risk posed to clients and the market.
GCT Criteria
Criteria for allowing the use of the application of the group capital test, as laid down in IFR Reg 2019/2033, appear to be subject to different interpretations by authorities.
As a result, the inconsistent application can have an impact on the level playing field.
Accordingly, the EBA is of the view that a more harmonized application of this provision is necessary and can be achieved with these guidelines.
These guidelines set qualitative and quantitative criteria that competent authorities should consider for the purpose of assessing whether the conditions set out in the IFR for receiving the permission to use the group capital tests are met.
This consultation paper includes several questions addressed to the relevant stakeholders to gather feedback around the proposed methodology and criteria.
Effectiveness
The deadline for the submission of comments is Oct. 25, 2023.
Sep. 2023 Public Hearing Presentation
On Sep. 6, 2023, EU EBA published the presentation that it had produced as the basis of discussion at its public hearing on the group capital test proposals, on Sep. 5, 2023.
The presentation covered the background for the group capital test, as well as the basis for the development of the new guidelines, following the introduction of the IFR.
These included the specified criteria to assess the simplicity of any group structure, as well as criteria to assess to significance of the risk to clients and to market by firms.
The presentation also included a link to the consultation paper and confirmed that the deadline for the submission of an comments by stakeholders, is set as Oct. 25, 2023.
Apr. 2024 Final Guidelines Published
On Apr. 11, 2024, EBA issued final guidelines on the application of the group capital test for investment firm groups, which set harmonized criteria to address diversity in application of the group capital test across the EU and help ensure a level playing field.
The guidelines identify criteria to assist competent authorities in their assessment of the simplicity of the group structure and significance of risk posed to clients, market.
Also envisage simplified assessment of criteria for groups that include only small, non-interconnected investment firms; and include both quantitative and qualitative criteria.
In particular, on the quantitative side, the guidelines detail, among others, the number of undertakings and of levels within a group; while on the qualitative side, they clarify that simple capital ties and a clear ownership structure should be in place.
The guidelines also provide methodology to guide competent authorities in assessment of the adequacy of own funds requirement of third country undertakings of EU groups.
The group capital test is set out in article 8 of regulation 2019/2033.
Criteria for granting its use are set out in paragraph 8(1) and 8(4) of that regulation.
These guidelines apply from Jan. 1, 2025.
Jul. 2024 Guidelines Translations
On Jul. 15, 2024, EU EBA published the translations of its Guidelines on the application of the group capital test for investment firms, in all European Union languages.
Competent authorities must notify EBA whether they comply or intend to comply with the guidelines by Sep. 16, 2024, and the guidelines will apply from Jan. 1, 2025.
