The FKAG also implements Article 2 of Directive 2011/89/EU, the Financial Conglomerates Directive I (FiCoD I).

Aims of the FKAG and FiCoD I

Bundling the relevant provisions in a separate law, the FKAG, is commensurate to the cross-sectoral importance of the matter and in line with the EU directives regime. The previous standard of supervision for financial conglomerates will be maintained in the FKAG.

The Act implements the key objectives of the FiCoD I,

• to make supplementary supervision more effective,
• to improve risk management of financial conglomerates,
• to eliminate opportunities for supervisory arbitrage,
• to limit the expense necessary to comply with the provisions, and
• to promote collaboration between supervisory authorities.

The FiCoD I has also adapted the Financial Conglomerates Directive to the new European supervisory structure. The Joint Committee of the three European Supervisory Authorities will issue joint guidelines and technical standards for certain provisions, such as the use of thresholds to determine whether the entities are to be included in the identification of a financial conglomerate. A financial conglomerate is a (sub-) group whose companies are active both in the banking or investment services sector and the insurance sector. The specific requirements of the FKAG must be met in order for supplementary supervision to be undertaken. Section 1 (2) of the FKAG contains a detailed definition of a financial conglomerate.

Identification of financial conglomerates

Identification of a group as a financial conglomerate is more flexible and risk-oriented under the FKAG than previously. Asset management companies and alternative investment fund managers are included in the identification of a financial conglomerate under the AIFM Directive. Companies in third countries which belong to a conglomerate are to be included in the threshold calculations if the company has moved from a country in the European Economic Area to the third country in order to avoid supervision. Participations may be discounted from threshold calculations if they are in sectors that are less strongly represented within the financial conglomerate. These are of lesser importance in terms of the objectives of supplementary supervision. A release or exemption from the rules on risk concentrations, intra-conglomerate transactions and special organisational duties may also be possible if the group reaches a certain threshold but its total assets in the least represented sector do not exceed the absolute limit of €6 billion. BaFin reviews this on an annual basis.

More regulated entities and new transparency requirements

The FKAG expands the group of regulated entities to include reinsurance undertakings, insurance SPVs and alternative investment fund managers. This means, for example, that a company which also operates reinsurance business can no longer be a mixed financial holding company. These, by definition, cannot be regulated entities in a financial conglomerate.

The FKAG adds new information requirements for companies regarding legal, governance and organisational structure, along with publication requirements regarding legal, governance and organisational structure of financial conglomerates. The superordinated entities of a financial conglomerate must meet these requirements by 15 May every year.

Colleges and projections

The supplementary supervision of international financial conglomerates must be coordinated within the European Union in order to contribute to the stability of the domestic market for financial services. The competent authorities must agree on a uniform approach. Cross-border supervision is thus conducted through colleges. This involves cooperation agreements being concluded between BaFin and the competent authorities in the affected countries of the European Economic Area.

Pursuant to Article 9b of the FiCoD I, member states can require that the coordinator of the college conduct stress tests. The FKAG uses the term “projections” and states that BaFin has discretion over such tests.

Harmonisation of supervisory standards

The KWG previously included isolated supervisory standards on financial conglomerates which were not included in the VAG, and vice versa. These rules thus did not apply to all financial conglomerates, but to bank-led or insurance-led financial conglomerates only. The rules introduced in the FKAG will now apply to all financial conglomerates.

BaFin and the Bundesbank will be revising the Guidance Notice on the identification of financial conglomerates dated 6 August 2008 over the next few months and aligning it with the new rules.

Mixed financial holding companies

Mixed financial holding companies are now to be included in sectoral group supervision. It was previously a problem if a financial or insurance holding company became a mixed financial holding company, for example by purchasing a company from the other sector. The inclusion of mixed financial holding companies in sectoral group supervision means that the two supervisory regimes are now applicable in parallel.

The VAG and KWG now include a waiver provision intended to avoid identical requirements being duplicated. In accordance with this provision, the group supervisor can only apply the provisions of the Financial Conglomerate Directive if it has consulted the other competent authorities in advance and if the mixed financial holding company is subject to equivalent provisions with a particular view to risk-based regulation.

Amendments to various regulations

Annex I to the FiCoD I amends the annexes to the Insurance Group Directive and the Banking Directive. The amendments are designed to expand the scope of consolidation to include the “mixed financial holding company”.

If a mixed financial holding company rather than an insurance holding company is the superordinated entity of the group, the calculation of the adjusted solvency is to be mandated. This necessitates an amendment to the Solvency Adjustment Regulation (SolBerV). The Solvency Regulation (SolvV) must also be adjusted. The Financial Conglomerates Solvency Regulation (FkSolV) must be reissued as its previous legal basis no longer applies. The entry into force of the FKAG also requires other regulations to be adjusted, including the Remuneration Regulation for the Insurance Industry (VersVergV), the Holder Control Regulation (InhKontrollV), the Reporting Regulation concerning the Payment Services Supervision Act (ZAGAnzV), the Audit Report Regulation (PrüfbV) and the Audit Report Regulation concerning Payment Institutions (ZahlPrüfbV). The regulation procedure is still underway.

Article 4 of the FiCoD I amends the Solvency II Directive. It cannot be transposed into German law until Solvency II has been implemented in Germany.