The European Banking Authority (EBA) has recently published a Report on the treatment of incoming third country branches (TCB) under the national law of Member States. The Report, which is addressed to the European Parliament, the Council and the Commission, illustrates the results of a stock-taking exercise conducted with competent authorities about their national regulatory law/regulations and supervisory practices and a mapping of the TCBs established in the Member States. Considering the increased volume of activities carried out by TCBs in a context of regulatory fragmentation across the EU, the Report lays down 14 high-level policy recommendations for further harmonisation of EU law.
The recommendations focus on EU centralised equivalence assessment; effective cooperation supported by the conclusion of MoUs with third country home authorities; an appropriately determined scope of authorisation and prudential requirements (notably capital, liquidity, internal governance including booking arrangements); certain AML/CFT aspects; a uniform minimum reporting framework; and satisfactory recovery plans.
The recommendations also introduce a subsidiarisation mechanism as risk prevention and mitigation measure. This mechanism should apply to TCBs reaching a certain size and/or other quantitative and qualitative risk indicators, as well as to TCBs carrying out deposit-taking activity of covered deposits. The identification and calibration of the relevant thresholds should be based on an impact assessment. The EBA highlighted the importance of a continuous supervisory dialogue with the TCB and third country credit institution, and of an effective mutual cooperation with the third country home authority.
Such cooperation is crucial for devising potential mitigation measures that could ensure a safe and sound prudential management of the third country branch activities and associated risks. In this context, the EBA has carefully considered the interaction with the framework relating to the intermediate parent undertaking (IPU). As a matter of fact, while assets held by TCBs are computed to determine whether an IPU needs to be established, the TCB itself is not included within the IPU consolidated perimeter.
Legal basis
The Report is based on Article 21b(10) of the Capital Requirements Directive (CRD), which mandates the Authority to submit a report to the European Parliament, the Council and the Commission on the treatment of third-country branches under national law of the Member States by 28 June 2021. In this Report the EBA shall consider the following:
- whether and to what extent supervisory practices under national law for third country branches differ between Member States;
- whether different treatment of third country branches could result in regulatory arbitrage;
- whether further harmonisation of national regimes for third country branches would be necessary and appropriate, especially with regard to significant third country branches.
The Commission shall, if appropriate, submit a legislative proposal to the European Parliament and to the Council, based on the recommendations made by EBA.
Source: EBA
