Article 4
Conditions in accordance with which the consolidation is to be carried out in the case of participations or capital ties in institutions or financial institutions other than those referred to Article 18(1) and (4) of Regulation (EU) No 575/2013
1. Where competent authorities determine that consolidation is to be carried out in accordance with Article 18(5) of Regulation (EU) No 575/2013, they may permit or require the use of the equity method pursuant to that Article unless they determine the proportional or full consolidation of the institution or financial institution concerned to be required in accordance with the conditions set out in paragraphs 2 to 5 of this Article.
2. The competent authority shall make the determination referred to in paragraph 1 on the basis of an assessment of the risks posed by the institution or financial institution concerned to the institution, taking into account the extent and the effectiveness of any risk mitigants and the impact on the prudential requirements of the institution on a consolidated basis that could result from the application of full or proportional consolidation.
3. For the purposes of the assessment referred to in paragraph 2, the institution shall provide the competent authority, upon request, with all necessary information in particular with regard to the following elements:
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(a) |
the overall ownership structure of the institution or financial institution concerned, having regard, in particular, to whether shares or equivalent ownership rights and voting rights, including potential voting rights as referred to in Article 5(5), are distributed across a large number of shareholders, owners or members, or whether the institution is the main shareholder, owner or member of the institution or financial institution; |
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(b) |
whether the institution acts as sponsor by managing or advising the institution or financial institution concerned, placing the institution’s or financial institution’s securities into the market, or providing liquidity and or credit enhancements to the institution or financial institution, or whether the institution is an important investor in its debt or equity instruments, or there is other contractual and non-contractual involvement exposing the institution to the risks or to equity-like returns from the assets of the institution or financial institution concerned or related to its performance; |
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(c) |
whether the institution is effectively involved in the decision-making process of the institution or financial institution concerned, the degree to which the institution exercises influence over it, or whether the institution or financial institution is considered to be controlled in accordance with the applicable accounting framework; |
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(d) |
whether the institution receives critical operational services from the institution or financial institution concerned which cannot be replaced in a timely fashion without excessive cost; |
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(e) |
whether the credit rating of the institution or financial institution concerned is based on the institution’s own rating; |
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(f) |
whether specific features relating to the composition of the investor base of the institution or financial institution concerned exist, with particular reference to whether the other investors in the institution or financial institution have a close commercial relationship with the institution, their ability to bear losses or their ability to dispose of their financial instruments; |
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(g) |
whether the institution or financial institution concerned and the institution have a common customer base or are involved in the commercialisation of each other’s products; |
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(h) |
whether the institution and the institution or financial institution concerned have the same brand; |
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(i) |
whether the institution has already provided financial support to the institution or financial institution concerned in case of financial difficulties. |
4. Competent authorities may, in particular, require proportional consolidation of the institution or financial institution concerned according to the share of capital held in that undertaking where there is a contractual agreement between the institution and one or more shareholders, owners or members of the institution or financial institution concerned to jointly provide financial support to the institution or financial institution or there is strong evidence that they would financially support the institution or financial institution according to the share of capital held in it.
5. Competent authorities may, in particular, require full consolidation of the institution or financial institution concerned where, as a consequence of the organisational and financial relationships between the institution and the institution or financial institution concerned, the institution is exposed to the majority of the risks or the benefits arising from the relevant activities of that institution or financial institution.