Media Release Council of Financial Supervisors

Supervision of Financial Conglomerates

The Council of Financial Supervisors today announced the release of a package of papers concerning the regulation of banks, insurance companies and securities firms which form part of financial conglomerates. The papers were prepared by the international Joint Forum on Financial Conglomerates, chaired by Mr Alan Cameron (Chairman, Australian Securities Commission), and deal with:

  • the assessment of capital adequacy of financial conglomerates;
  • ‘fit and proper’ tests for managers, directors and major shareholders;
  • information-sharing among financial regulators; and
  • co-ordination arrangements between financial regulators.

The seven papers set out principles and techniques which are intended to complement existing regulatory requirements.

Mr Ian Macfarlane (Governor of the Reserve Bank of Australia and Council Chairman) said: “The release of this consultative package represents an important step by the international financial regulatory community towards meeting the domestic and global challenges posed by financial conglomerates.

“The emergence of financial conglomerates has highlighted the need for better co-operation among regulators. Many of the principles and techniques set out in the papers will be applicable to the supervision of Australian-based conglomerates.”

The release of the papers in Australia is part of an international consultation process being conducted by the Basel Committee on Banking Supervision, the International Association of Insurance Supervisors and the International Organisation of Securities Commissions, which are the parent bodies of the Joint Forum. The views of the industry and regulators are being sought by 31 July 1998.

Background information on the Joint Forum* and an outline of the papers in the consultative package are attached. The package is available in full on the following web-sites:

  • IOSCO version -
  • IAIS version -
  • Basel Committee version -

The Council of Financial Supervisors brings together the heads of Australia's main financial sector regulatory agencies – namely Mr Macfarlane and Mr Graeme Thompson (a Deputy Governor) of the Reserve Bank of Australia; Mr Tom Karp, Acting Commissioner of the Insurance and Superannuation Commission; Mr Alan Cameron, Chairman of the Australian Securities Commission; and Ms Rayne de Gruchy, Executive Director of the Australian Financial Institutions Commission. The Federal Treasurer has Ministerial responsibility for the Council.

Enquiries: Secretary to the Council

Council of Financial Supervisors
19 February 1998
Phone: (02) 9551 8740
Fax: (02) 9551 8024


Background of the Joint Forum on Financial Conglomerates

The Joint Forum was established in early 1996 under the aegis of the Basel Committee on Banking Supervision (Basel Committee), the International Organisation of Securities Commissions (IOSCO) and the International Association of Insurance Supervisors (IAIS), to take forward the work of a predecessor group, the Tripartite Group, in examining regulatory issues relating to financial conglomerates. The Joint Forum is comprised of an equal number of senior bank, insurance and securities regulators representing each constituency. Thirteen countries are represented in the Joint Forum: Australia, Belgium, Canada, France, Germany, Italy, Japan, Netherlands, Spain, Sweden, Switzerland, United Kingdom and United States. The EU Commission is attending in an observer capacity.

Mr Alan Cameron AM, Chairman of the Australian Securities Commission, was appointed Chairman of the Joint Forum effective 27th November 1997. He succeeded Mr Tom de Swaan, Executive Director of De Nederlandsche Bank.

The growing emergence of financial conglomerates and the convergence of the activities of firms in each financial sector have heightened the need for co-operative efforts to improve the effectiveness of supervisory methods and approaches. The Basel Committee, IOSCO and IAIS consider the coming together of representatives of each constituency in the Joint Forum to be of great value in building the co-operative spirit necessary to address the regulatory challenges arising from financial conglomerates.

The Joint Forum's mandate is: (a) to pursue practical means at domestic and international levels to facilitate the exchange of information between regulators within their own sectors and between regulators in different sectors; (b) to investigate any legal or other barriers which could impede the exchange of information between regulators within their own sectors and between regulators in different sectors; (c) to examine ways to enhance regulatory co-ordination, including the benefits and drawbacks to establishing criteria to identify and define the responsibilities of a co-ordinator; and (d) to develop principles toward the more effective supervision of regulated firms within financial conglomerates.

The Joint Forum's focus has been, primarily, on diversified financial firms with complex organisational and management structures whose large-scale activities cross national borders and sectoral boundaries. However, the Joint Forum believes that the lessons drawn and the guidance prepared could also apply to smaller conglomerates or conglomerates that operate domestically.

Consultation Package

The following Joint Forum papers constitute the consultative package for the industry and the regulators in each sector:

The Capital Adequacy Principles paper outlines measurement techniques and principles to facilitate the assessment of capital adequacy on a group-wide basis for financial conglomerates. The measurement techniques are based on existing approaches used by various regulators and should yield broadly equivalent results. The paper does not promote a single technique for universal application. The guiding principles address particular issues that should be identified in assessing the capital adequacy of financial conglomerates on a group-wide basis, and are intended to assist regulators, in the exercise of discretion, so that the result will be within a range of acceptable outcomes. The Supplement to the Capital Adequacy Principles paper consists of theoretical examples constructed to illustrate and describe complex situations that can arise in practical applications of the measurement techniques.

The Fit and Proper Principles paper, recognising that the probity and competence of the top management of banks, securities firms and insurance enterprises are critical to the objectives of supervision, provides guidance intended to ensure that regulators of entities within a financial conglomerate are able to exercise their responsibilities to assess whether those entities are soundly and prudently managed. Further, the paper promotes arrangements to facilitate consultation and the exchange of information between regulators, with respect to individuals and regulated entities.

The Framework for Supervisory Information Sharing paper outlines a general framework for facilitating information-sharing between regulators of licensed entities within internationally active financial conglomerates. The framework is based on the mapping exercises carried out by a Task Force created by the Joint Forum (the Task Force) to analyse the structures and operations of several financial conglomerates, and focuses on two dimensions which tend to have particular implications for the supervision of licensed entities within financial conglomerates, namely: 1) the organisation of business activities along business lines versus along the corporate legal structure; and 2) the organisation of corporate control functions on a global or centralised basis versus on a local basis. The paper describes the categorisation of financial conglomerates into four ‘quadrants’ and outlines the principal features of each quadrant and the regulatory issues arising for each quadrant.

Annexed to the Framework for Supervisory Information Sharing paper is the Conglomerate Questionnaire which was developed by the Task Force and is considered a useful tool to assist regulators in enhancing their understanding of the structure and operations of financial conglomerates. The questionnaire can be used by regulators on a unilateral, bilateral or multilateral basis to facilitate discussion with representatives of a conglomerate, and to assist regulators in furthering their understanding of the conglomerate's risk profile, systems of controls and organisational/management structure. Also annexed to the paper is an outline of the types of information that would be useful to regulators in an emergency situation.

The Principles for Supervisory Information Sharing paper sets out a number of guiding principles intended to assist regulators in enhancing information-sharing arrangements between them that will contribute to a more effective supervisory framework for financial conglomerates. The guidance recognises that the informational needs of regulators vary considerably depending on many factors, including their objectives and approaches and the organisation and structures of individual financial conglomerates.

The Co-ordinator paper provides to regulators guidance for the possible identification of a co-ordinator or co-ordinators and a catalogue of elements of co-ordination from which regulators can select the role and responsibilities of a co-ordinator or co-ordinators in emergency and non-emergency situations.

The Supervisory Questionnaire was developed and used by the Task Force. The questionnaire is a tool to assist regulators in better understanding each other's objectives and approaches. The continuing work of the Joint Forum and experience gained in using the questionnaire, together with input from the consultative process, will likely result in changes to enhance its coverage and make it a more useful tool to better understand regulators' objectives and approaches.