Attachment
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.
