Response to consultation on Guidelines on Ancillary Services Undertakings
1. Do you have any comments on the general provisions set out in Section 4.1?
We understand from paragraph 4 of part 4 of the draft guidelines that an ASU included in the consolidated situation of an institution should be regarded as an ASU for any other institution (for credit risk assessment for instance), notwithstanding the assessment performed by other institutions regarding ancillary services that those entities could perform.
Section 12 of the proposed guidelines seem to mean that every company with which the bank has a customer relationship would have to be assessed to determine if any other institution qualifies the said company as an ASU under article 4(1)(18) CRR. However, such information is not subject to Pillar 3 disclosure obligations and therefore, are not made public. Consequently, what the guidelines call for, operationally, is for the implementation of a “testing” process, to be made not only once but on a regular basis, to ensure that the status of the undertaking under prudential law has remained stable. The proposed guideline therefore calls for the implementation of a continuous monitoring process allowing institutions to assess how a company is treated regulatorily by other institutions, which is (i) operationally complex to implement, and (ii) creates an additional and burdensome step in the established KYC and credit processes, without any proper legal basis under CRR. It also contradicts the current initiatives to simplify banking supervisory requirements.
Thus, we believe that the draft guidelines should remove this provision. Should the expectation be maintained, the French Banking Federation would welcome further clarifications on how institutions should go about identifying ASUs included in the consolidated situation of other institutions, considering a broader reflection on simplification and proportionality. Furthermore, if maintained, the “testing procedure” should be limited to cases that are material to the institution subject to the audit, which calls for the determination of a clear threshold by the EBA.
Finally, we propose a minimum twelve-month period for the bank to integrate into its prudential scope the activities newly qualified as ASU in the case where the competent authority would assess that an entity must be considered ASU.
2. Do you agree with the criteria specified for identifying an activity as a ‘direct exten-sion of banking’? Do you believe that other criteria should be included to identify activities that should fall under this definition? If yes, please provide detailed pro-posals.
We appreciate that the proposed guidelines clarify the meaning of the term “banking” by reference to the list of activities set out in Annexe I of the Directive 2013/36/UE.
We agree that activities referred to in point 1 – “Taking deposits and other repayable funds” – and point 2 – “lending” – of Annex I of the Directive are core banking activities.
However, we have doubt about point 6 regarding guarantees and commitments. It does not seem relevant to us to consider that the provision of guarantees constitutes a basic service of a banking activity. Therefore, we suggest deleting point 6 from the criteria specified for identifying an activity as a ‘direct extension of banking’. Should this point be maintained, it should be limited to financial guarantees.
Besides, we consider that the notion of “value chain” is vague and not clearly defined in the European prudential regulation nor in local regulations and may be confusing. It should be deleted from the definition, as it introduces a new concept and another layer of uncertainty to the definition. The notion of “core banking services” is sufficient to consider the fundamental activities of a bank.
Accordingly, the criterion a) regarding direct extension of banking activities set out in paragraph 13 of the draft guidelines should be read as follows: “activities that are fundamental to the core banking services referred to in points 1 and 2 of Annex I to Directive 2013/36/EU;”
3. Do you have any comments on the use of activities that are fundamental to the val-ue chain of core banking services as a criterion for identifying activities that are a ‘direct extension of banking’? In particular, do you find the definition of and link to core banking services, and the related list of activities sufficiently clear?
The footnote 3 in part 3 regarding the inclusion of those services and activities explains that collective investment undertakings (CIUs) should not be considered in scope of the assessment.
We believe that this point deserves to be raised in the core of the text of the guidelines rather than being only a footnote as it is important to clarify the scope of services and activities.
In paragraph 13b) of the draft guidelines concerning shadow banking entities we question why the article 394 (2) of Regulation (EU) 575/2013 is mentioned as a reference rather than article 4 paragraph 1 point (155) of Regulation (EU) 575/2013[1]. Could the EBA clarify the purpose of this reference?
[1] article 4 paragraph 1 (155) of Regulation (EU) 575/2013: ‘shadow banking entity’ means an entity that carries out banking activities outside the regulated framework.
4. Do you consider appropriate the inclusion of services and activities that involve maturity transformation, liquidity transformation, leverage or credit risk transfer – when conducted by shadow banking entities – as one of the criteria for identifying activities that are a ‘direct extension of banking’?
We question the use of the list of activities regarded as fundamental to the value chain of the core banking services applied to undertakings of outside of the group. As mentioned in question 2, we consider that the notion of “value chain” is vague and confusing since not defined in the regulations.
Indeed, according to paragraph 16 of Part 3 of the guidelines, the analysis of undertakings that have an activity that is a direct extension of the bank as its main activity must be carried out for all undertakings, whether inside or outside of the group. However, regarding undertakings that have been excluded from the scope of consolidation, it has been considered that the group does not bear any risk on these entities because it does not have control over them, or the entities are held below the control thresholds.
Nevertheless, regarding the guidelines on ASUs, these entities could be considered as ASUs and would therefore be subject to the group's prudential requirements even though no risk is incurred, raising proportionality issues.
We consider that this scope of analysis is too broad and does not correspond to the reality of ownership links and the associated risks.
Therefore, we suggest that the use of activities fundamental for core banking services as a criterion to determine whether an entity is an ASU should be cross-referenced with the entity's control test applied by the group, so that only entities that have a direct economic or ownership link.
Besides, the analysis to determine whether an undertaking has an activity that is a direct extension of the bank must be carried out for undertakings within or outside of the group (paragraph 16 of Part 3). The analysis to determine whether an activity is ancillary to the group must be carried out on the consolidated scope (paragraph 22 of Part 3). The rationale of this distinction does not seem clear to us.
5. Do you consider appropriate the inclusion of ‘other activities related to lending’ as one of the criteria to identify activities that are a ‘direct extension of banking’? Do you consider undertakings that perform one of these activities as their principal ac-tivity already qualifying as financial institutions within the meaning of Article 4(1)(26) of Regulation (EU) No 575/2013?
The notion of “other activities related to lending” is, again, vague. Its introduction, far from clarifying the criteria allowing for the determination of an ASU under article 4(1)(18) CRR, adds a layer of uncertainty and complexity, making it difficult for institutions to anticipate the outcome of an examination. The proposed guidelines, as currently written, makes it impossible to deduct what would be covered by it.
A simpler approach would be to stick to the letter of article 4(1)(18)(a) CRR, which refers itself to “a direct extension of banking”, meaning that the provision of services that do require a license under the CRD simply should not be included under the scope of article 4(1)(18)(a) CRR. The FBF therefore respectfully requests the EBA to constrain the list of activities falling under article 4(1)(18)(a) CRR as the ones entailing a request for authorisation.
6. Do you agree with the proposed criteria for identifying activities that are ‘ancillary to banking’? Are the three main criteria specified for that purpose (i.e. support, complement and rely on banking) sufficiently clear? Are there any other criteria that should be included in that regard?
The proposed criteria for identifying activities that are ‘ancillary to banking' are defined too broadly, especially in regards with the notion of “support to banking”, which, in its current wording, would encompass any service or activity facilitating banking operations, even though from an administrative perspective, they do not, in any way, correspond economically to a supervised banking activity. This would be the case, for example concerning support to banking, for back-office and administrative support, where human resources management is similar to a social service and is not economically linked to a banking activity (see in particular section 20 of the proposed guidelines, point e.).
As recalled above, such an interpretation of the notion of ‘ancillary to banking’ is not in line with CRR 3, given that the legislator’s intent was “to ensure that financial groups that are headed by fintech companies or include, in addition to institutions, other entities that engage directly or indirectly in financial activities are subject to consolidated supervision”.
Therefore, we believe that it would be more relevant to consider only that an activity is ancillary to banking only when it actually complements banking from a business and economical perspective. The point b) of paragraph 17 of the draft guidelines – referring to complement banking - should only be retained as a criterion.
Besides, according to the paragraph 21 part 4 of the draft guidelines, the activity of an undertaking complements banking when the activity expands the offer of a) its banking services as well as b) its non-banking services. We have concerns about the difficulties to qualify non-banking services of an undertaking that would complement banking. The scope of such services is vague and too large to ensure consistent identification of these activities and thus, consistent practices. We believe that only banking services or products should be regarded as complementing banking.
Finally, the notion of “reliance” is again, vague and too broad and should be removed from the final version of the guidelines, for two main reasons.
First, relying the fact that the activity of an undertaking relies on “relevant banking products or services provided by an institution or a financial institution of the group” as provided by paragraph 23.a) of the proposed guidelines, should not lead to the determination that the said undertaking is an ASU, since the concept (i) is not covered by the wording or intention of the CRR; (ii) is not in line with the concept set up for prudential consolidation under CRR; and (iii) 3) that almost any undertaking would be determined as an ASU, regardless of the nature of its business activities. Again, as stated above, the definition of ASU in Art. 4 (1)(18) CRR is designed to encompass undertakings that support “banking”, which means that they hold close and intricate ties with banking activities. The definition is not meant to capture undertakings that are in a “client” situation or only receive or rely on banking services or products. Moreover, the concept of “reliance on” is not aligned with the notion of “principal activity” that is at the heart of article 4(1)(18) CRR. Again, it seems the proposed criteria overreaches and goes way beyond the letter of the relevant level 1 provisions.
In this regard, should the criteria be maintained, further clarification should be provided that structured entities created solely for the needs of banks' customers and over which banks have no control or bear risks should not be considered as ASUs, especially since such entities are excluded for accounting consolidation purposes.
Second, according to the paragraph 23.b) of the draft guidelines, the activity of an undertaking should be considered as relying on banking when it significantly relies on funding that is provided by the institution to the undertaking. We have concerns about that criteria and call for the deletion of the notion throughout the entire proposed guidelines ( see in particular paragraphs 17 c and 23, as well as 25 b i to iii, 26 c and 27 c).
Indeed, any undertaking of a banking group relies significantly on the funding (capital, loan …) provided by institutions of this group and not by competitors; thus, it would lead to qualify as ASU any undertaking funded by the banking group, such as but not limited to: (i) pension funds (in the sense of the IORP II Directive (EU 2016/2341)) for bank employees which are by definition funded by the institution, or even organisation which is owned by a bank, if it additionally receives funding by a group entity, or even (ii) foundations owned by institutions that practice corporate philanthropy and support projects in the fields of solidarity, environment and culture.
Indeed, under the “funding” criterion, the actual activities carried out by the undertaking in question would basically become irrelevant which clearly is not article 4(1)(18) CRR’s purpose. Moreover, the French Banking Federation wishes to recall that the question of “funding” is currently addressed by article 18 (8) CRR, which grants competent authorities supervisory authority's discretion to apply supervisory consolidation due to a significant step-in risk resulting from funding dependency. It should also be noted that under the said provision, certain types of companies are explicitly excluded from the step-in risk, which should not be overridden by level 3 non-binding Guidelines, but should be addressed via an amendment of the level 1 text.
We therefore believe that this criterion based on “significant funding” should be removed as it would lead to include undertakings (for example corporate) in the regulatory perimeter of consolidation with no ancillary activity to banking.
7. Do you agree with the approach envisaged in Section 4.3, which limits the assess-ment of an activity as ‘ancillary to banking’ only to undertakings that may have to be included in the scope of prudential consolidation or are collectively held by institu-tions belonging to the same IPS?
We agree to limit the assessment of an activity as ‘ancillary to banking’ only to undertakings that have to or may have to be included in the scope of prudential consolidation or are collectively held by institutions be-longing to the same IPS.
8. Do you have any comments on concept of ‘banking’ specified in Section 4.3, which includes all relevant services or activities provided by institutions or financial insti-tutions?
We have no specific comments.
9. Do you have any comments on the specifications provided for the activities explic-itly referred to in Article 4(1)(18)(b) of Regulation (EU) No 575/2013? In particular, are the illustrative examples provided therein adequately defined?
First of all, the French Banking Federation wishes to express its concern regarding the introductory words of 25, 26 and 27, which read as follows: “operational leasing activities should be considered as ancillary to banking, in any of the following situations”. Under the current proposal, it is impossible to understand if that for the cases dealt with in paragraphs 25, 26 and 27 of the proposed guidelines, points 16 to 23 would not “apply”. We therefore respectfully request the EBA to clarify that points 16 to 23 do apply cumulatively, since the criteria provided by 18 would help to ensure that undertakings are not too broadly classified as ASU and should therefore also apply for the cases of points 25 to 27.
An alternative application of these two sets of respective paragraphs would, again, lead to an extremely broad definition of operational leasing activities, whereas on the subject, a distinction should be made between long term leasing contracts and short-term leasing contracts. The former can be considered as similar to a lending activity and thus, linked to banking services. The latter should be excluded from the scope of activities considered as ancillary to banking as the leasing contracts are concluded for a very short period of time of couple of days or weeks and could hardly be assimilated to lending contracts as no risks or rewards incidental to ownership of the leased asset are transferred to the bank.
For instance, Long Term Rental services fall into the concept of operational leasing because it provides a service implying a credit risk, due to potential non-payment of the lease instalments each month and has medium long term as it has a minimum of 1 months to maximum 72 months lifetime, with an average 42 months.
On the other hand, Rent-a-Car-like business shows no similarities to the Long Term Rental and consequently to the operational leasing, as amongst the others it does not expose the company to credit risk due to the early payments done by the customers (it has an average exposure of 7 days, clients pay the service fees at the time of booking or at least at the time of the delivery of the car), that cover the entire period of the service. Rent a Car-like business delivers to customers the available cars belonging to the entity at the moment of the booking. Rent-a-car-like business doesn’t have a commitment towards clients as it doesn’t buy cars on behalf of clients’ request. Furthermore, main rent-a-car-like competitors which are not a subsidiary of a bank such as Avis or Hertz aren’t considered as financial institutions and then aren’t subject to capital requirements or any risk prudential framework. To maintain a fair competitive environment (level-playing field), such activities should not be automatically classified within the broad definition of ancillary services undertakings, and therefore, should not fall within the prudential scope of a banking group.
Regarding ownership or management of property, that activity is not, by itself, a “financial activity” which is why it is not included in Annex I of the CRD and not referenced in the list of principal activities for the definition of financial institutions in Art. 4 (1) (26) CRR. Therefore, the French Banking federation believes that the list of property activities considered as ancillary to banking should be reviewed. Real estate activities connected to the bank's operations, such as the ownership or management of properties for banks' own account—including the management of headquarters, offices, and retail agencies—should logically fall within the definition of ancillary services. Whereas activities that are not economically related to a banking activity (real estate agencies or managing agents) and whose client base is broader than that of the bank should not be included in the list of ancillary activities to banking. Furthermore, when these real estate activities compete with entities not subject to prudential capital requirements any risk prudential framework and to maintain a fair competitive environment (level-playing field), such activities should not be automatically classified within the broad definition of ancillary services undertakings, and therefore, should not fall within the prudential scope of a banking group.
Finally, for the reasons already stated above (see answer to question 6), the parts of the proposal that are based on the “reliance” concept i.e. 25 b i to iii, 26 c and 27 c should be deleted. Operational leasing in itself does not constitute a “financial activity” under the banking package, which is the reason why it is not included in Annex I of the CRD and not referenced in the list of principal activities for the definition of financial institutions in Art. 4 (1) (26) CRR (unlike “financial leasing”). Moreover, the concept of “funding” as a criterion for the determination of an ASU is not only widely irrelevant, it also does not impact the fact that operational leasing should not be deemed “ancillary to banking”.
10. Do you have any comments on the process envisaged for the determination of ac-tivities to be considered similar to points (a) and (b) under Article 4(1)(18)(c) of Regu-lation (EU) No 575/2013?
The question relates to the process applied by the supervisors to notify to the EBA of any activity considered to be similar to points (a) and (b) under Article 4(1)(18)(c) of Regulation (EU) No 575/2013, upon “Determination of activities to be considered similar to points (a) and (b) under Article 4(1)(18)(c) of Regulation (EU) No 575/2013”.
The current proposal as laid out in section 4.4 of the guidelines seems to grant competent authorities the power to make the determination under article 4(1)(18) CRR, meaning that the responsibility to do so would no longer rest with institutions themselves. That approach entails a submission procedure, under which institutions would provide elements to the satisfaction of the competent authority allowing it to make the corresponding determination, making it, ultimately responsible for the determination of the prudential consolidation perimeter under article 4(1)(18). As a result, the said responsibility would be withdrawn from the hands of institutions. On that matter the French Banking Federation would welcome clarifications to ensure that its understanding of the process is accurate.
The French banking Authority also notes that, once completed, the determination must be notified to the EBA “without undue delay”. The guidelines refer to the relationship between competent authorities and the EBA itself and seems to have no impact on institutions. However, the guidelines could specify the purpose of such notification: is the underlying rationale to allow the EBA to collect information on the determination made under article 4(1)(18) CRR, as to later revise the proposed guidelines as to promote consistent, efficient and effective supervisory practices?
That approach raises several legal concerns. First, we would like to underline the fact that even though, in the legislative proposal as initially published by the Commission, “the competent authority” were enabled to qualify an ASU as per the three criteria envisaged in the modified version of article 4(1)(18), legislative preparatory works attest to the deletion of the enabling, giving back to institutions the task to themselves qualify a priori their undertakings as possible ASUs for the purposes of prudential consolidation. Indeed, the 4 columns table clearly shows that both Parliament and Council wished for the deletion of the said capacity to the benefit of competent authorities, meaning that, if understood correctly (i) institutions would be responsible, in the first place, for the qualification of their undertakings as ASU under article 4(1)(18) CRR; (ii) competent authorities would then and only then assess if CRR had been applied correctly, and adopt the relevant corresponding measures if needed be.
Reintroducing the provision under level 3 guidelines therefore appears both contradictory to the letter of the applicable article 4(1)(18), as well as with its context of adoption. It therefore constitutes a reversal of the underlying logic of article 4(1)(18). It also amounts to the creation of a supervisory power under level 3 guidelines which the EBA does not hold under its founding regulation, in blunt contradiction with the principle of institutional balance.
Moreover, the wording of section 4.4 of the proposed guidelines remains vague if not silent regarding the procedure to be followed, possibly leading across jurisdictions to diverse supervisory practices contradicting the very aim of guidelines, which is to ensure convergence of competent authorities’ culture. No details are provided as to the information that should be shared with competent authorities to allow it to make the determination, no schedule is provided and no procedural rights to the benefit of institutions are detailed, which seems problematic given the impacts tied to the said determination.
We respectfully request the withdrawal of the said process, which creates an unnecessarily burdensome examination procedure by competent authorities followed by an all the more notification procedure to the EBA, to revert to the logic inferred by the applicable letter of CRR as well as its adoption context, meaning that if competent authorities consider that article 4(1)(18) has not been applied consistently by institutions themselves, they later retain the power to adopt the corresponding pillar 2 measures.
However, should the proposal be maintained, we would like to emphasize that once the competent authority considers an undertaking as having ancillary to banking activities, banks must be given sufficient time to align their internal processes with the competent authority's recommendation. We propose a minimum twelve-month period for the bank to integrate into its prudential scope the activities newly qualified as ASU in the case where the competent authority would assess that an entity must be considered ASU.
11. Do you have any comments on the clarification of the principal activity of an ASU? Do you consider the definition of this concept useful for the application of Article 4(1)(18) of Regulation (EU) No 575/2013?
The French Banking Federation understands paragraph 31 of the proposed guidelines as granting a supervisory power to the benefit of competent authorities, under the examination procedure mentioned in section 4.4. For the same reasons as the ones detailed in our answer to question 9, we respectfully request the EBA to delete paragraph 31, the Authority not being in a position where it can attribute supervisory powers to competent authorities that are not provided under level 1 legislation.
12. In general, is there any other activity or criteria not explicitly mentioned in these guidelines that should be considered to identify activities as either a ‘direct exten-sion of banking’ or ‘ancillary to banking’?
We see no other activity or criteria not explicitly mentioned in these guidelines that should be considered to identify activities as either a ‘direct extension of banking’ or ‘ancillary to banking’
Other technical comment:
Concerning the references reported in the guidelines, footnote 2 (Part "3. Background and rationale") refers to Recital (5) of Regulation (EU) 2024/1623 (CRR3) instead of Directive (EU) 2024/1619 (CRD6).