2021_6158 Prudential consolidation: definition of “unified management” | European Banking Authority Skip to main content
European Banking Authority logo
  • Extranet
  • Log in
  • About us
    Back

    About us

    The EBA is an independent EU Authority.  We play a key role in safeguarding the integrity and robustness of the EU banking sector to support financial stability in the EU.

    Learn more
      • Mission, values and tasks
      • Organisation and governance
        • Governance structure and decision making
        • EBA within the EU institutional framework
        • Internal organisation
        • Accountability
      • Legal and policy framework
        • EBA regulation and institutional framework
        • Compliance with EBA regulatory products
      • Sustainable EBA
      • Diversity and inclusion
      • Careers
        • Vacancies
        • Meet our team
      • Budget
      • Procurement
    Close menu panel
  • Activities
    Back

    Activities

    To contribute to the stability and effectiveness of the European financial system, the EBA develops harmonised rules for financial institutions, promotes convergence of supervisory practices, monitors, and advises on the impact of financial innovation and the transition to sustainable finance.

    Start here
      • Single Rulebook
      • Implementing Basel III in Europe
      • Supervisory convergence
        • Supervisory convergence
        • Supervisory disclosure
        • Peer Reviews
        • Mediation
        • Breach of Union Law
        • Colleges
        • Training
      • Direct supervision and oversight
        • Markets in Crypto-assets
        • Digital operational resilience Act
      • Information for consumers
        • National competent authorities for consumer protection
        • How to complain
        • Personal finance at the EU level
        • Warnings
        • Financial education
        • National registers and national authorities responsible for handling complaints related to credit servicers
        • Frauds and scams
      • Research Workshops
      • Ad hoc activities
        • Our response to Covid-19
        • Brexit
    Close menu panel
  • Risk and data analysis
    Back

    Risk and data analysis

    To ensure the orderly functioning and stability of the financial system in the European Union, we monitor and analyse risks and vulnerabilities relevant for the regulation of banks and investment firms. We also facilitate information sharing among authorities and institutions through supervisory reporting and data disclosure.

    Learn more
      • Risk analysis
        • 2024 EU wide transparency exercise
        • EU-wide stress testing
        • Risk monitoring
        • Thematic analysis
      • Remuneration and diversity analysis
      • Reporting frameworks
        • Reporting Time Traveller
        • DPM data dictionary
      • Data
        • Registers and other list of institutions
        • Guides on data
        • Aggregate statistical data
        • Secondary reporting: data from Competent Authorities to the EBA
        • Data analytics tools
    Close menu panel
  • Publications and media
    Back

    Publications and media

    Communicating to all our audiences in the most effective way and using the most appropriate channels is crucial for us. Through our publications, announcements, and participation in external events, we are committed to reaching out to all our stakeholders to report about our policies, activities, and initiatives.

    Learn more
      • Publications
        • Guidelines
        • Regulatory Technical Standards
        • Implementing Technical Standards
        • Reports
        • Consultation papers
        • Opinions
        • Decisions
        • Staff papers
        • Annual reports
      • Press releases
      • Speeches
      • Interviews
      • Events
      • Media centre
        • Media gallery
        • Media resources
    Close menu panel

Breadcrumb

  1. Home
  2. Single Rulebook Q&A
  3. 2021_6158 Prudential consolidation: definition of “unified management”
Question ID
2021_6158
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Other issues
Article
18
Paragraph
3
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
n/a
Type of submitter
Law firm
Subject matter
Prudential consolidation: definition of “unified management”
Question

Article 18(3) CRR covers cases of prudential consolidation of groups of undertakings that are related to each other within the meaning of Article 22(7) of Directive 2013/34/EU of the European Parliament and of the Council where a parent-subsidiary relationship does not exist. The absence of a parent-subsidiary relationship creates the need to determine the entity at which level the requirements of that Regulation should be applied on a consolidated basis in such cases.

Article 22(7) of Directive 2013/34/EC refers to the case where 

a) two or more undertakings which are not related, as described in paragraphs 1 or 2 of Article 22, are managed on a unified basis in accordance with a contract, or a memorandum or articles of association; or

b) the administrative, management or supervisory bodies of two or more undertakings which are not related, as described in paragraphs 1 or 2 of Article 22, consist of the majority of the same persons in office during the financial year and until the consolidated financial statements are drawn up.

To what extent is unified management required to be considered linked for purposes of these provisions?

Background on the question

"Managed on a unified basis" is not a defined term under Regulation (EU) No 575/2013. In order to ensure legal certainty, clarification is needed on the necessary scope of unified management. The phenomenon of reciprocal cross holding in combination with close relationships and interconnections between board members is generaly relevant in the Austrian banking and insurance industry. In Italy and Germany the system of reciprocal cross holding between banks, insurers and industrial companies (in Germany referred to as “Deutschland AG”) has dissolved due to the lack of transparency and propensity for abuse.

Example:

Three institutions are linked to each other as follows:

a) Reciprocal cross holding

The three institutions have a direct and indirect interest in each other (cross holding) and regularly perform capital increases coordinated with each other in time. In this context, each of the three institutions was provided with capital which, from an economic point of view, was raised at least partially by one of the three institutions itself through co-subscription to the respective capital increase of the other institutions.

As a result of the reciprocal cross holding, the own funds of the three institutions are artificially increased. The capital increase amounts mutually subscribed by the three institutions represent only book capital, but not own funds from a regulatory perspective. These subscription amounts provided within the three institutions are to be deducted from the institution’s own funds in accordance with Article 36 CRR. In such case the deduction shall be made in accordance with Article 36 paragraph 1 lit g, without taking advantage of any threshold and not in accordance with Article 36 paragraph 1 lit i.

b) Syndicate contracts

Two of the three institutions, together with other shareholders, form a syndicate in respect of the shares of the third institution. There are therefore three syndicates. The syndication agreements essentially include provisions concerning the joint exercising of voting rights in the shareholders’ meeting of the third institution as well as mutual pre-emption rights of the syndicate partners. The two institutions together hold a simple majority in the respective syndicate of the third institution. The float shareholders of each institution always vote in favor of the respective syndicate. Due to the syndicate and the free float always voting in favor of the respective syndicate, two institutions dominate the decision-making process in the shareholders' meetings of the third institution. This enables all three institutions to pursue their joint business policy.

c) Formation of a group 

According to their own understanding the three institutions form a “group” which has joined together in order to be externally independent. They use a publicly well-known and effective common brand. The mutual syndicate contracts between the three institutions ensure that the defined group strategy is implemented. The three institutions therefore strategically work closely together on the basis of an entanglement under company law and corporate governance.

d) Area allocation

The three institutions agreed on a strict area allocation.

e) Location sharing

The three institutions have decided to share locations abroad.

f) Joint special purpose subsidiaries

The three institutions founded a number of jointly held subsidiaries for special purposes (e.g. for the issuance of tax-advantaged housing bonds on a fiduciary basis; for securing large credit exposures of the institutions by assuming guarantees, suretyships and other liabilities for credits and loans; for the joint operation of an exclusive data processing centre, the development of IT applications operation and maintenance of all IT applications and the responsibility for standards, methods and IT security).

Submission date
02/09/2021
Rejected publishing date
22/02/2022
Rationale for rejection

This question has been rejected because answering it is considered providing bespoke advice that may be relevant only to the circumstances of certain parties or transactions, which is not the purpose of the tool.

For further information on the purpose of this tool and on how to submit questions, please see “Additional background and guidance for asking questions”.

Status
Rejected question

Footer

EUROPEAN BANKING AUTHORITY

Our mission is to contribute to the stability and effectiveness of the European financial system through simple, consistent, transparent, fair regulation and supervision that benefits all EU citizens.


UE logoAn agency of the EU

EU Agencies Network logoEU Agencies Network

EMAS logoSustainable EBA

Contact us

  • Contacts
  • Ask a general question
  • Send a press query
  • Ask a regulatory question
  • File a complaint
  • Whistleblower reports

Stay up to date with our work

  • Subscribe to our email alerts
  • News & press RSS feed

Follow us on Social media

  • Bluesky
  • LinkedIn
  • X
  • YouTube

Find out about us

  • The EBA at a glance
  • Vacancies
  • Privacy policy
  • Legal notice
  • Cookies policy
  • Frauds and scams

Explore related sites

  • EIOPA
  • ESMA
  • ESRB
  • CEBS archive