Investment firm groups: EBA publishes final capital test guidelines

The European Banking Authority (EBA) published today its final Guidelines on the application of the group capital test for investment firm groups. These Guidelines set harmonised criteria to address the observed diversity in the application of the group capital test across the EU and help ensure a level playing field.

The Guidelines identify criteria to assist Competent Authorities in their assessment of the simplicity of the group structure and the significance of the risk posed to clients and the market, and envisage a simplified assessment of the criteria for groups that include only small and non-interconnected investment firms.

The Guidelines include both quantitative and qualitative criteria. In particular, on the quantitative side, the Guidelines detail, among others, the number of undertakings and of levels within a group, while on the qualitative side, they clarify that simple capital ties and a clear ownership structure should be in place. The Guidelines also provide a methodology to guide Competent Authorities in the assessment of the adequacy of own funds requirement of third country undertakings of EU groups.

Legal basis and background

The EBA has developed the final Guidelines on its own initiative, in accordance with Article 16 of its founding Regulation, which mandates the Authority to issue guidelines and recommendations addressed to competent authorities or financial institutions with a view to establishing consistent, efficient and effective supervisory practices within the ESFS, and to ensuring the common, uniform and consistent application of Union law.

The group capital test is set out in Article 8 of Regulation (EU) 2019/2033. The criteria for granting its use are set out in paragraph 8(1) and 8(4) of that Regulation.