The Joint Forum has published final standards that update 1999 principles for the supervision of financial conglomerates. Noting the central role that conglomerates played in the financial crisis, the document seeks to address regulatory gaps by bolstering requirements for capital adequacy, risk concentrations, intra-group exposures, corporate governance and other areas not highlighted in the 1999 standards (which largely focused on supervisory information-sharing). Nonbank financial institutions will find many aspects of this regime a significant departure from current regulatory requirements, but only come under them if they engage in at least two regulated activities (i.e., banking, securities or insurance). Systemic designation would not be necessary to trigger these standards. Most diversified banking organizations would thus be considered conglomerates, subject to potentially conflicting parent or group-wide regulation in home and host countries. However, despite recent calls for ring-fencing in the European Union, this paper does not recommend it, instead focusing on over-arching prudential standards it wants supervisors to apply across a host of regulated and/or unregulated firms in a financial conglomerate and to the conglomerate’s parent (i.e., a manufacturing firm). Although much in the Joint Forum paper echoes aspects of Federal Reserve supervision for bank holding companies (BHCs), savings and loan holding companies (S&LHCs) and the new securities holding companies, aspects of it – e.g., with regard to multi-gearing and intra-group transactions – go beyond it. To the extent these criteria apply to BHCs and S&LHCs now under FRB supervision, and systemic ones recently identified by the FSOC, significant changes in U.S. financial-services regulation would result. They would also have significant impact in the insurance arena were global regulators to base pending standards for global systemically-important insurers on this approach.
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