EBA · 2020_5578 Final Q&A

Scope of applicability of the required method of prudential consolidation under the Article 18(7) CRR

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
18, para. 7
Topic
Other issues
Submitted by
Competent authority
Submitted
2020-10-22
Answered
2021-12-17
Answer provided by
ESAs (EBA, ESMA, EIOPA)
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Question

Is Article 18(7) CRR applicable for the calculation of prudential requirements at the individual level of that institution?

Background

Article 18(7) CRR requires - where an institution has a subsidiary which is an undertaking other than an institution, a financial institution or an ancillary services undertaking or holds a participation in such an undertaking - the institution to apply to that subsidiary or participation the equity method by default. It is unclear whether Article 18(7) CRR shall apply also for the calculation of prudential requirements at the individual level of the institution or whether the application of that provision is restricted only for the calculation of prudential requirements on the basis of the consolidated situation of the institution.

Answer

Since Article 18 CRR determines “Methods of prudential consolidation”, it follows that Article 18(7) CRR is only applicable on a consolidated basis. Therefore, pursuant to Article 18(7) CRR, at the consolidated level, an institution shall apply the equity method to the aforementioned subsidiary or participation. This, without prejudice to the provisions of the second subparagraph of Article 18(7) CRR, according to which competent authorities may allow or require institutions to apply a different method (including the method required by the relevant accounting framework) provided that certain conditions are met. At the individual level, the ordinary regime of Article 24(1) CRR applies and, an institution shall apply to the aforementioned subsidiary or participation the valuation method as prescribed by the applicable accounting framework.

Original source: European Banking Authority, Q&A ID 2020_5578

This Q&A is published by European Banking Authority and is non-binding. It does not constitute legal advice. Updated weekly from official ESA sources.

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