9.2.4 Consolidation

445. The consolidation requirements in the IFR have been subjected to significant amendments in the Presidency Compromises. The following section will start with an analysis of the IFR and will subsequently highlight the changes made as compared to the original IFR proposal. The most important change in the IFR is that the ‘standard’ method of consolidated supervision has changed. Whereas under the IFR Proposal the standard method of consolidation was the new “group capital test” requirement, the IFR leaves that group capital test consolidation method to the discretion of the competent authorities. What the group capital test consolidation entails will be further discussed below.

446. The consolidation requirement1 under the IFR requires a parent investment firm or a holding company to comply with the IFR on a consolidated basis. The IFR does not clearly state what constitutes a consolidated basis. The definition of “consolidated basis”2 and “consolidated situation”3 only provides a list of entities that should be included in the consolidation, but the way the consolidation should apply and which subsidiaries actually meet the thresholds for consolidation are not included.4 This will be further specified by the EBA via a mandate for a technical standard.5

447. The IFR consolidation requirement seems to be mirrored in the consolidation requirements of the CRR, as mentioned by the EC in Recital 12: “for investment firm only groups or where consolidation under [CRR] does not apply, in order to mirror the existing treatment of groups of investment firms under [CRR], the parent undertakings in such groups should be required to comply with requirements of [the IFR] based on the prudentially consolidated situation of the group”.6 With the IFR, the EC established a consolidation regime similar to the consolidation of banking groups. Unfortunately, since this requirement was only introduced in the Presidency Compromise, no underlying reasoning as to why this should be the appropriate consolidation regime was provided whatsoever in the Commission Staff Working Document nor in the EBA reports.