The EBA consults on Guidelines on the application of the group capital test for investment firm groups

EBA has released draft Guidelines concerning the application of the group capital test for investment firm groups. These Guidelines aim to establish consistent criteria for assessing the use of the group capital test across the EU. The group capital test is an alternative to the prudential consolidation process for investment firm groups, as outlined in IFR, it allows investment firm groups to calculate own funds requirements differently under specific conditions. The EBA identified varying interpretations of the conditions for using this test by supervisory authorities, leading to inconsistent application and affecting the level playing field.
The Guidelines set out both qualitative and quantitative criteria for CAs to consider when determining if an investment firm group meets the requirements for using the group capital test. These criteria assess the simplicity of the group structure and the risk posed to clients and the market. The Guidelines include sections discussing simplified approaches for smaller, less complex investment firm groups, as well as conditions related to the complexity of group structures and risk assessment.
The EBA aims to harmonize the application of the group capital test to ensure consistency and fairness across the EU. Stakeholders are invited to provide feedback on the proposed Guidelines during the consultation period, which runs until 25 October 2023. A public hearing is also scheduled for 5 September 2023.