Superordinated companies in a financial holding group

The introduction of the new Section 2f KWG by the Act on Risk Reduction and Proportionality in the Banking Sector (Risk Reduction Act, RiG) of 9th December 2020 entails a licensing requirement for financial holding companies or mixed financial holding companies. Many financial holding groups are currently faced with the question of who is at the head of the group within the meaning of Section 2f KWG and is thus subject to further regulatory obligations.

The head of the group is determined on the basis of the definition of a group of institutions in Section 10a (1) of the German Banking Act (KWG). According to this definition, a group of institutions consists of a superordinated company and one or more subordinate companies. The superordinated company is the company that is required to perform the consolidation in accordance with Art. 11 CRR. The latest amendments to Section 10a KWG by the RiG are intended to transpose Art. 11 CRR into national law and clarify who is responsible for compliance with the group requirements on a consolidated basis.

The addressees of the consolidation obligation under Article 11 (1) CRR are first and foremost parent institutions. However, Article 11 (2a) CRR clarifies that a financial holding company authorized in accordance with Article 21a CRD and a mixed financial holding company also fall under the scope of application of the standard and can thus be superordinated companies within the meaning of Section 10a KWG as companies subject to consolidation. It can therefore be inferred from the regulation of Art. 11 CRR that, as a rule, the company that also holds the majority shareholding in the organizational structure of the company must carry out the consolidation. On the other hand, in individual cases, according to Art. 11 (2b) CRR, an institution of the group that is controlled by a parent company can be designated for the consolidation. This may appear to make sense especially in cases where the services relevant for regulatory purposes are provided exclusively in the institution and the parent company is not to be equipped either in terms of content or personnel. However, the designation of a group-related institution can only be made if the parent company does not have to be authorized pursuant to Art. 21a (4) CRD. The authorization requirement of Section 2f of the KWG, which transposes Art. 21a CRD into national law, provides for exemptions from the authorization requirement for parent financial holding companies if, among other things, the following exemption requirements are cumulatively met:

• the applicant's main activity in relation to institutions and financial institutions is the acquisition and holding of participations in subsidiaries,
• a CRR credit institution is responsible as the superordinated company for compliance with the obligations on an aggregated basis, and
• the applicant is not involved in the conduct of business at group level.

The KWG no longer provides for further possibilities to classify another group company as a superordinated company. The determination as a superordinated company is only made in accordance with the legal requirements and is made by the group company that has to perform the consolidation. With the comprehensive legislative changes brought by the RiG concerning financial holding groups, both the possibility for the financial holding group from Section 10a KWG (old version) to submit an application to BaFin to designate another institution as the superordinated company and the possibility for BaFin itself to designate another company for this purpose have been eliminated. The superordinated company is now simply determined by the legal requirements in the KWG.

In practice, financial holding groups are confronted with the situation of having to check whether the company currently designated as the superordinated company can still be qualified as such after the amendment of the law. In the next step, an application for authorization pursuant to Section 2f KWG must be submitted for the respective superordinated company. This also affects already existing financial holding groups in which another institution belonging to the group was designated by BaFin as the superordinated company, which no longer meets the current legal requirements. The licensing requirement can only be avoided if the exemption requirements under Section 2f (2) KWG are met and an application to BaFin is successful. The deferral period for filing an application for already existing financial holding groups has recently expired at the end of June 2021.