Release of consultation documents by the Joint Forum

Press release  | 
08 July 1999

The Basel Committee on Banking Supervision (Basel Committee), the International Organization of Securities Commissions (IOSCO) and the International Association of Insurance Supervisors (IAIS) announce the release of consultation documents prepared by the Joint Forum. The papers set out principles for banking, securities and insurance supervisors for ensuring through the regulatory and supervisory process the prudent management and control of 1) intra-group transactions and exposures (ITEs) and 2) risk concentrations (RCs).

ITEs represent risk exposures between legal entities within a conglomerate while RCs represent risk exposures across the conglomerate's legal entities.

The Joint Forum recognises that there are legitimate commercial reasons for ITEs and RCs. ITEs can facilitate synergies within different parts of a conglomerate and thereby lead to cost efficiencies and profit maximisation. RCs offer the benefit of broad diversification by combining business lines under the single ownership of a conglomerate. However, both ITEs and RCs give rise to issues about sound risk management at conglomerates and the role of supervisors in ensuring that sound practices are adopted. Accordingly supervisors should:

  • take steps to ensure that conglomerates have adequate risk management processes in place for ITEs and RCs
  • monitor material ITEs and RCs on a timely basis
  • encourage the public disclosure of ITEs and RCs
  • liaise closely with other supervisors so that they understand each other's concerns about ITEs and RCs and coordinate any appropriate action
  • deal effectively and appropriately with any material ITEs and RCs that may have a detrimental effect on the regulated entities.

While the approaches proposed are parallel in many respects, there are significant differences. Most notably, as ITEs constitute a series of bilateral relationships within a conglomerate they can to a significant extent be monitored and controlled at the legal entity level. However, RCs reflect the combination and interaction of risk exposures across the conglomerate, making a groupwide approach to RCs essential.

The papers also set out the findings of a study carried out by the Joint Forum of the supervisory practices in the countries represented on the Forum and the practices of 10 major international financial conglomerates in relation to ITEs and RCs.

The Basel Committee, IOSCO and the IAIS invite written comments on the papers by 30 September 1999. Comments should be addressed to the Secretary General of one of the parent organisations:

Ms Danièle Nouy, Secretary General
Basel Committee on Banking Supervision
c/o Bank for International Settlements
Centralbahnplatz 2
4002 Basel, Switzerland
(Fax: +41 61 / 280 91 00)

Mr Knut Hohlfeld, Secretary General
International Association of Insurance Supervisors
c/o Bank for International Settlements
Centralbahnplatz 2
4002 Basel, Switzerland
(Fax: +41 61 / 280 91 51)

Mr Peter Clark, Secretary General
International Organization of Securities Commissions
800 Square Victoria
Montreal, Quebec, Canada
(Fax: 514 875 2669)

Comments received will be taken into account in finalising the papers and in the implementation of the principles set out in them.

The papers are accessible on the following websites: BIS (http://www.bis.org); IOSCO (http://www.iosco.org) and IAIS (http://www.iaisweb.org)

Background on the Joint Forum is set out in the attached explanatory note.

Explanatory note

Background of the Joint Forum

The Joint Forum (formerly known as the Joint Forum on Financial Conglomerates) was established in early 1996 by the Basel Committee on Banking Supervision (Basel Committee), the International Organization of Securities Commissions (IOSCO) and the International Association of Insurance Supervisors (IAIS), to take forward the work of a predecessor group, the Tripartite Group, in examining supervisory issues relating to financial conglomerates. The Joint Forum comprises an equal number of senior bank, insurance and securities supervisors representing each supervisory constituency. Thirteen countries are represented on the Joint Forum: Australia, Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Spain, Sweden, Switzerland, the United Kingdom and the United States. The EU Commission attends in an observer capacity. The Chairman of the Joint Forum is Mr Alan Cameron AM, Chairman of the Australian Securities and Investments Commission.

The growing emergence of financial conglomerates and the blurring of distinctions between the activities of firms in each financial sector has heightened the need for cooperative efforts to improve the effectiveness of supervisory methods and approaches. The Joint Forum has been a focal point of the efforts of the international supervisory community in meeting this need. It has made significant progress in the development of principles and supervisory techniques for addressing some of the most significant issues involved in the supervision of conglomerates. This work is reflected in the Joint Forum's February 1999 papers

  • Capital Adequacy Principles paper
  • Supplement to the Capital Adequacy Principles paper
  • Fit and Proper Principles paper
  • Framework for Supervisory Information Sharing paper
  • Principles for Supervisory Information Sharing paper
  • Coordinator paper
  • Supervisory Questionnaire.

The Basel Committee and the Technical Committees of IOSCO and the IAIS have endorsed these papers and are urging the members of their organisations to implement the principles set out in them.