On 11 April 2024, the European Banking Authority (EBA) published a final report containing ‘Guidelines on the application of the group capital test for investment firm groups’.

The final report notes that the group capital test provision pursuant to Article 8 of the Investment Firms Regulation appears to be subject to different interpretations from Member State competent authorities (NCAs).

The Guidelines aim to harmonise the criteria to address the observed diversity in the application of the group capital test and help ensure a level playing field.

In accordance with Article 16 of the EBA’s founding Regulation, the EBA is mandated to issue guidelines and recommendations addressed to NCAs or financial institutions with a view to establishing consistent, efficient and effective supervisory practices within the European System of Financial Supervision, and to ensure common, uniform and consistent application of EU law.

Accordingly, the Guidelines identify criteria to assist NCAs in their assessment of the simplicity of the group structure and the significance of the risk posed to clients and the market. They also envisage a simplified assessment of the criteria for groups that include only small and non-interconnected investment firms.

The Guidelines include both quantitative and qualitative criteria. On the quantitative side, the Guidelines detail, among others, the number of undertakings and of levels within a group, while on the qualitative side, they clarify that simple capital ties and a clear ownership structure should be in place. The Guidelines also provide a methodology to guide NCAs in the assessment of the adequacy of own funds requirement of third country undertakings of EU groups.