77. Transparency refers to the clarity of the legal and managerial structure of a financial conglomerate. The Tripartite Group is of the view that the way in which a financial conglomerate is structured should be transparent, and conducive to supervision from a group perspective. If supervisors and regulators do not fully understand the legal and managerial structure of a financial conglomerate, they will be unable to assess properly either the totality of the risks the conglomerate faces or the risks which other group companies pose for the regulated firm. Moreover, supervisors need to be assured that, where necessary, the financial activities of a financial conglomerate are indeed being supervised, and that the supervisor(s) in question can be relied upon, not only to do their job effectively, but also to provide the information necessary for risk assessment from a group perspective; relevant information relating to unregulated activities also needs to be available. Where this is not the case, members of the Tripartite Group believe that the supervisor should have the power to insist that appropriate structural changes are made. If this proves to be impossible, then the Group believes that there are grounds for supervisors to refuse to grant authorisation or to consider withdrawing an existing license.
78. Because the legal and managerial structures of a conglomerate may be very different, particularly where a financial conglomerate operating internationally has adopted matrix management (under which individuals report to different senior managers on different aspects of their work), the Tripartite Group also believes it is essential that regulators are aware of lines of accountability within a conglomerate which affect the firm they regulate, as well as the form which this accountability takes. All supervisors with responsibility for some part of a financial conglomerate should have an uptodate organisational chart of the conglomerate and should be aware of the ownership structure of the group; they also need to be fully informed about the managerial structure of that part of the group in which their regulated entity is located.
79. The complexity of the corporate structure often reflects tax, cultural and historical considerations, as well as legal and regulatory requirements. A high degree of complexity may be inevitable in the case of large international financial conglomerates. However, this may make effective regulation extremely difficult and / or significantly increase the risk of contagion within the group. Some financial conglomerates may choose a complex structure in order to make their operations opaque and to avoid regulation at all or to impede effective ongoing regulation. The Tripartite Group is of the view that supervisors need powers, at both the authorisation stage and post-authorisation, to obtain adequate information regarding corporate structures and, if necessary, to prohibit corporate structures which impair adequate supervision. If adequate supervision is impaired, the supervisor must be able to insist that the financial conglomerate in question organises its activities in a way that makes adequate supervision possible. In this respect, the Tripartite Group notes the "minimum standards" for the supervision of international banking groups, which were published by the Basle Committee on Banking Supervision in July 1992, and the proposals put forward by the EC in the wake of the BCCI affair. Under both the "minimum standards" and the EC proposals, supervisory authorities are only able to grant authorisation to banks and securities firms that are part of a group if they are satisfied that the structure of the group permits effective supervision, including consolidation. Moreover, authorisation should be withdrawn if the undertaking becomes part of an opaque group. Supervisors may also need to be able to influence the location of the place of incorporation of a parent company and its principal operating subsidiaries, with a view to preventing a situation where the supervisor is not able to exercise effective influence over the group's operations.
