84. A fundamental problem facing supervisors in relation to financial conglomerates concerns the fact that they may lack rights of access to prudential information on those parts of a conglomerate which they do not supervise. They may be denied an overview of the legal and management structures of a financial conglomerate, and of the transactions and positions that might have a bearing on the health of a regulated entity. As a result, it might prove difficult or impossible to identify threats to regulated entities in good time.

85. There can be no doubt that supervision is most effective when supervisors are in a position to view the conglomerate as a whole. For this to be possible, supervisors need access to prudential information not only from the entities they regulate but also from the other parts of the conglomerate, including any parent holding company. Whatever form a financial conglomerate takes, the effective supervision of groups comprising disparate entities subject to supervisors and regulators of more than one discipline and in more than one country requires a considerable emphasis on cooperation between the authorities concerned. For such cooperation to be possible, the Tripartite Group believes that, subject to confidentiality provisions and restrictions on the use of information, supervisory authorities need to have the right to share prudential information with each other - including information about intra­group exposures. There must also be a proactive willingness and determination among supervisors to share appropriate information, both nationally and internationally, either within a single category of supervisors or between categories of supervisors. In addition, supervisors may need to obtain (and share with other supervisors) prudential information on other non­regulated entities within the conglomerate to the extent that this information is of importance for the purposes of supervision. Where the linked entity is not regulated, this information will probably need to be provided by the regulated institution itself.

86. It is generally agreed that the process of cooperation would be greatly enhanced if the supervisors and regulators of the various entities in a group appoint one authority to act as lead regulator or "convenor". Where the parent company in a group is a supervised bank, securities firm or insurance company and is the dominant entity in the group, it would be sensible for the parent's supervisor to assume the role of convenor. In groups headed by a holding company, however, identification of the convenor may be less obvious. If one of the supervised entities downstream from the holding company is more dominant than the other supervised entities downstream, then the Tripartite Group would expect the supervisor of that entity to be the convenor, but, if there is no dominant entity, it is recommended that the supervisors in question agree that one of them should act as convenor or that they should assume the role jointly.

87. What would be the precise role of the convenor? The Tripartite Group suggests that, subject to applicable confidentiality provisions and restrictions on the use of information, convenors would be responsible for gathering such information as they require in order to have a perspective on the risks assumed by the group as a whole. Using this information, they would make an assessment of the capital adequacy of the group. This would not interfere with the solo supervisor's right to obtain information regarding the group. The convenor would also be responsible for the coordination of any supervisory action that may be necessary, particularly if it is desirable that two or more authorities act simultaneously (e.g. complex supervisory actions involving more than one entity and crossing jurisdictional lines). A common objective is more likely to be achieved if all the supervisors act in harmony. Such arrangements may be particularly important if sanctions are to be applied in an effective manner. In some circumstances, it may be appropriate for the convenor to take the lead in proposing such supervisory action as is necessary in respect of the group as a whole (although this would not interfere with the power of the solo supervisor to act individually when necessary). There might also be a coordinating role for the convenor to perform with regard to the monitoring of intra­group exposures and the risk of contagion arising from them although, as mentioned earlier, the Tripartite Group's view is that the primary responsibility for this should rest with solo supervisors.

88. Where supervisors are located in the same country, informal information­sharing arrangements may be sufficient. However, in conglomerates where the major operational business entities are located in different countries, the Tripartite Group suggests that the role of the convenor, and indeed the responsibilities of all individual supervisors involved in a financial conglomerate, could be defined and agreed upon effectively through the establishment of Memoranda of Understanding or Protocol between the relevant supervisors, particularly in cases where a conglomerate has a complex structure. Recent banking legislation in the European Union has prompted bank supervisors to establish bilateral Memoranda of Understanding with their fellow European supervisors so that they know what other supervisors are expecting from them in respect of branches and subsidiaries of EU banks established in their country. Although the process of establishing Memoranda can be time­consuming and burdensome, it is felt that these documents are invaluable as a source of clarification, both of the sort of information supervisors expect to receive from each other and of exactly when they expect such communication to take place. In some instances, the Memoranda could make it clear that communication is only necessary if certain "trigger points" are reached.

89. It is evident from the discussion which the Tripartite Group had on this aspect that there are bound to be differences of view on the intensity of the exchange of information between supervisors. Everyone was agreed that there needs to be a continuous flow of prudential information to the convenor; without the necessary information on all entities within the group, it would be impossible for the convenor to assess capital adequacy from a group-wide perspective. The prudential information can be collected from the financial conglomerate itself (thereby placing the main burden and cost on the conglomerate in question); from the supervisors of the individual entities which make up the conglomerate; or from a combination of these information channels. Obviously, if the convenor receives information which has implications for the financial viability of the group as a whole, then the supervisors responsible for other entities within the group should be made aware of it. However, if the information received by the convenor gives no cause for concern, is it necessary to pass the information on to other supervisors? This is a matter of debate. At one end of the spectrum are supervisors with an eye on resource implications, who would prefer to hear nothing from the convenor unless he identifies a problem; on the other hand, they don't want to be told about the problem when it is too late to solve it. At the other end of the spectrum are supervisors who would prefer to receive a healthy flow of information from the convenor so that they themselves can have a perspective on the group of which their regulated entity forms part. Supervisors will have their own view on this; views will also vary according to the precise size, nature and structure of the conglomerate. At the end of the day, exactly what should be exchanged is a matter for the supervisors involved and this is where the establishment of Memoranda of Understanding can assume great importance.

90. In some countries, as part of an evolving approach to group supervision, financial groups are already routinely considered on an annual basis by cross­sectoral meetings of regulators, with more frequent meetings being held in the event of a crisis situation. This is a non-statutory arrangement whereby each supervisor retains his individual supervisory responsibility but a lead supervisor is appointed for each group. Meetings are seen as an opportunity to exchange and discuss qualitative views. Some members of the Tripartite Group are attracted by the concept of cross­sectoral meetings of regulators as a means of encouraging more intensive cooperation between supervisors and the sharing of supervisory information on an international basis.

91. At the same time, however, the difficulties of organising such meetings on an international scale are recognised. So too are the challenges which convenors face in getting all the information they require about a group. Convenors may lack the authority to mandate a group to provide the requisite information; supervisors may lack the authority or the preparedness to share information (particularly if a cross­border exchange is involved); and, in some cases, potentially important group entities may lack a supervisor. Clearly, in some countries, there are some serious jurisdictional issues to be overcome if convenors are to be able to fulfil their role effectively.

92. External auditors can be another valuable source of information for supervisors. They have considerable detailed knowledge of their clients and this knowledge, as well as the performance of their functions, enables them to identify current or prospective problems for a regulated firm or for the group of which it forms part. The Tripartite Group believes that, where external auditors have concerns about the financial or operational condition of a regulated entity (or a group to which a regulated entity belongs), they should be required to ensure that such concerns are brought to the attention of the relevant supervisor. This is already the case in a number of EC countries, and in the United States as regards securities firms. In Canada, too, external auditors are required to advise the relevant supervisor of any material deterioration in the financial condition of an institution. Any conflict between the auditors' duty of confidentiality to their clients and an obligation to communicate with the supervisors would need to be overcome by legislation.

93. From a supervisor's point of view, there are obvious advantages in having all the external audit work in a financial conglomerate performed by the same firm (or affiliated firms) of auditors, thus providing an overall view of the group; in Canada, legislation already requires this where possible. Accordingly, the Tripartite Group recommends exploring with the auditing profession the principle that ­ notwithstanding the number of auditing firms actually involved in a financial conglomerate ­ one firm should be appointed to provide supervisors with such an overall view, without prejudice to the general duties of all the auditors involved to carry out their work in relation to the individual entities that make up the conglomerate and, where necessary, to draw the relevant supervisor's attention to matters which relate specifically to those individual entities.