37. The creation of a new conglomerate is usually an identifiable event which arises through merger, acquisition or the development of new businesses and may trigger the involvement of the supervisors with responsibility for the various legal entities in the new group. However, as groups expand and evolve they can also gradually develop the characteristics of a financial conglomerate. Supervisors therefore need to keep expanding groups under review. The emergence of a conglomerate will bring with it increased information needs for all supervisors involved including in instances relating to their authorisation, application or other supervisory processes.

38. Contact should be initiated among the relevant supervisors at the start of a conglomerate's life. The relevant supervisors should begin discussions to commence appropriate information sharing procedures with each other when the creation of a new conglomerate occurs.

39. It is important that measures be taken at that time to ensure that the structures of the conglomerate in terms of its corporate management and corporate control functions are well understood by the supervisors involved. One way of doing this would be for supervisors to undertake a mapping exercise, using the Conglomerate Questionnaire as previously referenced. Supervisors should weigh the advantages and disadvantages of the timing of a mapping exercise. In some cases it may be desirable to undertake such an exercise promptly whereas, in other cases, particularly in merger situations, it may be preferable to await the completion of the structural changes that usually result from such merger. Supervisors may also accomplish the desired goal of understanding a conglomerate via their supervisory approaches.

40. When a mapping exercise is conducted, it would normally be led by the primary supervisor with participation of other supervisors as deemed appropriate. The completed matrix record of findings which includes key information on the business and organisation of the conglomerate could be shared with the supervisors involved in the oversight of parts of the conglomerate.

41. The mapping exercise would, inter alia, facilitate the categorisation of the conglomerate in terms of the structure of management of its activities along business lines or legal entities and of its controls on local or global bases and determine its position within a quadrant.

42. Conducting a mapping exercise is also useful for supervisors in enhancing their understanding of each others' objectives, approaches and strategies. This could assist supervisors in establishing information sharing arrangements which are best suited to their individual needs, the nature of the business undertaken by the regulated entity for which they have responsibility and the nature and structure of the conglomerate itself.

B. Authorisation of a new activity or activity in a new supervisory jurisdiction

43. There are diverse supervisory approaches with respect to a financial conglomerate establishing a presence in a new jurisdiction. In some cases there may be a legal authorisation or approval process required whereby another supervisor will apply the relevant authorisation procedures for the new entity. In some cross-border sectoral arrangements, the prior consent of the primary supervisor is an integral part of the authorisation process, e.g. as set out in the Basle Committee's Minimum Standards. In other cases, there may be simply a notification requirement or no formal authorisation or approval requirement.

44. Irrespective of the mechanisms relating to the establishment of a presence in another jurisdiction, contact should be established between the relevant supervisors and efforts should commence to establish a supervisory relationship if one does not already exist. This could be an opportune time for supervisors to exchange information about their supervisory objectives and practices.

45. In order to facilitate the review process by another supervisor, the primary supervisor may provide appropriate information compiled through a mapping exercise or through the ongoing supervisory process for the conglomerate in question. If the supervisors concur, they may decide to jointly complete the Conglomerate Questionnaire.

46. A review of the existing arrangements for information exchanges should be carried out by the supervisors involved to ensure that there is a legal basis for the sharing of information and determine what impediments exist to such sharing of information, if any. Relevant supervisors should strive to develop or enhance, as necessary, formal or informal information sharing arrangements.

47. It is recognised that intra-sectorally, and in some cases cross-sectorally, there are many existing arrangements in place relating to such information exchanges. The proposals and recommendations in this paper are not intended to replace any such arrangements, but to supplement these information flows, as appropriate, where the financial entities in question are part of a financial conglomerate.

C. Developments in financial conglomerate structure

48. The dynamic nature of financial conglomerates necessitates that supervisors keep apprised of developments including the undertaking of significant new business or a restructuring of controls. New developments should be assessed to determine their impact on the structure of the conglomerate, including the conglomerate's categorisation within the quadrant framework. Changes to the structure which would tend to shift the conglomerate from one quadrant to another could have implications for the information sharing arrangements in place between supervisors. Supervisors need to keep apprised of changes to the conglomerate's structure and make appropriate adjustments to their supervisory approaches and information sharing arrangements. Such adjustments could result from ongoing supervision or from carrying out a new mapping exercise.

D. Ongoing supervision

1. Information needs with respect to the firm

49. The supervisors of regulated entities within a conglomerate have different information needs, determined by the legal and regulatory regimes within which they operate, their supervisory objectives and the nature of the business undertaken by the regulated entity in a particular jurisdiction. The primary supervisor is likely to have both the need for and access to the widest range of information, and other supervisors will often seek additional information or verification of information from the primary supervisor. All supervisors may have valuable insights or information to be shared with each other.

50. Supervisors need key descriptive information about the conglomerate: its organisational structure, management, financial condition, strategy and principal risks, and the main features of its policies, procedures and information systems for managing and controlling risk. This information may be included in organisation charts, financial statements, capital, liquidity and risk profiles, policy manuals and other written material. Also, discussion with the conglomerate's management may provide context for the information as well as management's perspective on the firm's strategy, risk profile and prospects. Supervisors also need sufficient financial and operational information to allow them to assess and determine how effectively a financial conglomerate is identifying, managing and controlling its risks and to recognise any incipient problems. The Conglomerate Questionnaire was found to be a useful way to obtain pertinent information about a conglomerate.

51. A general framework for identifying information needs, particularly the types of information that would be especially relevant for each type of conglomerate structure, is set out in Section IV of this paper. However, in practice each financial conglomerate, although it may be structured along the lines of one or the other model, will be unique and the information needs of the primary and other supervisors will need to be assessed on an individual basis.

ii. Information needs with respect to supervisory activity

52. Key factors in the establishment of arrangements for the exchange of supervisory information relating to financial conglomerates are the supervisory objectives and approaches of the supervisors involved. A common understanding of these can be achieved through the completion of the Supervisory Questionnaire or from discussions among supervisors.

53. Supervisors of entities within financial conglomerates can benefit from familiarity with and understanding of the approaches of the supervisors of other entities within the conglomerate. Supervisory cooperation can also help to reduce unnecessarily duplicative or burdensome requirements and to ensure that the total supervisory strategy is sufficiently comprehensive. On an ongoing basis, it is useful for supervisors to be informed of other supervisors' planned oversight activities, including on-site inspections, in order to take these into account when planning their own oversight programme. Regularised communications regarding such oversight activities can be incorporated into information sharing arrangements among the supervisors of the entities within the financial conglomerate.

54. A review of the supervisory objectives and approaches, together with a review of the organisational structure and of the key risks of the conglomerate and of planned activities/coverage, will assist supervisors in identifying and assessing the level of supervision present within the financial conglomerate. Supervisory coverage can then be modified and adjusted, as necessary, to ensure appropriate oversight, without undue supervisory burdens and duplicative deployment of supervisory resources.

E. Identifying and Addressing Supervisory Concerns

55. Within a supervisory framework, a goal of the supervisors is to use information obtained on an ongoing basis to facilitate the understanding of the strategy, structure, financial position and performance of financial conglomerates, and to identify emerging problems that could affect regulated entities. A key objective is to identify problems early enough to encourage the management of regulated entities to take action to address concerns. This begins with a good baseline understanding of the regulated entity.

56. All supervisors need to consider adverse or out-of-the-ordinary developments of special interest, particularly as they may impact the regulated entities for which they have responsibility. Most supervisors have good access to financial information but see such data as lagging indicators of emerging problems.

57. Supervisors highly value the views and assessments of other supervisors. They are interested in being informed of the assessments and findings of relevant supervisors evaluating the risk taking activities of significant entities. In particular, supervisors will want to be informed of significant emerging issues and out-of-the-ordinary developments. Depending upon intercompany relationships within the conglomerate, other supervisors also have an interest in the relevant assessments and findings of other supervisors responsible for other entities. Communication of supervisory assessments could reduce the need for the exchange of excessive amounts of information and raw data.

58. Special emphasis should be given to information flows to the primary supervisor. This supervisor would normally be best equipped to assess developments and events which in isolation may not be of significant interest but which, in conjunction with other available information, could bring to light significant, potentially adverse trends. The timely communication of unusual findings and significant developments to the primary supervisor will permit their analysis and evaluation against other information and the assembly of the "supervisory puzzle". In particular supervisors should share information on issues of risk management and internal controls which could impact on the control environment of entities in other jurisdictions. On the other hand, since the primary supervisor may have the most comprehensive view of the "supervisory puzzle", it may be in the best position to alert other country supervisors to potential problems and to provide them with pertinent information.

59. The information needs of supervisors will intensify if emerging problems develop into more serious matters. This may relate to conglomerate-specific or broader market wide problems which may affect other financial institutions.

60. Once a problem develops into a matter for supervisory attention, information needs will likely move from understanding of the overall structure, financial condition, risk profile and corporate control functions and approaches of the financial conglomerate to increasingly specific and detailed information about the firm's risk exposures and risk management tactics, and the financial impact of current developments, especially those related to the current problem(s). Supervisors' needs will only be met if the financial conglomerate has in place good information systems which will permit accurate and detailed information to be retrieved in a timely and reliable manner.

61. In the face of very severe problems, highly detailed information may be needed, and communication between the firm and its key supervisors may be continuous. Examples of the types of information that may be useful in an emergency and on short notice are set out in Annex B. A key point in such situations is that financial conglomerates need to have the capacity to provide a potentially wide range of detailed information within short time frames.

62. The intensified need for timely and detailed information underscores the importance of developing a full understanding of the structure, strategy, and risk profile of the financial conglomerate by the relevant supervisors. Attention to the nature, quality and flexibility of management information systems and reporting should be part of the routine supervisory process. Equally important are good communication channels between the conglomerate's management and its supervisors in all its regulatory jurisdictions and amongst its supervisors.