Stronger together, separately strong: ECB expectations for financial conglomerates

Speech by Patrick Montagner, Meeting of the Pan-European Conglomerate Club at DZ Bank Frankfurt

Frankfurt am Main, 13 June 2025

Thank you for inviting me to the nineteenth meeting of the Pan-European Conglomerate Club here in Frankfurt. The Club’s increasing membership highlights the strong interest there is in this business model, as well as the unique challenges that financial conglomerates face in both regulatory and practical terms.

Financial conglomerates – that is cross-sectoral groups combining banking, insurance and sometimes investment services under one umbrella – have been a regular feature of Europe’s financial landscape for decades. And they have evolved to meet the diverse financial needs of European consumers and businesses.

The most prominent and historically significant conglomerate model has been bancassurance, which emerged as banks and insurers recognised the natural synergies between their complementary business models. Although, this has not developed uniformly across Europe. In addition, financial conglomerates have focused primarily on life insurance activities, leveraging their regular relationships with customers to channel household savings. By contrast, their presence in non-life insurance remains less developed, focusing primarily on simple, standardised contracts such as home and car policies.

For banking supervisors, the development of financial conglomerates means that supervisory processes originally designed for banks need to adapt. For example, supervisory coordination beyond traditional sectoral boundaries of banking and insurance is particularly important, as we strive to preserve the distinct regulatory rules that apply to these different activities.

In this regard, the Financial Conglomerates Directive^[1], or FICOD, which has been in place since 2002, has provided useful tools and clarifications on how to supervise groups that are identified as financial conglomerates.

Today, I want to discuss how the ECB approaches the practical supervision of bank-led financial conglomerates in a way that captures their benefits while managing their inherent risks.

The ECB acknowledges the role financial conglomerates play in the European financial landscape. We also recognise the Danish Compromise as a regulatory approach to capital requirements for insurance entities.

The business model of financial conglomerates operating across both banking and insurance sectors is long‐established in Europe. It brings many benefits, including economies of scale, diversification and integrated customer solutions.

The numbers speak for themselves. The total assets of banks in the European market are vast, exceeding €30 trillion. The insurance sector, while smaller at roughly a quarter the size of the banking sector, is nonetheless a cornerstone of financial services for millions of Europeans. And financial conglomerates, by their very nature, interlink these two critical sectors.

European regulators have also acknowledged this model’s value by providing a specific prudential capital treatment for banks. What is known as the Danish Compromise^[2] allows European banks, in certain circumstances, to risk‐weight insurance participations instead of fully deducting them from their own funds. This exception to the Basel deduction rule is clearly outlined in Article 49 of the Capital Requirements Regulation.^[3] At the same time, this provision was always understood as a narrowly tailored relief, as the Basel prudential rules would normally require full deduction of insurance holdings to avoid any double-gearing of capital. It only applies to closely defined situations where strong insurance regulation effectively protects capital. It is not a blank cheque.

Under EU law, a group is generally identified as a financial conglomerate only when its cross-sectoral activities meet certain thresholds based on a percentage of the balance sheet and/or the absolute size of the smallest of the two sectors in the total balance sheet. As such, the ECB and other competent authorities must ensure that any group is correctly identified when relevant. We do so to impose supplementary supervision only on truly material cross‐sector groups; it helps us avoid inappropriately overburdening groups.

But let me be clear: while these quantitative thresholds are necessary, they are not sufficient.

Identification as a financial conglomerate is not automatic, nor does it entitle a group to the supervisory permissions associated with that status. We also assess the quality of integration across the group, in particular whether the level of centralised management, risk control and internal governance across the entities proposed for consolidation meets our supervisory expectations. In other words, firms must demonstrate that they are not simply structurally eligible, but also operationally fit for purpose.

Furthermore, I should take this opportunity to reiterate that the ECB understands the non-deduction rule as being aimed at the insurance sector only, and not at entities like, for instance, asset management firms. As a supervisory authority, we review the cases for applying the non-deduction provision on a bank-by-bank basis. However, we are not the rule-makers − that responsibility lies with the European legislators and the European Banking Authority, which drafts technical standards.

The fundamental differences between banking activities and insurance activities require depositors and policyholders to be considered separately while preventing potential contamination between these two activities.

Why is this strict approach needed? The answer lies in the inherent differences between banking and insurance. They are distinct activities with different operational logics, risk profiles and, crucially, obligations to their respective customers.

Banks collect short‐term deposits and grant loans, exposing them mainly to credit risk, liquidity risk and market volatility. Insurers underwrite long‐term policies and invest premiums, so their risks are predominantly underwriting risk and investment risk. As such, banks and insurers have very different business models: banks transform maturities and connect to central bank operations, while insurers pool risks over the long run.

Customers differ, too – bank depositors count on liquidity and the availability of means of payment, whereas life policyholders focus on long-term savings.

And yet, in financial conglomerates, these two sets of customers may, in fact, be the same individuals. A customer may rely on the banking arm for everyday financial needs − payments, savings, loans and so on − and simultaneously hold a life insurance policy with the insurance arm of the same group.

However, the same person embodies two distinct financial profiles, with different time horizons, expectations and protections. This dual role must not be mixed. It reinforces the need to treat the banking and insurance entities differently, to ensure that both sets of interests are adequately protected. One direct implication is that insurers’ assets, which are meant to back long-term liabilities to policyholders, should only be marginally invested in affiliated banks, so as to avoid circular exposures and mitigate risk concentrations that might undermine financial stability.

These differences translate into distinct regulatory regimes: Basel and CRR for banks, Solvency II for insurers. In short, a financial conglomerate group is not a homogeneous entity, but a collection of businesses with different time horizons, capital needs and risk profiles.

Because of these distinctions, the ECB insists on clear financial separation within a conglomerate. In practical terms, this means that the insurance arm must stand on its own two feet. Insurance supervisors require insurance entities to demonstrate their ability to hold sufficient capital and liquidity on a standalone basis, without relying on extraordinary shareholder intervention. There is of course a natural relationship within conglomerates between the parent entity and the insurance subsidiary – including both entity-level and group-level risk management. This does not, however, negate the need for each legal entity, especially insurers, to be able to manage its risks independently.

Any cross‐sector transfers – such as dividend flows, loans or guarantees – from the insurer to the bank must be justified only by the insurer’s own business interests and permitted by law. Otherwise, we would create exactly the moral hazard and contagion channels that supervisory frameworks aim to prevent.

European legislation now explicitly addresses these risks. For example, the Financial Conglomerates Directive strictly prohibits double-gearing and may allow competent authorities to establish quantitative or qualitive intragroup exposure or concentration risk requirements. Nonetheless, supervisors must remain vigilant. We therefore expect conglomerates to perform intragroup transactions on an arm’s length basis and to avoid any conflict of interest or circumvention of sectoral rules. Insurance subsidiaries should, for instance, not be a hidden source of capital or liquidity support for the bank, and vice versa, except within justified and legally permitted frameworks.

The ECB’s approach to supplementary supervision combines comprehensive oversight with collaborative engagement with insurance supervisors.

The ECB’s mandate for supplementary supervision of financial conglomerates is exercised with these principles firmly in mind. Our framework is designed to identify, monitor and address risks at the overall conglomerate level. This concerns those specific risks that arise precisely because of the group’s cross-sectoral structure and which might not be fully captured by purely sectoral supervision alone. This role is clearly defined by the Financial Conglomerates Directive.

It is crucial to reiterate that the ECB’s role here does not extend to the supervision of insurance undertakings at sectoral level; that mandate fully remains with the national insurance supervisory authorities. But effective supervision in this complex space cannot be done in isolation either. Therefore, the ECB’s role under the Financial Conglomerates Directive is to coordinate the supervision of such cross-sector groups in full collaboration across supervisors of banks, insurers and investment firms whenever a group led by a bank directly supervised by the ECB is identified as a financial conglomerate. The ECB and the other competent authorities will ensure that this supplementary supervision is applied at the level of the financial conglomerate. In this capacity, the ECB also leads the supervisory college for financial conglomerates, setting the agenda for joint reviews and defining group-level requirements where relevant. As such, the ECB works in close partnership with national competent authorities and with the European Insurance and Occupational Pensions Authority. In 2024, for instance, the ECB coordinated supervision for 29 financial conglomerates across the SSM^[4]. In addition, a cross-functional team of experts from the ECB and national competent authorities works to ensure consistency in how we identify and tackle group-wide risks.

In this role, in January 2024 the ECB published a guide on the reporting of risk concentrations and intragroup transactions for financial conglomerates.^[5] This guide is not a new set of rules; instead, it lays out our supervisory expectations on reporting. Its purpose is to promote “consistency, coherence, effectiveness and transparency” in how the ECB, in its role as coordinator, approaches a financial conglomerate. It lays out the ECB’s expectations and criteria for identifying and reporting significant intragroup transactions and concentration risks, as required by the implementing standards for the Financial Conglomerates Directive.

The guide also provides additional expectations for qualitative requirements and internal governance. The ECB expects financial conglomerates to have robust group‐wide governance, risk management and internal controls in place. We will require detailed reporting on how the group’s board and risk committees oversee intragroup transactions, interlinkages and potential cross‐sector exposures.

While reporting requirements are tailored to each conglomerate’s specific size and structure, the guide does provide some general benchmarks. For instance, it calls for any single intragroup exposure exceeding 25% of the conglomerate’s own funds to be reported and explained. The idea is that very large intragroup exposures, or concentrations of risk (credit, market or others) across the bank and insurer, cannot go unnoticed. By clarifying these thresholds and processes, we aim to make supervision more predictable for firms.

Let me be clear: the ECB requires financial conglomerates to meet the highest standards of governance, risk management and internal control. These are not mere box-ticking exercises. We do expect the group’s top management and board to take ownership of these obligations.

That means establishing a clear governance framework at the conglomerate level: a risk committee or a board of directors – typically at the holding company – that regularly reviews cross-sector limits, ring-fencing of capital and conflict‐of‐interest policies. It means integrating risk management such that the insurer’s risk officers and the bank’s risk officers communicate and escalate issues. And it means strong internal group controls and audit functions that cover all legal entities in the conglomerate, as well as clear documentation and detailed policies.

Conclusion

To conclude, let me reiterate my key messages for today.

Financial conglomerates are an important part of the European financial landscape. When well-managed, they offer diversification and efficiency. But the potential interconnectedness between banking activities and insurance activities demands careful oversight.

The ECB’s approach is straightforward: we designate only those groups as financial conglomerates that truly meet the legal criteria, ensuring supplementary supervision is targeted and appropriate. We insist that banking and insurance operations be run in line with their own business models and stakeholder needs, with clear separation of capital and liquidity.

Above all, we will not allow the insurance arm to be a backstop for the bank in a way that undermines policyholder protection or creates hidden leverage. This means conducting our supplementary supervision thoroughly, focusing on conglomerate-level risks, in close collaboration with our fellow supervisors in the other sectors.