EUROPEAN COMMISSION

Internal Market and Services DG

FINANCIAL SERVICES POLICY AND FINANCIAL MARKETS
Financial services policy

Cross-sectoral study on terminology as defined

in the EU financial services legislation

TABLE OF CONTENTS

I.

INTRODUCTION........................................................................................................... 3

1) Background .......................................................................................................................... 3
2) Objectives and scope of the study....................................................................................... 4
3) Methodology ......................................................................................................................... 5
4) Presentation of the study ..................................................................................................... 6

II.

MAIN FINDINGS OF THE STUDY............................................................................. 6

1) Results of the analysis carried out by the Commission services...................................... 6

2) A valuable tool for the future.............................................................................................. 7

III. FURTHER STEPS TO BE TAKEN.............................................................................. 7

1) Follow-up to the study ......................................................................................................... 7
2) Equipping the EU financial sector with a consistent set of rules..................................... 8

IV. DETAILED ANALYSIS................................................................................................. 9

ANNEXES
Annex 1: Legal texts covered by the study
Annex 2: Analysis of undertakings terminology
Annex 3: Analysis of contracts and transactions terminology
Annex 4: Analysis of Member States related issues terminology
Annex 5: Analysis of assets, liabilities and accounts terminology

I. INTRODUCTION

1) Background

The existing legislation in the area of financial services forms a sizable corpus of law. In
particular, the 1999 Financial Services Action Plan (FSAP) sets out a large number of
regulatory actions, which were implemented to improve the Single Market for financial
services.
With the increasing complexity of the markets and a growing number of legislative measures
it has been argued that some of the definitions and key concepts within the EU financial
services legislation are inconsistent and might lead to differences in the implementation of
EU rules in the Member States. As such, clear rules and legal certainty are essential to ensure
the smooth functioning of the European financial services market.
The Commission White Paper on Financial Services 2005-2010
The Commission White Paper on Financial Services Policy 2005-2010 published on
5 December 2005 stressed the need for sectoral and cross-sectoral consistency checks to be
carried out to ensure the coherence of terminology and proposed a multi-year initiative,
starting with several practical steps:

ensuring an easy access to Community law;

setting up an expert group (the European Securities Markets Expert Group1) to analyse
inconsistencies in the securities field;
carrying out a broad study to review possible inconsistencies and appropriateness of
information requirements;
issuing a Communication/Recommendation to ensure certainty in the field of
collective investments;
taking the project of codification of directives within the insurance field (Solvency II)
as an example for similar codification initiatives;
taking actions and launching infringement proceedings where any incorrect
implementation of Community law is found. 2

The ter Haar report

Referring to the Commission White Paper on Financial Services 2005-2010, the report on
long-term supervisory issues prepared by the Financial Services Committee's subgroup
chaired by Bernard ter Haar (issued on 10 March 2008) insisted on the fact that cross-sectoral
consistency checks should be carried out on top of the initiatives laid down in the
Commission White Paper and invited the Commission to do so in paragraphs 91 and 92:

1
2

ESME.
European Commission, White Paper on Financial Services 2005-2010, pp. 6-7.

" 91. There is no need to explain why an integrated EU financial services market
needs clear rules to function efficiently. Cooperation among the supervisory
committees will contribute to consistent implementation of EU rules. There might
however be difficulties owing to inconsistencies in terminology between and within
financial services Directives, which might lead to differences in the implementation
of EU rules in Member States and to legal uncertainty. For instance, some
definitions in the financial services Directives are different from those used in
company law Directives3. Although such differences are there for good reasons, the
question remains of the actual consequences of such differences in terms of legal
coherence and legal certainty for market participants.
" 92. In its White Paper on Financial Services Policy 2005-2010, the Commission
acknowledges that Community and national implementing rules on financial
services must function as one coherent corpus of law. Although the Commission
has tried to keep FSAP legislation as simple and coherent as possible, there is room
for improvement. Therefore, the Commission will carry out sectoral and crosssectoral consistency checks, reading across the relevant law to ensure coherence of
terminology and effect.4 Noting that the White Paper mentions some examples of
such sectoral consistency checks (e.g. in the securities field and the major
codification exercise carried out to prepare the Solvency II proposal), the FSC
wishes to stress the general importance of conducting cross-sectoral consistency
checks as well."5
The ECOFIN Council meeting held on 4 December 2007
The work that was being undertaken by the Financial Services Committee's subgroup chaired
by Bernard ter Haar was taken into account in the conclusions of the ECOFIN Council held
on 4 December 2007. The ECOFIN invites the Commission "to conduct cross-sectoral
consistency checks, where still necessary, to foster coherence of terminology and effect across
all EU financial services law"6.
In response to the invitation from the ECOFIN Council held on 4 December 2007, the
Commission services carried out a cross-sectoral study of terminology used in the
EU financial services legislation in 2008-2009.

2) Objectives and scope of the study

Objectives of the study
The main objective of the study was to identify the terminology which is defined differently
in the EU financial services legislation, with a cross-sectoral perspective, and to assess

For example, Directive 98/78/EC on the supplementary supervision of insurance undertakings in an insurance group defines
a 'parent undertaking' as a parent undertaking within the meaning of Article 1 of Directive 83/349/EEC and any undertaking
which, in the opinion of the competent authorities, effectively exercises a dominant influence over another undertaking. A
similar definition is used in the Capital Requirements Directive (CRD). The definitions differ from those used in the Seventh
Company Law Directive (83/349/EC) by adding an additional element that gives supervisors the authority to define a parent
undertaking as such on the basis of their own judgement. The same is true for the definition of subsidiaries.
4
Commission White paper on Financial Services Policy 2005-2010, p. 7
5
Financial Services Committee, Report of the FSC on Long-Term Supervisory Issues, 10/03/2008, pp. 47-48.
6
Council of the European Union, Council Conclusions on Review of the Lamfalussy Process, 2836th Economic and
Financial Affairs Council meeting, 4 December 2007, p. 3.

whether those differences might lead to an inconsistent implementation of the EU legislation

in the Member States.
Scope of the study
The study deals with the terminology as defined in the EU financial services legislation
(banking, insurance, pension funds and securities) as well as in relevant parts of EU company
law (corporate governance, accounting and auditing) since these areas are closely connected
to the legislation applicable to the financial sector.
The study covers terms defined both in level 1 and level 2 EU legislation, including draft
legislation. See Annex 1 for an overview of the legal texts covered by the study.
The notion of "terminology defined" was used in its broadest sense throughout the study. The
study does not only cover the terms which are defined in the "Definition" article that most of
the EU legal texts contain, but also the terms which are defined in other parts of the texts,
including the preambles and the annexes. In addition, the study deals with terms which are
defined through cross-references, that is references to other legislation.
The question was raised whether the study should also look at terminology defined in
international rules applying in the accounting and auditing fields. Since these rules are
applicable in the EU Member States, it was argued that they might, indeed, be inconsistent
with the terminology as defined in the EU legislation. However, the terminology used in those
international rules has not been examined, as it would have, indeed, represented a substantial
increase in the scope of the study. Moreover, the Commission services don't have any means
to exercise any direct influence on those international rules.
Finally, it should be noted that the study only deals with terminology which is defined in the
English versions of the legal texts mentioned. The aim of the study is to deal with the
substance of the terminology. Therefore translation issues were not addressed.

3) Methodology
Mapping exercise
The first step of the study consisted in undertaking a mapping exercise: all terms which are
defined in the EU financial services legislation (more than a thousand) were listed.
Analysis
The analysis aimed at assessing whether the use of different definitions to define identical or
similar terms was justified and whether it was likely to lead to implementation problems. In
order to facilitate this analysis, terms were classified in different categories, namely:
"undertakings", "contracts and transactions", "state-related issues", "assets and liabilities" and
"accounts".
Terms that are defined more than once in the legislation or that are similar were compared and
differences and possible inconsistencies highlighted. The services in charge of the legislation
covered by the study were invited to explain, case by case, why such differences exist and to

assess whether they are justified according to the scope and objectives of each legal text and
whether they are likely to lead to implementation problems. In the field of securities, the work
carried out by the ESME Group7 was taken into account in the analysis, since it consists of
"carrying out a sectoral consistency check of the EU securities directives"8, in particular with
regard to terminology.
The services responsible for the Financial Conglomerates Directive review (FCD) and with
the FCD Review working group of the Joint Committee on Financial conglomerates were also
closely cooperated with. Since the FCD has a cross-sectoral scope, it was important to ensure
that the definitions contained in that Directive are consistent, where appropriate, with the
other EU financial services legislation, in particular with Solvency II, the Capital
Requirements Directive and the 4th and 7th Company Law Directives.
Consultation of the Level 3 Committees (and of the ESME group)
The Level 3 Committees and the ESME group were consulted on the results of the analysis.
This consultation was regarded as important since those bodies are dealing with the
implementation of the EU financial legislation in the Member States. However, the
Commission services have the ultimate responsibility for the analysis and the
recommendations included in this report.
4) Presentation of the study
The analysis enabled us to identify situations where clarification or follow-up might be
necessary. The core of this study is devoted to those cases (see part IV). It includes
suggestions which aim at responding or preventing implementation problems as well as
improving the formal consistency of the EU financial services legislation.
Annexes 2, 3, 4 and 5 to this study provide a full overview of the analysis carried out by the
Commission services.
The study reflects the situation as of 27 November 2009, when the Commission services
finalized the analysis.

II. MAIN FINDINGS OF THE STUDY

1) Results of the analysis carried out by the Commission services

The main objective of the study was to identify terminology which is defined differently in
the EU financial services legislation, with a cross-sectoral perspective, and to evaluate if those
differences might lead to an inconsistent implementation of the EU legislation in the Member
States.
7

European Securities Markets Expert Group.

The mandate of the ESME Group, which concerns FSPA Directives, foresees that: "The group will provide advice to the
Commission as to the legal coherence of the EU framework by carrying out a sectoral consistency check of the EU securities
directives, reading across the relevant law to identify from the perspective of the regulated community and users of the
securities markets points of legal uncertainty in the legislative framework which impair the functioning of those markets."

The analysis carried out by the Commission services enabled us to identify only a limited
number of differences which would potentially lead to implementation problems. A great
number of definitions which appear more than once in the EU financial services legislation
are fully consistent with one another, either because they are drafted in the same way or
because they refer to the same "leading" definition. At the same time, the majority of
differences between the various terms, definitions and concepts were considered as minor or
justified, in particular while taking into account the scope and objectives of those legal texts.
They were thus regarded as unlikely to lead to implementation problems. Moreover, it must
be stressed that introducing changes in terminology that is already being used and well-known
with a view to ensure formal consistency would result in more confusion at implementation
level.
The analysis also acknowledges the work carried out by the Commission services in the past
years to ensure more consistency within the EU financial services legislation. Without a
doubt, Solvency II consolidation work contributed to achieving the harmonisation of a
number of definitions that apply in the insurance field. When drafting legislative proposals,
the Commission services carry out cross-consistency checks with EU legislation with which
the future text is going to interact, thus trying to avoid any inconsistencies. The analysis also
showed that, in a number of cases, the definitions foreseen within Commission legislative
proposals were consistent with definitions in force in the financial services legislation and that
changes were introduced during the co-decision process. It was also observed that a number
of terminology reviews were already foreseen with the aim to clarify situations which led to
implementation problems. Finally, the cross-consistency checks carried out by the ESME
group9 in the securities field provide the Commission with valuable expertise, in particular on
terminology.
2) A valuable tool for the future
This study represents a valuable tool for the future. The overview of definitions in the EU
financial services legislation will be helpful for the future drafting of legislation, particularly
when carrying out cross-consistency checks. The explanations for the differences that exist in
terminology will also prove to be useful when drafting legislation. Finally, the work achieved
within the framework of this study drew attention of the services to the relevance of ensuring
the consistency of terminology within the EU financial services legislation.

III. FURTHER STEPS TO BE TAKEN

1) Follow-up to the study
The study makes suggestions to improve the consistency of terminology in the EU financial
services legislation. A review of terminology is already foreseen, in some cases, within the
framework of current legislative reviews. In other cases, the terminology could be revised
when the legal texts concerned come up for a review or, where necessary, a special review
could be foreseen. This work could be carried out in close cooperation with the Level 3
Committees/future supervisory Authorities.
9

European Securities Markets Expert Group.

The study should also serve as a reference tool when drafting future legislation, in particular
when undertaking cross-consistency checks. In order to make the best use of it, the list of
definitions that was established during the mapping exercise should be regularly updated and
sent to the services responsible for drafting legislation. Those services should refer to terms
and definitions which already exist in the EU financial legislation as much as possible and
avoid using new concepts when an equivalent concept already exists. During the whole
legislative process, it should be remembered that any change made to terminology might lead
to implementation problems; therefore introducing modifications should be avoided.
Principle 6 of the Joint Practical for the drafting of Community legislation should be kept as a
reference throughout the whole process10. Finally, keeping a track of the evolution of the
Commission proposals and of the main debates that occurred during the legislative process
proved to be very useful and should be ensured.
2) Equipping the EU financial sector with a consistent set of rules
The present study, together with the initiatives that were launched following the Commission
White Paper on Financial Services Policy 2005-2010, represents important practical steps to
improve the consistency of the EU financial services legislation. Those steps should continue
in order to "equip the EU financial sector with a consistent set of rules", as recommended by
the report of the de Larosire Group published on 25 February 200911. This idea of a
"European single rule book applicable to all financial institutions in the Single Market" was
endorsed by the Conclusions of the European Council held on 19 June 200912.
In its Communication of 4 March 2009, the Commission committed itself to initiating a
"rolling programme of actions to establish a far more consistent set of supervisory rules13",
which would identify and remove key differences in national legislation stemming from
exceptions, derogations, additions made at national level or ambiguities contained in current
directives14.
As far as the present legislation is concerned, the Commission will consider the possibility to
replace directives by regulations on a case-by-case basis, when the directive if up for a
review. Where this is not possible, the Commission will aim at removing deviations from
legislation (e.g. options, derogations, etc.) and at achieving maximum harmonisation.
For the forthcoming legislative proposals, the Commission will table proposals for
regulations, whenever possible. When the subject-matter requires the adoption of a proposal
for a directive, the Commission will endeavour to present a proposal which avoids any
potential for inconsistencies in national transpositions. The Commission will thus propose
maximum harmonisation directives, which do not include any deviations.

10

Principle 6 of the Joint Practical Guide for the drafting of Community legislation: "The terminology used in a
given act shall be consistent both internally and with acts already in force, especially in the same field. Identical
concepts shall be expressed in the same terms, as far as possible without departing from their meaning in
ordinary, legal or technical language.
11
Chapter II, point IV "Equipping Europe with a consistent set of rules", p. 27-29 of the de Larosire group
report.
12
See paragraph 20 of the Conclusions.
13
p. 7 of the Communication.
14
p. 3 of Annex I of the Communication.

This work will be carried out in close cooperation with the level 3 Committees/future
supervisory Authorities.
IV. DETAILED ANALYSIS

1) Professional client vs. qualified investor/eligible counterparty

The ESME group report published in November 2008 on the "Differences between the
definitions of "Qualified investor" in the Prospectus Directive and "Professional Client" and
"Eligible Counterparty" in MiFID - Is alignment needed?" recommends alignment of those
definitions.
The Commission will endeavour to align the definition of a "qualified investor" in the Prospectus Directive (2003/71/EC) with the
definition of a "professional client" and that of an "eligible counterparty" in MiFID (2004/39/EC) in the context of the ongoing
Prospectus Directive review.

2) Investment business vs. Investment services and activities/ancillary services

"Investment business" is defined in article 1(2) of the Investor-compensation schemes
Directive (97/9/EC through a cross-reference to the Investment Services Directive
(93/22/EEC), which is to be construed as a reference to MiFID since this Directive was
repealed. However, MiFID does not contain any definition of "investment business", but
includes definitions of "investment services and activities" in article 4(1)(2) and of "ancillary
services" in article 4(1)(3).
The Commission will work on the scope of the Investor-compensation scheme Directive and on services covered within the
framework of the ongoing revision of the Directive. The alignment in the wording of the ICSC with the MiFID will be considered,
where appropriate.

3) Financial holding company

There are several definitions of "financial holding company".
Article 5(3) of the Fourth Company Law Directive states that " 'financial holding companies'
shall mean only those companies the sole object of which is to acquire holdings in other
undertakings, and to manage such holdings and turn them to profit, without involving
themselves directly or indirectly in the management of those undertakings, the a foregoing
without prejudice to their rights as shareholders. The limitations imposed on the activities of
these companies must be such that compliance with them can be supervised by an
administrative or judicial authority".
Article 4(19) of Directive 2006/48/EC defines a "financial holding company" as a "financial
institution, the subsidiary undertakings of which are either exclusively or mainly credit
institutions or financial institutions, at least one of such subsidiaries being a credit institution,
and which is not a mixed financial holding company within the meaning of Article 2(15) of
Directive 2002/87/EC". This was done for the specific purpose of that directive.

Article 3(3)(a) of Directive 2006/49/EC states that, for the purposes of applying Directive
2006/48/EC to groups covered by Article 2(1) which do not include a credit institution,
"financial holding company means a financial institution the subsidiary undertakings of which
are either exclusively or mainly investment firms or other financial institutions, at least one of
which is an investment firm, and which is not a mixed financial holding company within the
meaning of Directive 2002/87/EC of the European Parliament and of the Council of 16
December 2002 on the supplementary supervision of credit institutions, insurance
undertakings and investment firms in a financial conglomerate".
The fact that the Capital Requirements Directives specify "which is not a mixed financial
company within the meaning of article 2(15) of Directive 2002/87/EC" could be regarded as
not being consistent with the definition contained in the Fourth company Law Directive and
likely to lead to implementation problems.
The definitions of "financial holding company" in the Capital requirements Directives might have to be amended in order to
avoid any implementation problems. This could be done within the framework of the current revision of the Capital
Requirements Directives and/or of the Financial Conglomerates Directive.

4) Parent undertaking
The term "parent undertaking" is always defined in reference to the Seventh Company Law
Directive (83/349/EEC). However, some directives refer to article 1 of that Directive and
some to articles 1 and 2. This can be explained by the fact that the definition is contained in
article 1 and that article 2 clarifies the definition. This has not led to any implementation
problems.
Article 2(9) of the Financial Conglomerates Directive (2002/87/EC) and article 1(d) of the
Directive on the supplementary supervision of Insurance undertakings in an insurance group
(98/78/EC) refer to article 1 of the Seventh Company Law Directive to define "parent
undertaking", but add that a parent undertaking should also be "any undertaking which, in the
opinion of the competent authorities, effectively exercises a dominant influence over another
undertaking". The idea of "dominant influence" is already present in article 1(2) of the
Seventh Company Law Directive. However, this additional sentence was important to ensure
that there is no ambiguity as far as mutuals are concerned. Recital 98 of the Solvency II
Framework Directive, which will repeal Directive 98/78/EC, explains this in more details:
"Subject to Community and national law, undertakings, in particular mutuals and
mutual-type associations, should be able to form concentrations or groups, not
through capital ties but through formalised strong and sustainable relationships,
based on contractual or other material recognition that guarantees a financial
solidarity between those undertakings. Where a dominant influence is exercised
through a centralised coordination, those undertakings should be supervised in
accordance with the same rules as those provided for groups constituted through
capital ties in order to achieve an adequate level of protection for policyholders
and a level playing field between groups."
The Solvency II Directive incorporates the definition contained in Directive 98/78/EC but
splits it between two articles (articles 13(15) and 212(2)). The definition contained in article
13(15) should be considered as being the main definition of "parent undertaking". Article

10

212(2) specifies that, for the purposes of group supervision, the concept of dominant
influence should be taken into account.
Article 4 (12) of the Capital Requirement Directive 2006/48/EC contains two parts (due to the
consolidation of two different directives). Article 4(12) paragraph (a) refers to Articles 1 and
2 of the Seventh Company Law Directive as the general definition, and paragraph (b) of
Article 4(12) provides that for the purposes of various specified articles, "parent undertaking"
has the meaning given by art 1(1) of the 7th Company Law Directive and also includes any
undertaking "which in the opinion of the competent authorities effectively exercises a
dominant influence over another undertaking".

5) Payment account / deposit

There is only one definition of payment account, which is contained in article 4(14) of the
Directive on payment services in the internal market (2007/64/EC). However, it raised a
cross-sectoral issue.
The scope of the definition of payment account in the original Commission proposal for the
Directive on payment services in the internal market was limited to payment accounts used
"exclusively" for payment transactions. However, the word "exclusively" was deleted from
the definition during the negotiation process and the calls for further clarification were
rejected. In particular, the idea of stating clearly that payment accounts should be interpreted
as including deposits when they are held by credit institutions or having a separate definition
of "deposit accounts" was not retained.
The main problem encountered in the definition of "payment account" is the lack of a
harmonised definition of "deposit" for the purpose of providing payment services by nonbanks payment service providers. A definition of "deposit" exists within the framework of the
Deposit Guarantee Scheme Directive. The definition of "deposit" is primarily relevant for this
Directive.
Deposits should be defined in the Directive on Deposit Guarantee Schemes, as they already are, even if rather vaguely. The
definition of "deposit" is primarily relevant for this Directive and it is part of its ongoing review. There is no need to introduce
the definition in the Capital Requirements Directive, which serves a very different purpose.

6) (Re)insurance undertaking / (re)insurance company

Article 122(1) of the Capital requirements Directive 2006/48/EC refers to the concept of
"insurance company" and defines it in reference to the insurance Directives 73/239/EEC and
2002/83/EC. However, Directives 73/239/EEC and 2002/83/EC, as well as the Solvency II
Directive which will repeal those two directives only contain a definition of "insurance
undertaking".
Article 122(1) of the Capital requirements Directive 2006/48/EC refers to the concept of
"reinsurance company" and defines it in reference to Directive 98/78/EC. However, Directive
98/78/EC, as well as the Solvency II Directive which will repeal Directive 98/78/EC only
contain a definition of "reinsurance undertaking".

11

In the expressions "insurance company" and "reinsurance company" used in the Capital Requirements Directive 2006/48/EC,
the term "company" should be replaced by the term "undertaking" in order to ensure consistency with the concepts used in the
insurance directives. This could be done within the framework of the ongoing revision of the Directive.

7) Asset management company

The reference definition of "asset management company" is laid down in article 2(5) of the
Financial Conglomerates Directive (2002/47/EC). However, article 3(2) of the Capital
Requirements Directive 2006/49/EC refers to "asset management companies" stating that
"[t]he terms parent undertaking, subsidiary undertaking, asset management company and
financial institution shall cover undertakings defined in article 4 of Directive 2006/48/EC"
whereas there is no definition of "asset management company" in article 4 of Directive
2006/48/EC. In fact, it appears that the inclusion of "asset management company" in article
3(2) of Directive 2006/49/EC was superfluous since an "asset management company" is a
subcategory of the category "financial institution".
Since the inclusion of "asset management company" in article 3(2) of the Capital Requirements Directive 2006/49/EC is
superfluous, it should be deleted. This could be done within the framework of the ongoing revision of the Directive.

8) Participating interest vs. participation

The definition of "participating interest" as contained in article 17 of the Fourth Company
Law Directive (78/660/EC) is composed of two sentences, which contain two criteria to
determine whether there is a "participating interest":
1- The criterion of "durable link": there is a participating interest when rights detained in the
capital of other undertakings create a "durable link" with those undertakings.
2- The criterion of ownership or control: there is a participating interest when 20% or more of
the voting rights or capital is held.
The definition of "participating interest" was used as a basis for the definition of
"participation". Since those two concepts are equivalent, the question was raised whether the
use of two different terms "participating interest" and "participation" might lead to
implementation problems. It was pointed out that the French language version of the Fourth
Company Law Directive only uses the term "participation". It was thus considered that the
fact that "participating interest" and "participation" are used interchangeably in the English
language version should not lead to misunderstanding or implementation problems.
Several definitions of "participating interest" and of "participation" co-exist, among which
some use both criteria laid down in the definition of "participating interest" contained in the
Fourth Company Law Directive and some only refer to one of the two. This may be explained
by the fact that the use of the two criteria brings more flexibility than the use of one.
According to the situation, more or less flexibility is left. It should be stressed that the
definitions of "participation" adapted the second criterion of the definition of "participating
interest" laid down in the Fourth Company Law Directive and refer to ownership, direct or
indirect or by way of control of 20% or more of the voting rights or capital of an
undertaking. Apparently, this situation has not led to any implementation problems.

12

If we consider more specifically the Financial conglomerates Directive (2002/87/EC), it can

be noted that two definitions of "participation" co-exist. Article 2(11) lays down a definition
which refers to the first sentence of article 17 of the Fourth company Law Directive
criterion of durable link and which adapts the second criterion of that directive: "direct or
indirect ownership of 20 % or more of the voting rights or capital of an undertaking". The
definition contained in article 2(13)(a) differs from the latter since it only refers to the second
criterion: participation is defined as the "ownership, direct or by way of control, of 20 % or
more of the voting rights or capital of an undertaking".
Two issues were identified with regard to these definitions. Firstly, the Financial
Conglomerates Directive review showed that the possible interpretations of "durable link" in
the meaning of the Fourth Company Law Directive leads to different applications and
confusion. However, maintaining the concept of "durable link" was considered important for
the specificity of supplementary supervision on group risks. Secondly, the need for two
different definitions was questioned and the conclusion was that those two definitions should
be kept since they apply to different situations.
As regards the Capital Requirements Directive 2006/48/EC, article 4(10) contains the same
definition of "participation" as the one laid down in article 2(11) of the Financial
Conglomerates Directive.
In the insurance field, the Solvency II Directive will contribute to harmonising the existing
definitions of "participation". However, it contains two different definitions. The definition
laid down in article 13(20) is similar to the definitions contained in article 2(11) of the
Financial Conglomerates Directive and in article 4(10) of the Capital Requirements Directive:
"participation means the ownership, direct or by way of control, of 20 % or more of the voting
rights or capital of an undertaking". Article 212(2) gives a definition of "participation" which
replaces the concept of "durable link" by the concept of "significant influence".
As regards the co-existence of two different definitions, there is one main definition of
"participation", namely that in Article 13(20). The subsequent reference to "participation" in
Article 212(2) essentially exists to allow supervisors make a qualitative assessment of
whether a participation exists for the purposes of group supervision. Such flexibility is in fact
already inherent to the Fourth Company Law directive.
The analysis revealed that harmonising the definitions of "participating interest" and "participation" was not desirable since each
definition has a different scope and pursues specific objectives.
However, in the light of what was observed in the Financial Conglomerates Directive, it is suggested to:
- clarify the scope of application of the two definitions in force in the Financial Conglomerates Directive within the framework
of its current revision;
- resort to level 3 guidance for the interpretation of "durable link" to ensure a consistent implementation of this concept across
all financial sectors.

9) Financial sector vs. financial sector activities

"Financial sector" is defined in article 2(8) of the Financial Conglomerates Directive
(2002/87/EC). The Reinsurance Directive 2005/68/EC and the Solvency II Directive, which
will repeal Directive 2005/68/EC, refer to the Financial Conglomerates Directive but the term
used in the Solvency II Directive is "financial sector activities".
It should be stressed that, within the framework of the Financial Conglomerates Directive,
activities as such are not relevant. However, each of the sectors mentioned in article 2(8) of
13

the Financial Conglomerates Directive represents a range of allowable activities, which are
the ones the insurance directives refer to.
Nevertheless, the lack of clarity between "financial sector" and "financial sector activities"
was signalled by the Mixed technical group on the supervision of financial conglomerates in
2005.
The distinction between "financial sector" and "financial sector activities" could be assessed within the framework of the
ongoing revision of the Financial Conglomerates Directive.

10) Member State of origin vs. home Member State

The Directive on the reorganisation and the winding-up of credit institutions (2001/24/EC)
defines "Member State of origin" in reference to article 1(6) of Directive 2000/12/EC.
However, article 1(6) of Directive 2000/12/EC contained a definition of "home Member
State" and Directive 2006/48/EC, which repealed Directive 2000/12/EC, also contains a
definition of "home Member State". This should not lead to any implementation problems
since the concepts of "Member State of origin" and "home Member State" are equivalent but
this might be amended to ensure clarity.
The replacement of "Member State of origin" by "home Member State" in the Directive on the reorganisation and winding-up of
the credit institutions is suggested. This could be done within the framework of the ongoing revision of the Directive.

11) Reinsurance undertaking

The Solvency II Directive will result in harmonising the definitions of "reinsurance
undertakings" in force in the insurance sector, except for the one contained in article 2(2) of
the Insurance mediation Directive (2002/92/EC).
To ensure consistency of the definitions in the insurance sector, the definition of "reinsurance undertaking" contained in the
Insurance mediation Directive will be reviewed within the framework of the revision of the Directive, which is planned for 2010.
The definitions contained within the Solvency II Directive will be taken as a benchmark for this review.

12) Payment transaction

The Directive on payment services in the internal market (2007/64/EC) and Regulation
924/2009 on cross-border payments in the Community lay down a very similar definition of
"payment transaction".
Article 4(5) of the Directive on payment services in the internal market defines a payment
transaction as an "act, initiated by the payer or by the payee, of placing, transferring or
withdrawing funds, irrespective of any underlying obligations between the payer and the
payee".
Article 2(7) of the new cross-border payments Regulation defines a payment transaction as
an "act, initiated by a payer or by or through a payee, of placing, transferring or withdrawing
funds, irrespective of any underlying obligations between the payer and the payee".

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The difference between the definitions of "payment transaction" laid down in the Directive on
payment services in the internal market and in the Commission proposal for a regulation on
cross-border payments in the Community should not lead to any implementation problems.
However, the two texts should contain the same definition.
The definition of the Directive on payment services in the internal market should be aligned with the definition laid down in the
cross-border payments Regulation, when the Directive will be up for a review. However, a revision of the Directive is not
planned before November 2012, at the soonest.

13) Shareholder
The concept of "shareholder" is defined both in article 2(1)(e) of the Transparency Directive
(2004/109/EC) and in article 2(b) of the Shareholders' rights Directive (2007/36/EC).
However, whereas the Transparency Directive contains a harmonised definition, the
Shareholders' rights Directive defines "shareholder" as a "natural or legal person that is
recognised as a shareholder under the applicable law".
The harmonisation of the definition of "shareholder" was necessary within the framework of
the Transparency Directive in order to avoid differences between Member States and
regulatory arbitrage. The Transparency Directive uses, indeed, the term "shareholder" in order
to define the obligation of notification of voting rights by shareholders and also in order to
define a "controlled undertaking".
The Shareholders Rights Directive refers to national law because the directive does not aim at
creating new substantive rights of shareholders, but rather to improve the "plumbing" of the
voting process. In fact, the Commission proposal took up the wording of the Transparency
Directive but the Member States and the European Parliament considered that it was more
appropriate to make a straightforward reference to national law in this case.
The alignment of the definition of "shareholder" in the Shareholder's rights Directive with the definition of "shareholder" in the
Transparency Directive could be given a thought when the Shareholders' rights Directive will be up for a review. The Directive
will enter into force this year and no revision is planned as yet.

14) Firm vs. company / undertaking

It appears that the distinction between the concepts of "firm", "company" and "undertaking" is
not obvious in EU legislation and that Member States may have a different understanding of
those concepts.
The definitions of "companies" and "firms" contained in the EU financial services legislation
all refer to the second paragraph of article 48 of the EC Treaty (future article 54 of the Treaty
on the Functioning of the European Union), which does not draw any distinction between a
"firm" and a "company" since it defines the two concepts together. In addition, there is no
definition of "undertaking" in the EU financial services legislation.
There could be good reasons for clarifying the meaning and the use of the terms "firm", "company" and "undertaking" in EU
legislation. In the accounting area, this issue will be considered in the ongoing review of the 4th and 7th Company Law
directives.

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15) Financial institution

The leading definition of "financial institution" is laid down in article 4(5) of the Capital
Requirements Directive 2006/48/EC and refers to any "undertaking other than a credit
institution, the principal activity of which is to acquire holdings or to carry out one or more of
the activities listed in points 2 to 12 of Annex I".
Article 3(2) of the Anti-Money Laundering Directive (2005/60/EC) contains a definition
which is broader than that laid down in the Capital Requirements Directive. It incorporates the
Capital Requirements Directive definition but also includes in the definition insurance
companies, investment firms, and collective investment undertakings marketing their units or
shares and some insurance intermediaries. This definition is justified since it is in line with the
approach followed by the FATF (Financial Action Task Force), which sets international
standards on anti-money laundering and counter-terrorist financing. Any undertaking carrying
out the specified lines of financial business is considered to be a financial institution and is
subject to requirements of the Anti-Money Laundering Directive. Moreover, this definition is
quite specific and is only used for the purpose of this Directive.
The fact that the Anti-money Laundering Directive contains a broader definition of "financial institution" than that of the Capital
Requirements Directive 2006/48/EC has not led to any implementation problems for the time being. However, since the Antimoney laundering Directive is relatively recent, a follow-up should be considered.

16) Investment company

Two different concepts of "investment company" are used in the EU financial services
legislation.
Within the accounting field, the concept of "investment companies" is defined in article 5(2)
of the Fourth Company Law Directive (78/660/EEC):
"For the purposes of this Directive, investment companies shall mean only:
(a) those companies the sole object of which is to invest their funds in various
securities, real property and other assets with the sole aim of spreading investment
risks and giving their shareholders the benefit of the results of the management of
their assets;
(b) those companies associated with investment companies with fixed capital if
the sole object of the companies so associated is to acquire fully paid shares
issued by those investment companies without prejudice to the provisions of
Article 20 (1) (h) of Directive 77/91/EEC."
Within the framework of the UCITS Directive (2009/65/EC, recast of directive 85/611/EEC),
the concept of "investment company" applies to UCITS which are constituted under statute15.
In this case, investment companies must be authorised by competent authorities and may only
engage in activities referred to in article 1(2) of the UCITS Directive (see articles 12 and 13).
However, the UCITS Directive does not contain any definition of "investment company".

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If an UCITS is constituted under the law of contract it is known as a "common fund" and managed by a
"management company". If it is constituted under statute it is called an "investment company".

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For the time being, no implementation problems have been identified in the co-existence of
two different concepts of "investment company" and the absence of definition of "investment
company" in the UCITS Directive.
Given that each concept of "investment company" applies to a specific field, there should be no implementation problems.
However, a follow-up should be considered to ensure that this is the case.

17) Business day vs. working days

"Business day" is defined in article 4(27) of the Directive on payment services in the internal
market (2007/64/EC), in the new Directive amending the Settlement finality Directive and the
Financial collateral Directive (2009/44/EC) and in the new E-money Directive (2009/110/EC)
that will repeal Directive 2000/46/EC. The definition foreseen in the new Directive amending
the Settlement finality Directive and the Financial collateral Directive is different from the
other definitions. This can be explained by the fact that this definition is specific to settlement
within systems. There should be no implementation problems.
The Council introduced a new concept within the framework of the review of the Deposit
guarantee scheme Directive (Directive 2009/14/EC amending Directive 1994/19/EC): the
concept of "working days". It was incorporated into the Directive amending the Capital
Requirements Directive (Directive 2009/111/EC). The notion of "working days" is misleading
since it has no equivalent in other Directives and impedes cross-border cases because of
different national holidays.
The notion of "working days" in the Deposit Guarantee Scheme Directive should not be aligned to the concept of "business
days" in clearing and settlement, as it serves a very different purpose there. However, it will be considered to replace "working
days" with "calendar days".

18) Electronic money holder

The new E-money Directive (2009/110/EC) repealing the Directive 2000/46/EC foresees the
introduction of the concept of "electronic money holder". This concept is not entirely new.
Article 3(1) of Directive 2000/46/EC contains a similar concept ("a bearer of electronic
money"; see also recital (9), which refers to "bearer"). It is foreseen to replace the concept of
"bearer" by the concept of "electronic money holder" since it is considered to be clearer.
Contrary to the concept of "electronic money issuer", it did not appear necessary to have a
separate definition of "electronic money holder" for the purpose of this Directive.
Since the lack of definition of "electronic money holder" could lead to implementation problems, a follow-up should be
considered. However, a review of the very recently adopted E-Money Directive is not planned before November 2012, at the
soonest.

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