The financial sector -subsectors, units and main data issues

1. The financial sector-subsectors, units and main data issues Gabriel Quirós Head of Division Macroeconomic Statistics European Central Bank Workshop on the Implementation of the 2008 SNA in EECCA countries and linkages with BPM6 and GFSM 2014 Istanbul, 6-8 May 2015

2. Outline • New International Statistical Standards • Main methodological changes • New financial instruments • New sector classification • (Time allowing: • legal residency vs. physical presence (“brass plates”…) • Securities lending, Repos and Short selling ) • The new data requirements • Annual and quarterly requirements: ESA TP and MUFA GL • The G-20 Financial Accounts template • First publication and impact 2

3. Revision of the international statistical standards BPM6 • List of 44 issues for discussion • Institutional units, groupings and residence of units • Financial instruments • Accounting rules, valuation, accrued interest 2008 SNA ESA 2010 (legal text, methodology and transmission programme) 2013 Adoption by European Parliament and Council 2013 Amendment of ECB legal basis 2012 to 2014 Implementation byEU Member States 2014 First data transmission 3

4. New breakdown of the financial corporations sector Institutional sectors and subsectors ESA 95 ESA 2010 (2008 SNA) Monetary financial institutions (MFI)Central bank (S.121) Other monetary financial institutions (S.122) MFI Central bank (S.121) Deposit-taking corporations except the central bank (S.122) Money market funds (MMF) (S.123) Other financial intermediaries,except insurance corporations and pension funds (S.123) - Non-MMF investment funds (S.124)- Other financial intermediaries except ICPF (S.125) o/w Financial vehicle corporations engaged in securitisation transactions (FVC) Captive financial institutions and money lenders (S.127) o/w Holding companies, SPE Financial auxiliaries (S.124) Financial auxiliaries (S.126) o/wHead offices (all or most of the controlled subsidiaries are financial corporations) Insurance corporations and pensions funds (S.125) Insurance corporations (S.128)Pension funds (S.129) Non-financial corporations (S.11) Non-financial corporations (S.11)o/w Head offices (all or most of the controlled subsidiaries are non-financial corporations) General government and subsectors (S.13, S1311 to S.1314) Households (S.14) Non-profit institutions serving households (S.15) No change 4

5. New sub-sectors Non-MMF investment funds S.124 Non-MMF investment funds (S.124) ESA 2010 ”2.82 Definition: The sub-sector non-MMF investment funds (S.124) consists of all collective investment schemes, except those classified in the MMF sub-sector …” Includes: Open and closed-end IFs, Real estate investment funds, Funds of Funds, Hedge Funds But not Pension funds => S.129 and notVenture and development capital companies => S.125 In compliance with Regulation (EC) No 958/2007 of the ECB of 27 July 2007 concerning statistics on the assets and liabilities of investment funds  (ECB/2007/8) 5

6. New sub-sectors Other financial intermediaries except… S.125 Other financial intermediaries except ICPFs… S.125 Defined as residual / by exclusion (see ESA 2010 point 2.87): not deposit taking, no investment funds shares liabilities, no insurance technical reserves Includes: Financial vehicle corporations (FVCs) Institutional units (financial intermediaries) carrying out securitisation transactions They incur securities whose credit risk is transferred to the investors in these securities They also acquire assets underlying the issue of securities In compliance with Regulation (EC) No 24/2009 of the ECB of 19 December 2008 concerning statistics on the assets and liabilities of financial vehicle corporations engaged in securitisation transactions (ECB/2008/30) 6

7. New sub-sectors Other financial intermediaries except… S.125 … includes: Security and derivative dealers “trading on own account” ( Financial Auxiliaries S.126) Financial corporations engaged in lending, e.g. intermediaries engaged in: a) Financial leasing; b) Hire purchase and the provision of personal or commercial finance; or c) Factoring Specialised financial corporations, e.g.: Venture and development capital companies, Export/import financing companies, Central Counterparty Clearing houses (CCPS, e.g. for repos with MFIs) 7

8. Financial auxiliaries S.126 Financial auxiliaries (S.126) “2.63 Auxiliary financial activities comprise auxiliary activities for realising transactions in financial assets and liabilities or the transformation or repackaging of funds. Financial auxiliaries do not put themselves at risk by acquiring financial assets or incurring liabilities.” E.g. brokers, arrangers, guarantors, managers of funds, and also Central supervisory authorities and stock exchanges => do not have large financial assets/liabilities by definition 8

9. New breakdown of the financial corporations sector: S127 1/2 Captive financial institutions and money lenders (S.127) Most of either their assets or their liabilities are not transacted on open markets (ESA 2010, 2.98) Captive financial institutions cover holding companies, special purpose entities (SPEs) Captive financial institutions (as well as artificial subsidiaries and special purpose units of general government) with no independence of action are allocated to the sector of their controlling body The exception occurs when they are non-resident, in this case they are recognised separately from their controlling body Exception of exception: In the case of general government, the activities of the subsidiary shall be reflected in the government accounts 9

10. New breakdown of the financial corporations sector: S127 2/2 Captive financial institutions and money lenders (S.127) Most of either their assets or their liabilities are not transacted on open markets (ESA 2010, 2.98) Captive financial institutions (as well as artificial subsidiaries …) with no independence of action are allocated to the sector of their controlling body <=>Artificial subsidiaries “2.24 A subsidiary, wholly owned by a parent corporation, may be created to provide services to the parent corporation, or other corporations in the same group, in order to avoid taxes, to minimise liabilities in the event of bankruptcy, or to secure other technical advantages under the tax or corporation legislation in force in a particular country. 2.25 …. Their level of output and the price they receive for it are determined by the parent that (possibly with other corporations in the same group) is their sole client. They are thus not treated as separate institutional units but are treated as an integral part of the parent and their accounts are consolidated with those of the parent, unless they are resident in an economy different from that where the parent is resident. 10

11. New breakdown ICs S.127 and PFs S.128 Insurance corporations and pension funds, separate sub-sectors ICs (S.127): ESA 2010 “2.100 … pooling of risk”, includes life and non-life, to individual and groups => may offer pension products (F.63) (see also 2.108); includes reinsurance PFs (S.128): “2.105 Definition: The subsector pension funds (S.129) consists of all financial corporations and quasi-corporations which are principally engaged in financial intermediation as the consequence of the pooling of social risks and needs of the insured persons (social insurance). Pension funds as social insurance schemes provide income in retirement, and often benefits for death and disability.“ => Pooling of risk (e.g. longevity) as distinction to Investment funds (S.124) targeting long-term “retirement savings” 11

12. Changed recording of holding corporationsTask Force on Head Offices, Holding Companies and Special Purpose Entities Split of holding corporation into head offices (HO) and holding companies (HC) Both hold controlling level of equity in subsidiaries TF: “having at least 50% of its assets consisting of equity vis-à-vis its subsidiaries is a practical indicator for identification of such entities.” HOs “exercise managerial control over its subsidiaries”. HO are allocated to the dominant NFC sector of their subsidiaries, unless all or most of their subsidiaries are financial corporations, in which case they are treated as financial auxiliaries (S.126) in the financial corporations sector; TF: “HO are always to be considered as separate institutional units.“ TF: “Employment thresholds for the delineation between HOs and HCs should take into account national circumstances (e.g. legal requirements for the number of employees of HCs). In general, employment of three or more persons is a first indicator for a unit being a head office. 12

13. Changed recording of holding corporationsTask Force on Head Offices, Holding Companies and Special Purpose Entities Holding companies do not provide any other service to the businesses in which the equity is held, i.e. they do not administer or manage other units. Are they necessarily institutional units? TF: The standard criteria for an institutional unit should always be applied ! TF: Entities owned by non-residents are always to be considered as institutional units. TF: Having multiple parents/shareholders is a sufficient qualification for a unit being an institutional unit. only Holding companies wholly owned by one resident mother company may not be institutional units but considered as artificial subsidiary (to be consolidated with mother company) All other holding companies must be recorded as institutional units. ECB follow-up: Integration of information from business registers and balance sheet data available in NSIs and NCBs including central balance sheet offices to develop lists of Holding Companies (and Head offices). => available 2015 13

14. New statistical requirement - Summary • Limited increase in instrument and sector breakdown • Harmonised: - EU: between annual and quarterly requirements (minor exceptions, e.g. F.66 separate in ESA 2010 TP) - Globally: G-20 Data gap initiative (minor exceptions: F.66 Standardisedguarantees, F.72 Employee stock optionsseparate in G-20 Template)