NU Online News Service Aug. 17, 3:55 p.m. EDT

Conglomerates involved in both the banking and insurance sectors could see stricter regulations in European Union member states, possibly by next year, if a European Commission proposal takes effect, the Commission said.

In light of the financial crisis, the Commission said in an announcement, the effectiveness of the 2008 Financial Conglomerates Directive was reevaluated. The Commission said it found that supplementary supervision, as stipulated in the Directive, could not be carried out on certain financial groups because of their legal structure.

In some cases, national financial supervisors were left without the appropriate oversight tools because they had to choose to apply either "banking" or "insurance" supervision for conglomerates involved in both sectors.

The Commission said, "Under the current rules, supervisors have to choose which supervision they apply when a group acquires a significant stake in another sector and when the parent entity is a holding company."

Under the change, the Commission said, "Banking supervision would…remain applicable even if the banking group acquires a significant stake in an insurance business. By the same token, insurance supervision would also remain applicable if the insurance group acquires a significant stake in a banking business."

The initiative will also strengthen the effective supervision of financial conglomerates. The Commission explained that "supplementary supervision" of large, complex groups operating in several countries can only be effective if the same supervisory approach is applied consistently across all EU member states.

Supplementary supervision becomes relevant, the Commission explained, "when a financial group, or a 'conglomerate,' consists of several legal entities that are authorized to do business in banking, insurance or other sectors of the financial services industry."

Regarding financial conglomerates operating in several EU countries, closer coordination between national financial supervisors will be required, particularly through the new European Financial Supervision Authorities, the Commission said.

The European Commission has a "frequently asked questions" section on its website to provide further information.