Supervisors worldwide increasingly view large, intricate banking groups as harder to supervise, harder to resolve, and more capable of amplifying systemic stress. The focus has intensified across jurisdictions of late. Structural complexity—long treated as a technical concern—has become a prudential issue. Modern banking groups often operate hundreds of entities across multiple jurisdictions, with service dependencies, booking chains, and cross-border funding flows that complicate crisis management. Supervisors now expect clarity, simplification, and credible, weekend-ready resolution plans.
Regulators assess complexity through qualitative dimensions such as entity count, jurisdictional footprint, ownership layers, critical-function mapping, MIS/data capabilities, service-company dependencies, and barriers to separability. High-complexity banks face greater supervisory scrutiny, they are bucketed in higher risk profile groups , inspected more intensely and face additional capital cushions. Added expectations from supervisors include materially stricter expectations around pre-positioning, booking-model rationalisation, service continuity and intra-group transparency, and action plans to merge, close, or simplify entities to meet resolvability standards.
Complexity Assessment – A framework
Broadly, the following indicators are used in judging complexity:
Legal Entity Count — The total number of legal entities indicates how large and administratively complex the group is to manage and resolve.
· Jurisdictional Footprint — Operating across more countries increases regulatory diversity and the complexity of coordinated oversight or resolution.
· Ownership Chains — Longer or opaque ownership structures make it harder to trace control, risks, and obligations across the group.
· Critical Functions Mapping — Clear mapping of critical functions to legal entities determines how easily authorities can assess and preserve essential services.
· Service Company Dependencies — The degree of interdependence in service companies affects how easily business units can be separated during stress or resolution.
· MIS / Data Aggregation Capability — Strong data systems reduce complexity by enabling fast, accurate visibility into risk exposures and entities.
· Intragroup Financial Flows — High volumes or complex patterns of internal funding raise operational and resolution challenges.
· Cross-Border Resolution Barriers — Potential legal or regulatory conflicts across borders can complicate coordinated resolution.
· Separability of Business Lines — The extent to which business lines can be isolated impacts resolvability and operational continuity.
· Overall Opacity Risk — Combined structural, operational, and data-related factors that obscure transparency increase systemic complexity.
Supervisory Priority- Transparency
Supervisors’ message is clear: simplification is becoming mandatory, not optional. Banks are expected to eliminate dormant entities, streamline cross-border models, strengthen MIS for fast data production, and ensure credible separability of business lines. Those that move early benefit from reduced supervisory pressure, smoother SREP outcomes, and greater operational resilience.
A key risk is opacity. Excessive complexity makes risks harder to see, trace, and contain. Groups with dense networks of entities, service companies, SPVs, and cross-border branches face significant challenges in crisis data delivery, service continuity, and predictable loss containment. Opacity itself is now treated as a systemic vulnerability, as supervisors increasingly emphasise transparency, governance, and real-time visibility into group structures.
Structural clarity, entity reduction, and transparent service-dependency mapping are now core elements of prudential stability—and banks that act early will be better positioned for future supervisory and strategic demands.
Leave a Reply