The banks operating in the Czech banking market also get involved in other financial services areas, and do so by establishing financial groups. These groups typically include an insurance company, a pension fund, an investment company, investment funds, a financial leasing company, a factoring company and so on. The financial results of the companies in the group can affect each other not only positively, but also negatively. It is therefore essential to monitor the entire group of companies. This is the task of consolidated supervision, which involves monitoring and regulating the risks to which a bank is exposed by dint of its membership of a financial group. Consequently, some of the prudential rules (particularly those relating to capital adequacy, exposures and internal control mechanisms) are applied not just to the bank, but to the group as a whole.
In the Czech Republic, the scope of consolidated supervision has so far been limited to banking groups only, i.e. groups headed by a bank. However, during the course of 2002 and in the years to follow, it will also be applied to groups headed by other financial institutions (financial holding companies) or by non-financial institutions (mixed-activity holding companies).
Quality consolidated supervision above all requires close co-operation with other regulators. In the Czech Republic this means in particular the Ministry of Finance, which regulates insurance companies and pension funds, and the Czech Securities Commission, which is responsible for overseeing capital market participants, i.e. investment companies, investment funds, securities traders and, to some extent, pension funds. Given that many businesses operating in the financial sector are foreign-owned, co-operation with foreign regulators is also of great importance. Rules for that co-operation are set forth in individual bilateral and multilateral agreements on co-operation (known as Memoranda of Understanding).