6.2 Know your structure

The management body should fully know and understand the legal, organisational and operational structure of the investment firm ( ‘ know your structure ’ ) and ensure that it is in line with its approved business and risk strategy and risk appetite and covered by its risk management framework

The management body should be responsible for the approval of sound strategies and policies for the establishment of new structures. Where an investment firm creates many legal entities within its group, their number and, in particular, the interconnections and transactions between them should not pose challenges for the design of its internal governance, nor for the effective management and oversight of the risks of the group as a whole. The management body should ensure that the structure of an investment firm and, where applicable, the structures within a group, taking into account the criteria specified in Section 7, are clear, efficient and transparent to the investment firm ’ s staff, shareholders and other stakeholders and to the competent authority.

The management body should guide the investment firm ’s structure, its evolution and its limitations and should ensure that the structure is justified and efficient and does not involve undue or inappropriate complexity.

The management body of a Union parent undertaking should understand not only the legal, organisational and operational structure of the group, but also the purpose and activities of its different entities and the links and relationships among them. This includes understanding group-specific operational risks and intra-group exposures as well as how the group's funding, capital, liquidity and risk profiles could be affected under normal and adverse circumstances. The management body should ensure that the parent investment firm is able to produce information on the group in a timely manner regarding the type, characteristics, organisational chart, ownership structure and businesses of each legal entity, and that the investment firms within the group comply with all the supervisory reporting requirements on an individual and consolidated basis.

The management body of a Union parent undertaking should ensure that the different group entities (including the Union parent undertaking itself) receive enough information to have a clear understanding of the general objectives, strategies and risk profile of the group and how the group entity concerned is embedded into the group’s structure and operational functioning. Such information – and any revisions thereof – should be documented and made available to the relevant functions concerned, including the management body, business lines and internal control functions. The members of the management body of a Union parent undertaking should keep themselves informed abou t the risks the group’s structure causes , taking into account the criteria specified in Section 7 of the guidelines. This includes receiving:

• a. information on major risk drivers;
• b. regular reports assessing the investment firm ’ s overall structure and evaluating the compliance of individual entities ’ activities with the approved group-wide strategy; and
• c. regular reports on topics where the regulatory framework requires compliance at the individual and consolidated levels.