Item III.7: Delineation of financial sub-sectors Training on general introduction to ESA 2010 Luxembourg, 9 - 10 December 2013 Eurostat, JMO M4

Description of change more detailed breakdown of the financial corporations sector to enable more detailed analysis and provide better consistency with the financial statistics systems of the European Central Bank (ECB) and the IMF ESA 95 - 5 sub-sectors ESA 2010 – 9 sub-sectors

ESA 95 – S.12 S.121 Central Bank S.122 Other Monetary and Financial Institutions S.123 Other financial intermediaries S.124 Financial auxiliaries S.125 Insurance corporations and pension funds

ESA 2010 – S.12 S.121 Central Bank S.122 Other Monetary and Financial Institutions S.123 Money market funds S.124 Non-Money-Market Investment Funds S.125 Other financial intermediaries S.126 Financial auxiliaries S.127 Captive financial institutions S.128 Insurance corporations S.129 Pension Funds

Correspondence between ESA95 and ESA 2010 financial corporations sub-sectors

Consequence of the change more detail shown in tables setting out financial corporations’ sub-sectors transactions and stock positions identification of money market funds separately from other investment funds enables a closer correspondence between the ESA sub-sectors and the headings used by the European Central Bank reclassification of holding companies which under ESA 95 were classified to the dominant activity of the company, but under ESA 2010 are classified to the financial corporations sector may cause a large shift of financial assets and liabilities from the non-financial corporations sector to the financial corporations sector

Share of total assets of financial corporations Source: ECB, end September 2011

Total assets of financial corporations Source: ECB, end September 2011

Total assets of financial corporations Source: ECB, end September 2011

S.121 Central Bank Definition: Examples: financial corporations and quasi-corporations whose principal function is to issue currency, to maintain the internal and external value of the currency and to hold all or part of the international reserves of the country Examples: the national central bank, including when it is part of a European system of central banks central monetary agencies of essentially public origin (e.g. agencies managing foreign exchange or issuing currency) which keep a complete set of accounts and enjoy autonomy of decision in relation to central government

S.122 Other Monetary and Financial Institutions Definition: deposit-taking corporations except the central bank subsector (S.122) includes all financial corporations and quasi-corporations which are principally engaged in financial intermediation and whose business is to receive deposits from institutional units and to grant loans and/or to make investments in securities

S.122 Other Monetary and Financial Institutions Examples: commercial banks, 'universal' banks, 'all-purpose' banks savings banks post office giro institutions, post banks, giro banks rural credit banks, agricultural credit banks cooperative credit banks, credit unions specialised banks (e.g. merchant banks, issuing houses, private banks) electronic money institutions principally engaged in financial intermediation

S.123 Money market funds (MMF) Definition: financial corporations and quasi-corporations, except those classified in the central bank and in the credit institutions subsectors, which are principally engaged in financial intermediation. Their business is to issue investment fund shares or units as close substitutes for deposits and to make investments primarily in money market fund shares/units, short-term debt securities, and/or deposits Examples: investment funds including investment trusts, unit trusts and other collective investment schemes whose shares or units are close substitutes for deposits

S.124 Non-Money-Market Investment Funds Definition: collective investment schemes, except those classified in the MMF subsector, which are principally engaged in financial intermediation. Their business is to issue investment fund shares or units which are not close substitutes for deposits and to make investments primarily in financial assets other than short-term financial assets and in non-financial assets (usually real estate)

S.124 Non-Money-Market Investment Funds Examples: open-ended investment funds whose investment fund shares or units are repurchased or redeemed directly or indirectly out of the undertaking's assets closed-ended investment funds with a fixed share capital, where investors entering or leaving the fund must buy or sell existing shares real estate investment funds investment funds investing in other funds ('funds of funds') hedge funds

S.125 Other financial intermediaries Definition: financial corporations and quasi-corporations which are principally engaged in financial intermediation by incurring liabilities in forms other than currency, deposits, or investment fund shares, or in relation to insurance, pension and standardised guarantee schemes Examples: security and derivative dealers financial leasing hire purchase and the provision of personal or commercial finance factoring venture and development capital companies export/import financing companies

S.126 Financial auxiliaries Definition: financial corporations and quasi-corporations which are principally engaged in activities closely related to financial intermediation but which are not financial intermediaries themselves

S.126 Financial auxiliaries Examples: insurance brokers, salvage and average administrators, insurance and pension consultants loan brokers, securities brokers, investment advisers flotation corporations that manage the issue of securities corporations whose principal function is to guarantee, by endorsement, bills and similar instruments corporations which arrange derivative and hedging instruments, such as swaps, options and futures (without issuing them) corporations providing infrastructure for financial markets central supervisory authorities of financial intermediaries and financial markets managers of pension funds, mutual funds corporations providing stock exchange and insurance exchange non-profit institutions recognised as independent legal entities serving financial corporations payment institutions (facilitating payments between buyer and seller)

S.127 Captive financial institutions Definition: financial corporations and quasi-corporations which are neither engaged in financial intermediation nor in providing financial auxiliary services, and where most of either their assets or their liabilities are not transacted on open markets Examples: trusts, estates, agencies accounts or 'brass plate' companies holding companies SPEs that qualify as institutional units and raise funds in open markets money lenders, corporations engaged in lending to students or for foreign trade, pawnshops special purpose government funds, usually called sovereign wealth funds, if classified as financial corporations

Special purpose entities (SPEs) What are they? A special purpose entity (SPE) or special purpose vehicle (SPV) is usually a limited company or a limited partnership, created to fulfil narrow, specific or temporary objectives and to isolate a financial risk, a specific taxation or a regulatory risk

Special purpose entities (SPEs) No common definition, but the following characteristics are typical: no employees and no non-financial assets little physical presence beyond a 'brass plate' or sign confirming their place of registration always related to another corporation, often as a subsidiary resident in a different territory from the territory of residence of the related corporations. In the absence of any physical presence an enterprise's residence is determined according to the economic territory under whose laws the enterprise is incorporated or registered managed by employees of another corporation which may or may not be a related one. The SPE pays fees for services provided to it and in turn charges its parent or other related corporation a fee to cover those costs. This is the only production the SPE is involved in, although it will often incur liabilities on behalf of its owner and will usually receive investment income and holding gains on the assets it holds

S.128 Insurance corporations Definition: financial corporations and quasi-corporations which are principally engaged in financial intermediation as a consequence of the pooling of risks mainly in the form of direct insurance or reinsurance Examples: life non-life insurance to individual units or groups of units fire, liability (casualty), motor, marine, aviation, transport, accident, health, financial insurance (provision of guarantees or surety bonds) reinsurance to other insurance corporations insurance bought by an insurer to protect against an unexpectedly large number of claims or exceptionally heavy claims

S.129 Pension Funds Definition: Examples: 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 Examples: funds of single enterprise or a group of enterprises, employees of a branch or industry, and persons having the same profession benefits include can be: paid after the death of the insured to the widow(er) and children paid after retirement paid after the insured becomes disabled