Requirement to compute regulatory capital on a fund's underlying assets rather than on the units held, to stop a collective wrapper from hiding the real risk.
Treating a fund holding as a single line would let the wrapper decide the capital: two funds of the same name and value, one invested in sovereign bonds and the other in emerging market equities, would consume the same capital. The look-through approach forbids that. The undertaking must apply regulatory shocks to the fund's underlying assets, line by line, as if it held them directly. Where the detailed composition is unavailable, a grouped approach based on the target allocation is permitted under conditions, with an obligation to take the most prudent assumption on the unidentified share; and absent any information, the treatment applicable is that of type two equities, deliberately punitive. The rule carries a heavy operational consequence finance departments often discover late: it obliges the manager to supply a detailed inventory at each closing, in a usable format, and it effectively rules out vehicles that refuse that transparency, whatever their headline return.
Delegated Regulation (EU) 2015/35, in the article devoted to the look-through approach. An insurer holding 200M EUR of units in a fund of funds that publishes its composition only with a quarter's lag must, at December 31, either obtain an inventory at that date or apply the most prudent treatment, which can triple the line's capital charge relative to its actual content.
look-through, approche par transparence, mise en transparence, regard au travers