The current EU prudential requirements apply to both credit institutions (i.e. the businesses which take deposits or other repayable funds from the public to grant credits for its own account) and investment firms (i.e. legal persons whose regular occupation or business is the provision of one or more investment services to third parties and/or the performance of one or more investment activities on a professional basis). There have been calls to introduce less complex and but more proportionate and risk-sensitive rules for investment firms – see also our earlier information about the EBA involvement in that matter.
In December 2017 the European Commission issued a proposal for a regulation and a proposal for a directive to amend the current EU prudential rules for investment firms. The proposal of the regulation sets out requirements in terms of own funds, levels of minimum capital, concentration risk, liquidity, reporting and public disclosure for all investment firms that are not systemic. The proposal of the directive sets out requirements for the appointment of prudential supervisory authorities, the initial capital of investment firms, the supervisory powers and tools for the prudential supervision of investment firms by the competent authorities, and the publication requirements for competent authorities in the field of prudential regulation and supervision. If these new proposals are adopted then an overwhelming majority of investment firms in the EU will not be subject to rules originally designed for credit institutions.
However, the largest and most systemic investment firms, principally those having assets above EUR 30 billion, would be subject to the same regime as European banks. This is because these firms typically incur and underwrite risks on a significant scale throughout the single market. In Member States participating in the Banking Union these firms will be subject to direct supervision by the ECB in the Single Supervisory Mechanism.
The two acts would amend the existing prudential framework for investment firms set out in the capital requirements directive and regulation (CRD IV/CRR) and in the markets in financial instruments directive and regulation (MiFID2/MiFIR).
The proposals of directive and regulation are open to public feedback until 8 March 2018.
21-2-2018