The European Commission (EC) published three Delegated Regulations (2021/2153, 2021/2154, and 2021/2155) to supplement the Investment Firms Directive (IFD or Directive 2019/2034). Regulation 2021/2153 sets out regulatory technical standards specifying the criteria for subjecting certain investment firms to the requirements of Capital Requirements Regulation (CRR). Regulation 2021/2154 sets out regulatory technical standards specifying appropriate criteria to identify categories of staff whose professional activities have a material impact on the risk profile of an investment firm or of the assets that it manages. Regulation 2021/2155 sets out regulatory technical standards specifying the classes of instruments that adequately reflect the credit quality of the investment firm as a going concern and possible alternative arrangements that are appropriate to be used for the purposes of variable remuneration.
Regulation 2021/2153 on Prudential Requirements. This Regulation specifies that the activities of an investment firm shall be considered to be carried out on such a scale that the failure or distress of the investment firm could lead to systemic risk where the investment firm exceeds certain thresholds, as specified in Article 1 of the Regulation. The Regulation also highlights that investment firms that are clearing members and that offer clearing services to other financial sector entities, which are not clearing members themselves, shall be considered for the purposes of Article 5(1)(b) of IFD. This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.
Regulation 2021/2154 on Identification of Material Risk-Takers. This Regulation highlights that staff members shall be deemed to have a material impact on an investment firm’s risk profile or that of the assets it manages where one or more of the qualitative criteria, specified in the Regulation, are met. A staff member shall also be deemed to have a material impact on an investment firm’s risk profile or that of the assets it manages where any one of the quantitative criteria, specified in the Regulation, is met. The Regulation also stipulates that all amounts of the variable and fixed remuneration shall be calculated gross and on a full-time equivalent basis. Investment firms’ remuneration policies shall set out the reference year for the variable remuneration taken into account when calculating the total remuneration. That reference year shall be either the year preceding the financial year in which the variable remuneration is awarded or the year preceding the financial year for which the variable remuneration is awarded. Regulation 2021/2154 shall enter into force on the fifth day following that of its publication in the Official Journal of the European Union.
Regulation 2021/2155 on Instruments for Variable Remuneration. This Regulation sets out requirements for investment firms for Additional Tier 1, Tier 2, and other instruments used for the purposes of variable remuneration, to ensure that they appropriately reflect the credit quality of the investment firm. The Regulation also sets out provisions related to the write-down, write-up, and conversion mechanisms for different classes of instruments. Finally, the Regulation sets out provisions related to alternative arrangements that may be used by investment firms for the pay-out of variable remuneration under IFD. Regulation 2021/2155 shall enter into force on the fifth day following that of its publication in the Official Journal of the European Union.
- Regulation 2021/2153 on Prudential Requirements
- Regulation 2021/2154 on Identification of Material Risk-Takers
- Regulation 2021/2155 on Instruments for Variable Remuneration
Effective Date: December 12, 2021 (Regulations 2021/2154 and 2021/2155)/December 27, 2021 (Regulation 2021/2153)
Keywords: Europe, EU, Banking, Securities, Investment Firms, Systemic Risk, Remuneration, IFD, IFR, CRR, Basel, Regulatory Capital, EC
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