EBA Issues Standards on Prudential Treatment of Investment Firms
EBA published a package of seven final draft regulatory technical standards on the prudential treatment of investment firms. The Investment Firms Directive and Regulation (IFD/IFR) set out a significant number of mandates for EBA covering a broad range of areas related to the prudential treatment of investment firms. The implementation of the mandates is divided into four phases, according to the legal deadline set out in the IFD/IFR for the draft regulatory technical standards. The current package covers mandates developed under the first phase. These include draft technical standards that focus on the reclassification of investment firms to credit institutions, the capital requirements for investment firms at solo level, and the requirements on a consolidated basis.
A comprehensive work plan for delivering all mandates had been established in the Roadmap on Investment Firms Prudential Package, which the EBA published on May 02, 2020. The following seven draft technical standards that EBA has published now have been developed in accordance with the principles of proportionality, non-disruptive transition, a level playing field, and harmonization (as laid down in the investment firms roadmap):
- Draft technical standards on the information to be provided for the authorization of credit institutions as defined in point (1)(b) of Article 4(1) of the Capital Requirements Regulation (CRR)
- Draft technical standards to specify the calculation of the fixed overheads requirement and define the notion of a material change
- Draft technical standards to specify the methods for measuring the K-factors; the standards provide clarification on the measurement of most of the Risk-to-Client (RtC) K-factors and some of Risk-to-Firm (RtF) K-factors, whereas the Risk-to-Market (RtM) K-factors are either defined as references to the CRR or as detailed in the IFR and, therefore, require no further specification
- Draft technical standards to specify the notion of segregated accounts by setting the conditions for their identification for the purpose of calculating the capital requirement related to the K-factor "client money held" (K-CMH).
- Draft technical standards to specify adjustments to the K-factor "daily trading flow" (K-DTF) coefficients in the event that, in stressed market conditions, K‐DTF requirements seem overly restrictive and detrimental to financial stability; the draft standards also specify that stressed market conditions shall cover only those stressed market conditions that are referred in point (a) of Article 3 of the Regulation (EU) 2017/578 when they lead to increased trading volumes
- Draft technical standards to specify the amount of total margin for the calculation of "clearing margin given" (K-CMG) and the criteria for avoiding regulatory arbitrage in the event that K-CMG approach is used
- Draft technical standards on the criteria for subjecting certain investment firms to CRR (threshold of EUR 5 billion); these standards set the quantitative thresholds above which an investment firm’s activities should be considered to be of a significant scale that could lead to a systemic risk
Other mandates that are part of the first phase but are not included in this report are those concerning variable remuneration and those related to reporting requirements, disclosure requirements, and monitoring of the threshold referred to in Article 8a(6) of the Capital Requirements Directive.
Keywords: Europe, EU, Banking, Securities, IFD, IFR, MIFID, Regulatory Reporting, Roadmap, CRR, CRD, Investment Firms, Proportionality, K-Factor Regime, Systemic Risk, EBA
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Across 35 years in banking, Blake has gained deep insights into the inner working of this sector. Over the last two decades, Blake has been an Operating Committee member, leading teams and executing strategies in Credit and Enterprise Risk as well as Line of Business. His focus over this time has been primarily Commercial/Corporate with particular emphasis on CRE. Blake has spent most of his career with large and mid-size banks. Blake joined Moody’s Analytics in 2021 after leading the transformation of the credit approval and reporting process at a $25 billion bank.
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