ESMA and EBA have published a report on the prudential requirements for investment firms. The report looks at the purpose of prudential requirements and the interplay between the Markets in Financial Instruments Directive (MiFID) and the CRD4 package in deciding which prudential category a firm belongs in. The paper considers in detail:

  • the categorisation framework for investment firms: this includes an analysis of main issues the current framework raises and the conclusion that there needs to be a new categorisation;
  • investment firms’ risks: this looks at the risk-specific regulatory framework and the prudential regime; and
  • EBA’s recommendations: these are that:
    • a new categorisation of investment firms should distinguish between systemic and “bank-like” investment firms to which the full CRD4/CRR requirements should apply, “non-systemic” firms with a more limited set of prudential requirements, and very small “non-interconnected” firms;
    • there should be a new prudential regime for non-systemic investment firms; and
    • the waiver for commodity trading firms, exempting them from large exposures and capital adequacy provisions and currently due to lapse at the end of 2017, should be extended until 31 December 2020. The Commission has published a proposal to extend the “sunset clauses” for commodity dealers as suggested.

The paper annexes descriptions of the categories and of the total number of investment firms in each Member State that benefit from a MiFID passport. (Source: ESMA Reports on Investment Firms and Commission Publishes Sunset Clause Extension Proposal)