On February 26 and 27, the Council of the European Union and the European Parliament issued statements, respectively, announcing that they had reached a political agreement on the proposed Investment Firms Regulation (IFR) and the proposed Investment Firms Directive (IFD).

Until the text of the finalized legislation is published, the specific impact remains to be seen for third-country financial institutions, but the statements set out the proposed package of measures, the most significant of which are the following:

  1. Equivalence—The IFR will amend the Markets in Financial Instruments Regulation (MiFIR) to strengthen the equivalence regime applicable to third-country investment firms. The European Commission (EC) will also be required to assess capital requirements applicable to financial institutions that provide bank-like services to ensure that those requirements are equivalent to those applicable in the European Union.
  • The new regime would also allow the EC to apply specific operational conditions to an equivalence decision. This would ensure that the European Securities and Markets Authority (ESMA) and national competent authorities would have the necessary tools to prevent regulatory arbitrage and monitor the activities of third-country financial institutions, if their activities would be likely to be of systemic importance.
  1. Tick-size regime—The text agreed to by the Council of the European Union and the Parliament complements the framework of the revised Markets in Financial Instruments Directive and MiFIR by extending the “tick-size” regime to systematic internalizers (SIs), therefore enhancing the level playing field between SIs and trading venues.
  1. Disclosure requirements—Investment firms will be subject to greater transparency requirements about their investments and their voting behavior during shareholder meetings.

The European Parliament and the Council of the European Union intend to adopt the legislation at first reading.

The Council of the European Union’s statement is available here.

The European Parliament’s statement is available here.