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09 January 2020 / article

New prudential framework for investment firms published

The directive (EU) 2019/2034 and regulation (EU) 2019/2033 on the prudential requirements of investment firms were published in the official EU journal introducing a new prudential regime for investment firms.

On 5 December 2019 the directive (EU) 2019/2034 and regulation (EU) 2019/2033 on the prudential requirements of investment firms were published in the official EU journal (hereafter IFD and IFR respectively).

Further to the introduction of existing prudential requirements under regulation (EU) 575/2013 (CRR) and directive 2013/36/EU (CRD IV) which encompass rules for the prudential supervision of credit institutions and investment firms, mandate was given the Commission to further assess if a specific prudential regime was required for investment firms.1

This resulted in IFR and IFD, which give the largest investment firms the status of credit institutions (continuing to be subject to CRR and CRD IV), and excludes other investment firms from the scope of CRR. Such other investment firms fall under the new regime of IFR and IFD which contain (among others) provisions with respect to capital requirements, concentration risk, liquidity, reporting requirements, internal governance, transparency, treatment of risk and renumeration. IFR and IFD also introduce a ‘light regime’ for small and non-interconnected investments firms.

An example of a new element under IFR is that own fund requirements for investment firms are calculated using a so called ‘K-factor requirement’ (besides a fixed overheads requirement and permanent minimal capital requirement). This ‘K-factor requirement’ is not part of the calculation for small and non-interconnected investment firms.

On 26 June 2021 (i) most of the provisions in IFR shall become applicable, and (ii) IFD is to be implemented in EU member states.

1 Further to art. 508 (3) CRR



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