The European Banking Authority (EBA) outlined a roadmap for implementation of the new regulatory framework resulting from the EU Investment Firms Directive and Regulation (IFD/IFR). The IFD/IFR entered into force on 26 December 2019, and applied as of 26 June 2020. EBA has also launched a public consultation on its first set of regulatory deliverables on prudential, reporting, disclosures and remuneration requirements.
EBA’s roadmap sets out implementation timeframes for the various mandates under the IFD/IFR in line with the original planned timetable. Through these mandates, the EBA will contribute to the implementation of a regulatory framework that is adjusted to the size and nature of investment firms. This will strengthen supervision, which will rely more directly on the risks faced by the clients and the investment firms. The consultations will run until 4 September 2020.
During the development, ESMA will also be actively involved in the development of these regulatory products. Similarly, the EBA collaborates actively with all securities and market authorities that are prudential supervisors of investment firms.
The framework is divided into the four principles listed below and therefore set the broad considerations made by the EBA with regard to mandates within its remit.
- Ensuring proportionality with regard to the regulatory requirements aimed at investment firms of different size and complexity is a key aspect of the new regime, mostly in accordance with the legal deadlines.
- It is recognised that investment firms face specific risks compared with credit institutions within the scope of the Capital Requirements Regulation (CRR) and Capital Requirements Directive (CRD), but it is also important to stress that the regimes applicable to credit institutions and investment firms are interlinked.
- The IFR/IFD recognises the specific risk structure and drivers of investment firms and investment firm groups. The EBA will be particularly mindful of ensuring that the main risks of investment firms are well covered. For many, especially those with no trading activities, the operational risk that can be harmful to clients will be important to manage.
- The development of the new investment firm regime should be accompanied by a further strengthening of a harmonised regulatory environment, in order to adopt a European level across the types and categories of investment firms.
The EBA also categorizes the various mandates and briefly elaborates each area:
- Thresholds and criteria for investment firms to be subject to the CRR;
- Capital requirements and composition;
- Reporting and disclosure;
- Remuneration and governance;
- Supervisory convergence and the supervisory review process; and
- Mandates concerning environmental, social and governance (ESG) factors and risks
The Investment Firms Prudential Package that consists of the Directive (EU) 2019/2034 and the Regulation (EU) 2019/2033 represents a new prudential framework for investment firms authorised under MIFID.
EBA’s press release and consultations can be found here.
EBA’s roadmap on investment firms can be found here.