EU Recommendations on the Appropriateness of the Prudential Regime for Investment Firms

The European Banking Authority published an Opinion on the criteria for identifying investment firms to which the EU regulatory capital requirements legislation should apply. The EBA published a report in December 2015 in response to a Call for Advice from the European Commission on the suitability of certain aspects of the EU prudential regime for investment firms. In that report, the EBA recommended that it was necessary to distinguish between investment firms for which the requirements in the Capital Requirements Directive and the Capital Requirements Regulation are appropriate and investment firms for which those requirements are inappropriate. It recommended that a separate prudential regime should be established for these investment firms. The Commission issued a second Call for Advice in June 2016, asking for advice on the criteria to identify the investment firms for which the CRD IV requirements are appropriate and which rules should apply to them.

The EBA's Opinion states that the following criteria should be used to identify investment firms that should be subject to CRD IV: systemic importance, interconnectedness with the financial system, complexity and bank-like activities. The EBA recommends that investment firms that have been identified, according to the current EU regulatory framework contained in the relevant technical standards and EBA Guidelines, as global systemically important institutions (G-SIIs) or other systemically important institutions (O-SIIs) should be subject to the full requirements of CRD IV. Nine investment firms in the EU are currently classed as being O-SIIs. None has been assessed as being a G-SII. The EBA also recommends in its Opinion that any regulatory change for investment firms should be delayed until the review of the CRR is at a more advanced stage. The EBA's response on the rules that should apply to the O-SII investment firms is scheduled to be provided by June 30, 2017.

View the EBA's Opinion.

View the Commission's Call for Advice.

View the EBA's 2015 Report.