Shearman & Sterling LLP | FinReg | European Banking Authority Launches Data Collection Exercise to Assist with Review of the Prudential Framework for Investment Firms
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  • European Banking Authority Launches Data Collection Exercise to Assist with Review of the Prudential Framework for Investment Firms
    07/15/2016
    The European Banking Authority launched a data collection exercise to support its response to the European Commission’s Call for Advice on a new prudential framework for investment firms subject to the Markets in Financial Instruments Directive. In December 2014, the Commission sought technical advice from the EBA and the European Securities and Markets Authority on whether the current prudential framework applicable to MiFID investment firms under the Capital Requirements Directive and Capital Requirements Regulation was appropriate in terms of risk sensitivity, proportionality and complexity. In response, the EBA concluded that the regime was not appropriate for the risks that MiFID investment firms are exposed to and made recommendations. 

    The first recommendation proposed that there should be three different classes of investment firms: (i) systemic ‘bank-like’ firms which should remain within the scope of the CRR; (ii) a middle category for a majority of firms that are not systemic but do pose risks and should therefore be subject to a less-complex prudential regime; and (iii) small firms which are not interconnected and should only be subject to a very simple regime, if appropriate, to cater for winding-down. The second recommendation suggested that work would need to be done to the design the regimes applicable to the different classes of investment firms, including collecting data and policy development. The third recommendation was to extend the waiver for commodity trading firms from the large exposures and capital adequacy provisions in the CRR until 31 December 2020. The EBA also highlighted in its response that, because investment firms have different business models, risk profiles and pay structures to banks, the remuneration requirements under CRD and CRR may be challenging for investment firms to implement. The Commission asked the EBA in June this year to provide detailed technical advice on these recommendations to inform the Commission's decision on whether to amend the prudential framework applicable to MiFID investment firms, including the application of the remuneration requirements. 

    To assist the EBA in preparing its technical advice for the Commission, the EBA published templates and instructions to collect information from MiFID investment firms and firms that conduct investment activities or services that are subject to the Undertakings in Collective Investments in Transferable Securities Directive and the Alternative investment Funds Management Directive. Firms are asked to complete the templates and return them to their national regulator by October 7, 2016.

    View the Call for Advice.

    View the EBA data collection instructions and templates.