EBA seeks views on a new prudential regime for investment firms

MiFID Firms
All Articles in this Issue
Date: 04 November 2016
On 4 November 2016 the EBA launched a consultation on the design of a new prudential regime for investment firms, which is specifically tailored to investment firms' different business models and inherent risks. This consultation will assist in developing a response to the European Commission's call for technical advice from the EBA, issued on 13 June 2016, on appropriate prudential requirements for investment firms. The aim of this work is to develop a single, harmonised set of requirements that are reasonably simple, proportionate and more relevant to the nature of investment business than the current regime. The consultation runs until 2 February 2017 and is addressed to all investment firms that are not systemic and bank-like. The EBA recommends a framework focused on the risks that investment firms pose to customers and to market integrity. The EBA is proposing that the ongoing capital requirements shall be calculated based on capital factors (K-factors) that are attributed to one of these two broad types of risks. As a result, firms that pose more risk to customers and markets should get higher capital requirements than those who pose less risk, and firms that pose similar risk to  customers and markets but with more own exposure risk should hold more capital than those with less own exposure risk.

The Discussion Paper covers the most important aspects related to the new prudential requirements for investment firms, including three possible alternatives to set minimum liquidity requirements. All three alternatives aim at addressing the liquidity profile of investment firms in a more appropriate way than the liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR) set out under the CRR regime.

The Discussion Paper and details on responding to the consultation are available here

This is a significant opportunity for investment firms to influence policy development with respect to their prudential requirements and Irish investment firms are encouraged to respond to the consultation

For more information on investment firms click here.