On April 13, the European Parliament’s Committee on Economic and Monetary Affairs (ECON) published a draft report, featuring the European Parliament legislative resolution with ECON’s amendments to a proposal regarding the prudential supervision of EU investment firms. This amends the Capital Requirements Directive IV and the revised Markets in Financial Instruments Directive (MiFID II) (collectively, the Proposal).

The Proposal is part of the wider “Investment Firms Package,” that includes a directive on prudential supervision of investment firms and a regulation on prudential requirements, designed to ensure the EU’s prudential regime for banks extends to the largest and most systemic investment firms whose scale and activities render them bank-like, termed “class 1 investment firms.” Class 2 and class 3 firms would be recognized as non-systemic and subject to less onerous prudential supervision.

In the report’s explanatory statement, the Rapporteur, Markus Ferber MEP, briefly summarizes the Investment Firms Package and its objectives, before stating his own position on the Proposal. The Rapporteur supports the following changes with respect to:

  • own funds requirements—allowing class 3 firms to use instruments, other than those listed in the Capital Requirements Regulation, to fulfil the own funds requirements;
  • movements between class 2 and class 3—facilitating this process and clarifying, as well as allowing sufficient time to adapt to the distinction between the classes;
  • capital and liquidity requirements and so-called “K-Factors”—clarifying the definition of certain activities so that the covered risks match the actual risks being taken, and changes to simplify the calculation of K-Factors (being the metrics for categorizing the class of investments firms);
  • reporting, governance and remuneration—simplification so as not to overburden non-systemic firms; and
  • third-country regime and equivalence—ensuring that EU banks are not disadvantaged relative to third-country investment firms authorized through equivalence decisions.

For ECON’s draft report, dated April 11, and the Proposal, click here.

Further background to the Investment Firms Package is contained in the European Commission’s fact sheet, published in December 2017, available here.