The European Banking Authority (EBA) has published its report in response to the European Commission’s call for advice on the suitability of certain aspects of the prudential regime for investment firms.

The EBA identifies the lack of risk sensitivity in the Capital Requirements Directive IV (CRD IV) / Capital Requirements Regulation (CRR) for investment firms as being a primary issue to be addressed as part of the review. The EBA notes that the nature, scale and complexity of the activities of investment firms are very wide and remain only crudely captured in the current CRD IV / CRR categorisation.

The EBA makes three recommendations:

  • the creation of a new categorisation of investment firms distinguishing between systemic and ‘bank-like’ investment firms to which the full CRD IV / CRR requirements should be applied; other investment firms (non-systemic) with a more limited set of prudential requirements; and very small firms with ‘non-interconnected’ services;
  • for investment firms falling within the second and third tiers above, a specific prudential regime should be designed. In particular, specific rules could be developed with regards to investment business risks, such as credit, market, operational and liquidity risks taking particular account of the holding of client money and securities; and
  • extend the waiver for commodity trading firms until 31 December 2020. Commodity dealers currently benefit from exemption from both the large exposures and capital adequacy provisions under Articles 493 and 498 of the CRR which fall away after 31 December 2017. The EBA suggests that the exemption is extended until a new regime has been adopted or, at the latest, until 31 December 2020.

View EBA issues recommendations for sound prudential regime for investment firms, 14 December 2015