On 24 August 2018, the European Central Bank (ECB) published an opinion (dated 22 August 2018) on the legislative package on prudential supervision of investment firms. The legislative package comprises of both a draft Directive and a draft Regulation. Together these draft legislative measures amend the existing prudential framework for investment firms set out in the CRD IV, CRR, MiFID II and MiFIR.

In general, the ECB supports the objective of the proposals, but warns that they should be carefully assessed in order to avoid unintended consequences for other EU legislation due to the change in the definition of credit institutions.

The opinion covers the following topics:

  • classification of investment firms as credit institutions;
  • authorisation of certain investment firms as credit institutions;
  • statistical implications;
  • macro-prudential perspective on investment firms;
  • provision of services by third country firms; and
  • alignment between the proposals and MiFID II and MiFIR.

Key ECB recommendations include:

  • clarifying how assets within the asset threshold, above which systemic investment firms may be considered a credit institution, are to be calculated;
  • complementing the total asset threshold with other criteria, given that total assets are not the only measure for identifying the systemic importance of investment firms;
  • clarifying what happens once authorisation as a credit institution is granted, as the proposals stipulate that those investment firms that can be classified as credit institutions must obtain authorisation as a credit institution;
  • harmonising the definition on ‘credit institutions’ with existing EU legislative definitions;
  • including a macro-prudential perspective on investment firms as per the EBA’s recommendations;
  • regarding the draft Directive’s proposal to strengthen and further harmonise EU legislation to branches of third country investment firms (Article 58(3) of the draft Directive, amending Article 41 of MiFID II), for further consideration to be given to the possibility of applying the harmonised rules to all branches, even those that provide services to professional clients and eligible counterparties, in order to ensure that material risks are consistently addressed across the EU and to avoid regulatory arbitrage; and
  • addressing further inconsistencies in definitions with existing EU Directives.