The European Commission has requested an assessment of the effectiveness of these regulations. To inform this process, the EBA and ESMA are seeking feedback from stakeholders.
A dedicated data collection exercise will be conducted to gather comprehensive data alongside the feedback received in this paper. Following a public consultation period, the EBA and ESMA aim to finalise their response to the Commission's call for advice by December 2024.
The discussion paper serves to initiate dialogue and gather insights to inform potential future amendments to the regulatory framework for investment firms in Europe.
The Commission highlights several key areas for consideration:
Section 1: Investment Firm Categories
Emphasises the coherence in the definitions of the applicable thresholds. It seeks to refine the definitions and calculations used to categorise investment firms, particularly regarding thresholds for applying CRR requirements (without needing a credit institution license).
Section 2: Small and Non-Interconnected Firms
Explores how to optimise the criteria and transition periods for classifying firms as small and non-interconnected.
Section 3: Own Funds Requirements
Examines the definitions and calculation methods used for fixed overhead requirements and the wind-down period used to assess a firm's financial resilience.
Section 4: K-Factor Improvements
Seeks feedback on how to strengthen the existing K-factor framework and refine its definitions or calculation methodologies.
Section 5: New K-Factors
It explores the possibility of introducing new K-factors to cover risks currently managed under a separate framework (Pillar 2) or as alternatives to existing K-factors.
Section 6: Interaction with the Banking Package
It examines the implications of adopting the new Basel standards (CRR3/CRD6) for investment firms, particularly regarding the application of the Fundamental Review of the Trading Book (FRTB).
Section 7: Enhancing Liquidity Risk Management
Acknowledges that current liquidity requirements are based on a fraction of the fixed-overhead requirements and may not adequately reflect the varying risk profiles of different investment firm activities. It seeks input on how to improve the risk sensitivity of these requirements.
Section 8: Strengthening Prudential Consolidation
Seeks improvements to the rules for consolidating investment firm groups within the IFR framework.
Section 9: Interaction with Other Regulations
Dives into how the IFD and IFR interact with other relevant regulations, potential exposures of investment firms to crypto-assets and related services, roles of other financial service providers and how capital requirements for certain fund managers interact with the IFR. A specific focus is placed on how the new Markets in Crypto-Assets Regulation (MiCAR) will interact with IFD/IFR for investment firms offering crypto-related services.
Section 10: Remuneration Practices
Looks into aspects related to remuneration practices for investment firms, Alternative Investment Fund Managers (AIFMs) and Units in Collective Investment in Tradable Securities (UCITS) management companies.
Section 11: Summarising Remaining Elements
Summary of remaining considerations, such as reporting requirements and references to topics already addressed in separate EBA publications.
*This discussion paper does not consider Environmental, Social, and Governance (ESG) factors. For a detailed analysis of ESG considerations, please refer to the European Banking Authority (EBA)'s Report on the role of environmental and social risks in the prudential framework, published in October 2023.
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