Investment Firms Directive and Investment Firms Regulation

MiFID firms will be subject to a new prudential regime from 26 June 2021 under the Investment Firms Directive and Investment Firms Regulation.​

Types of Entities Impacted: 

Investment firms (‘MiFID firms’).

​Background:

The current prudential rules in the CRR/CRD were developed for banks.​ Prior to the new regime, all investment firms have been subject to the same EU prudential rules as credit institutions regarding the amount of capital, liquidity and other risk management requirements.  A proportional regime and a new prudential framework for investment firms has been introduced. 

The new regime:

Under the Investment Firms Directive and Investment Firms Regulation, MiFID firms will be subject to a new prudential regime from 26 June 2021 under the Investment Firms Directive and Investment Firms Regulation.​

• Establish a new categorisation of investment firms, distinguishing between: ​
  • Systemic and ‘bank-like’ investment firms to which the full Capital Requirements Directive (CRD) IV and Capital Requirements Regulation (CRR) requirements are applied; ​
  • Other investment firms (‘non-systemic’) with a more limited set of prudential requirements; and ​
  • Very small firms with ‘non-interconnected’ services.
• Develops a prudential regime for ‘non-systemic’ investment firms.​

Impact:

Firms will be classified by reference to asset-levels, activities and systemic importance, with the largest systemic firms needing re-authorisation as credit institutions.

Key Take-aways:

• It simplifies the capital requirements for investment firms in the EU. ​
• Non-systemic firms will have an easier time, but large systemic firms will be treated the same as credit institutions. ​
• As no equivalence decision has been made regarding third-country firms under MiFID II yet, national rules continue to apply to such firms.

For additional information on this matter, please contact us.