European Commission Proposes More Appropriate Capital Requirements for Smaller EU Investment Firms

2 January 2018
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Key Takeaways:

  • On 20 December 2017, the European Commission adopted proposals which aim to amend the current prudential framework for investment firms set out in the Capital Requirements Directive and Regulation (CRD IV/CRR) and in the Markets in Financial Instruments Directive and Regulation (MiFID II/MiFIR) and to introduce more proportionate and risk-sensitive rules.
  • Under these proposals, the vast majority of EU investment firms (including investment advisors, placement agents, portfolio managers and other financial intermediaries that provide regulated financial services) would be subject to a completely new regime of capital and prudential requirements.
  • Investment firms which are considered systemic (Class 1 firms) will remain under the regime for banks (CRD IV/CRR) and will be regulated like banks “in all respects”. In addition, the European Central Bank will directly supervise Class 1 firms under the Single Supervisory Mechanism. This represents another step in the shift from national to central European supervision.