A vital component for the good functioning of the Capital Markets Union, investment firms provide a set of services enabling investors to access the securities and financial derivatives markets, such as investment consulting, portfolio management and brokerage.
The set of measures comprised in the package on the prudential supervision of investment firms (consisting of a Regulation and a Directive) renders the rules that apply to investment firms more adequate to the levels of risk they take, while also keeping in line with the key requirements on capital holdings, reporting, corporate governance and remuneration.
Concretely, if so far investment firms were subject to the same capital, liquidity and risk management rules as banks (via the Capital Requirements Regulation and Directive), based on the newly agreed text, the set of applicable requirements will be differentiated based on the size, nature and complexity of the concerned company.
Consequently, the biggest firms will be subject to the entire prudential banking regime and will be supervised as credit institutions. For instance, investment firms offering services “similar to banks” holding consolidated assets upwards of EUR 15 billion will automatically comply to the Capital Requirements Regulation and Directive, whereas investment firms performing “banking” activities holding consolidated assets of EUR 5 to 15 billion may be asked to comply to prudential banking rules if the size or the activities of the firm would pose a risk for financial stability. Smaller firms, which are not considered systemic, will follow specific prudential rules, though, in certain cases, the competent authorities may decide to continue to apply the banking requirements to avoid disruptions in the business models.
The effect in the market of the new provisions will consist of boosting competition and improving investor access to new opportunities and better risk management as well as strengthening financial stability, by adapting the EU legal framework on prudential requirements and supervision mechanisms to the risk profile of investment firms and their specific business model.
Negotiations in the Council of the EU were difficult and lengthy, given the consequences the new provisions generate for a significant and heterogeneous number of financial entities, both from the perspective of prudential requirements and with regard to supervision practices. The result that the Romanian Presidency achieved in crystallising a position of the member states in the Council of the EU with regard to this file is the more so important in this context.
Based on the mandate it obtained, the Romanian Presidency will start negotiations with the European Parliament to finalise the proposals and agree them formally, in accordance with the legislative procedure laid down in the Treaties.