Response to discussion on the potential review of the investment firms’ prudential framework
Q3: Do you have any views on the possible ways forward discussed above regarding the transition of investment firms between Class 2 and Class 3 should be introduced?
We agree with the proposed freeze period of one year after a reclassification from Class 3 to Class 2 investment firm.
Q5: Is it necessary to differentiate the deductibles by activity or by business model for the purpose of calculating the FOR? If yes, which items should then be considered and for what reasons?
It is not necessary to differentiate the deductibles by activity or business model to keep the FOR calculation simple.
Q6: Are expenses related to tied agents material for the calculation of the FOR to the extent to require a dedicated treatment for their calculation? If yes, are the considerations provided above sufficient to cover all the relevant aspects?
Tied agent expenses are important from the point of view of the efficiency of business activity, as well as the economic performance of the IF, they should be included in the FOR. We would suggest simple approach, that the costs/payment/remuneration of the tied agent are to be included in the FOR as the expense.
Q7: Should the FOR be calculated distinguishing the costs related to non-MiFID activities, which criteria should be considered? What kind of advantages or disadvantages would this have in practice?
Non - MIFID activities should be included in the calculation of FOR as it would be difficult to verify the allocation of costs between MIFID and non-MIFID activities, which would make to calculation more complex and more unverifiable. As losses resulting in the wind-down of an investment firm could arise from any of its activities, in general all activities of the investment firm should be covered by the capital requirements.
Q8: Should expenses related to fluctuation of exchange rates be included in the list of deductions for the calculation of the FOR? If yes, which criteria should be considered in addition to the ones suggested above?
These expenses are important from the point of view of economic performance IF, should be included in FOR (in some cases should be crucial for economy performance of IF).
Q14: Should crypto-assets be included into K-factor calculation, either as a new K-factor or as part of K-NPR?
K factors should fully cover all credit risks in the non-trading book, not only crypto-assets. For this purpose we agree with the introduction of a new K-factor for the credit risk in the non-trading book exposures including all standard as well as crypto assets in the non-trading book. We recommend including all assets into all K factors valid for of the trading book as well as the assets of the non trading book.
Q17: When addressing other activities an investment firm may perform, which elements, on top of the discussed ones, should be also taken in consideration?
Capital requirements should cover all activities of the Ifs as losses resulting in the wind-down of an investment firm could arise from any of its activities and the capital requirement should cover all relevant risks. We believe that there should be specific K-factors for relevant regulated activities and special for non-regulated activities.
Q24: Do you have any views on the possible ways forward discussed above concerning the provision of MiFID ancillary services by UCITS management companies and AIFMs?
Should be regulated by the provisions of the relevant regulation regarding the capital requirements for UCITS management companies and AIFMs. We would suggest, that the regulation should cross-reference to the capital requirement for the provided MiFID service (i.e. K-factors relevant for provision of portfolio management, investment advice and safe-keeping and administration).
Q25: Are differences in the regulatory regimes between MICAR and IFR/IFD a concern to market participants regarding a level playing field between CASPs and Investment firms providing crypto-asset related services? In particular, are there concerns on the capital and liquidity requirement regimes?
Capital requirements should cover all activities of the IF stemming from both MIFID as well as non-MIFID services as losses resulting in the wind-down of an investment firm could arise from any of its activities and the capital requirement should cover all relevant risks. We believe, that the activities, considered to be equivalent to the MiFID activities should have the similar prudential requirements as the MiFID activities.
Q27: Is the different scope of application of remuneration requirements a concern for firms regarding the level playing field between different investment firms (class 1 minus and class 2), UCITS management companies and AIFMs, e.g., in terms of the application of the remuneration provisions, the ability to recruit and retain talent or with regard to the costs for the application of the requirements?
We recommend to consider the number of FTE of IF and simplify the REM rules for companies with small numbers. Similar principle should be valid for UCITS management companies and AIFMs. We recommend applying the principle of proportionality.
Q31: What would be costs or benefits of extending existing reporting requirement to financial information? Which other elements should be considered before introducing such requirement?
NBS already requires all investment firms to report financial information on a quarterly basis. As the FOR requirement is calibrated with a view of a 3-months wind-down period for an investment firm, it is most appropriate to collect financial information on a quarterly basis as a longer period would allow the financial situation of an investment firm to deteriorate without proper notice of the NCA. As financial reporting is based on local GAPP, we see no reason for introducing European standards, it would increase administrative demand on IF. If it is needed for some countries to have EU legal basis to collect financial information, the proper way would be to introduce such requirement into the IFD leaving implementation on the national law and not specifying any content or format requirements at the EU level.