The EBA and ESMA invite comments on the review of the investment firms prudential framework

The European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) published today a discussion paper on the potential review of the investment firms’ prudential framework. The discussion paper aims at gathering early stakeholder feedback to inform the response to the European Commission’s call for advice (CfA). The consultation runs until 3 September 2024. To assess the impact of the possible changes discussed in the paper, the EBA also launched a data collection exercise on a voluntary basis.

The discussion paper touches upon a broad range of topics, including:

• the adequacy of the current prudential requirements,
• an analysis of the existing methodology,
• risks not covered by the current framework.

It also discusses the implications of the adoption of the new EU Banking package (CRD VI and CRR 3) concerning the trading book, the fundamental review of the trading book (FRTB) and credit valuation adjustments (CVA).

Furthermore, prudential consolidation and a possible extension to crowdfunding and crypto-assets service providers are also considered. In this respect, the discussion paper provides an overview of the interaction of IFD/IFR with requirements applicable to undertakings for collective investment in transferable securities (UCITS) management companies and alternative investment funds managers (AIFMs) providing  MiFID services on an ancillary basis, or investment firms providing services related to crypto-assets.

The discussion paper also covers aspects related to remuneration in relation to investment firms, AIFMs and UCITS management companies, including the scope of application, remuneration policies, the requirements on variable remuneration, their oversight, disclosure and transparency. Finally, the discussion paper includes a short section on the treatment of firms currently non-prudentially regulated and active in commodity markets.

An ad-hoc data collection addressed to competent authorities, investment firms, and UCITS management companies and AIFMs is launched in parallel to the publication of the discussion paper.

Submission of responses

Comments to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. Please note that the deadline for the submission of comments is 3 September 2024. All contributions received will be published following the close of the consultation, unless requested otherwise.

A public hearing will take place via conference call on 20 June 2024 starting at 14:00 CEST. The EBA invites interested stakeholders to register using this link by 17 June 2024 at 16:00 CET.

Next steps

EBA and ESMA will prepare the joint EBA-ESMA Report in response to the CfA, which will include a broad assessment of the provisions of the IFR and IFD and their interaction with other regulations.

Background and legal basis

The IFD and IFR entered into force in 2019 introducing key innovations to the prudential framework for MiFID investment firms. Both legislations include review clauses requiring the Commission to submit a report and, if needed, a legislative proposal to the Council and to the Parliament on the functioning of the new framework. The Commission’s report should be submitted five years after the entry into force of the new framework.

Article 60 of Regulation (EU) 2019/2033 (IFR) and Article 66 of Directive (EU) 2019/2034 (IFD) mandate the Commission to submit a report to the Council and to the Parliament regarding multiple aspects of the IFD and IFR. In its report, the Commission may include a legislative proposal to amend the prudential framework applicable to investment firms.

On that basis, the Commission submitted a call for advice on 1 February 2023 to the EBA and ESMA (link) seeking advice on the investment firms prudential framework as well as other related topics.