CLASSIFICATION AND RELATIONSHIP WITH REGULATORS

The IFR/IFD Framework introduces a new classification of investment firms based on their activities, size, and interconnectedness with other financial and economic actors, such classification resulting in differentiated requirements applying to investment firms.

At the early stages of preparation of the IFR/IFD Framework, EBA proposed to categorize investment firms into three categories, which are reflected in the IFR/IFD Framework.

The so-called Class 1 Firms are systemic investment firms or investment firms that are exposed to the same types of risks as credit institutions to which the full Capital Requirements Regulation/Capital Requirements Directives ("CRR/CRD") requirements apply

Class 2 Firms are other non-systemic investment firms above specific thresholds that should be subject to a more tailored prudential regime based on K-factors as set out in the IFR/IFD Framework.

Class 3 Firms are small and non-interconnected investment firms providing limited services in terms of number and size, to which a very simple regime should apply.

Class 1 Firms

Question 1. What criteria are common to all Class 1 Firms?

Answer. The feature common to all Class 1 Firms is that they carry out the activities of dealing on own account and/or underwriting and/or placing on firm commitment basis ("IFR Services").

Q2. Which firms will be required to apply for a license as a credit institution?

A. Whether a Class 1 Firm will be required to apply for a license as a credit institution will depend on various size and related criteria.

The largest investment firms carrying out the IFR Services and:

  • Whose total value of assets at the firm's level on December 24, 2019, is at least €30 billion, or
  • Whose total value of consolidated assets on December 24, 2019, is less than €30 billion but the firm belongs to a group where the total value of the consolidated assets of all undertakings of the group that carry out any of the IFR Services is at least €30 billion, or
  • The average of monthly total assets, calculated over a period of 12 consecutive months, is at least €30 billion, or
  • The average of monthly total assets of the firm, calculated over a period of 12 consecutive months, is less than €30 billion but the firm belongs to a group where the total value of the consolidated assets, calculated as an average over a period of 12 consecutive months, that carry out any of the IFR Services is at least €30 billion,

will be required to apply for a license as a credit institutions and will be subject to the CRR/CRD requirements in the same manner as any credit institution ("Largest Class 1 Firms"). This has a major impact on the existing investment firms that should apply for a license as a credit institution within the time frames set out under the IFR/IFD Framework.

Q3. When should the firm apply for a license as a credit institution?

A. The investment firms that qualified as Largest Class 1 Firms on December 24, 2019, are required to apply for authorization as credit institutions by December 27, 2020. This timeline leaves little time for preparation, and the relevant firms should start preparing their authorization filing without delay.

In other cases, the application for authorization as a credit institution must be made at the latest on the day when the firm crosses the €30 billion threshold, on individual or group level, based on the average monthly total assets calculated over a period of 12 consecutive months.

Q4. When should the firm calculate the €30 billion threshold?

A. The Draft RTS suggest that the monthly calculation would be too burdensome and opts for a quarterly calculation aligned with the frequency of reporting to the regulator for the purposes of monitoring the significance of an investment firm under the IFR/IFD Framework. In this way, the firms will be required to perform the calculations four times a year taking into account the monthly averages.

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