Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on the prudential requirements of investment firms and amending Regulations (EU) No 575/2013, (EU) No 600/2014 and (EU) No 1093/2010
Date: 2017-12-20
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: administrative supervision, capital market, disclosure of information, financial control, financial legislation, investment company, market supervision, private-sector liquidity, venture capital

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 20.12.2017 COM(2017) 790 final 2017/0359 (COD)  Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on the prudential requirements of investment firms and amending Regulations (EU) No 575/2013, (EU) No 600/2014 and (EU) No 1093/2010  (Text with EEA relevance) {SWD(2017) 481 final}  
 
 
EXPLANATORY MEMORANDUM 

1. 

• 

CONTEXT OF THE PROPOSAL 

Reasons for and objectives of the proposal 

The EU needs stronger capital markets in order to promote investment, unlock new sources 
of  financing  for  companies,  offer  households  better  opportunities  and  strengthen  the 
Economic  and  Monetary  Union.  The  Commission  is  committed  to  putting  in  place  all  the 
remaining building blocks in order to complete the Capital Markets Union (CMU) by 20191. 

Investment  firms  provide  a  range  of  services  that  give  investors  access  to  securities  and 
derivatives  markets  (investment  advice,  portfolio  management,  brokerage,  execution  of 
orders  etc.).  Investment  firms  and  the  services  they  provide  form  a  vital  cog  in  a  well-
functioning CMU. They play an important role in facilitating savings and investment flows 
across  the  EU,  with  various  services  used  to  support  effective  capital  allocation  and  risk 
management.  

There are investment firms in all Member States. According to information compiled by the 
European  Banking  Authority  (EBA),  there  were  6 051  investment  firms  in  the  European 
Economic  Area  (EEA)2  at  the  end  of  2015.  These  include  firms  providing  a  limited  set  of 
services to retail customers in the main through to those offering a number of services to a 
broad range of retail, professional and corporate clients.  

Based  on  information  from  the  EBA,  around  85 %  of  EEA  investment  firms  limit  their 
activities to: 

 

 

 

 

offering investment advice; 

receiving and transmitting orders; 

managing portfolios; and 

executing orders.  

Acting  as  an  important  hub  for  capital  markets  and  investment  activities,  the  UK  has  the 
largest number of EEA investment firms, with roughly half of them based there, followed by 
Germany,  France,  the  Netherlands  and  Spain.  Most  EEA  investment  firms  are  small  or 
medium-sized. The EBA estimates that some eight investment firms, largely concentrated in 
the UK, control around 80 % of the assets of all investment firms in the EEA. 

As  one  of  the  new  priority  actions  to  strengthen  capital  markets  and  build  a  CMU,  the 
Commission  therefore  announced  in  its  Mid-Term  Review  of  the  Capital  Markets  Union 
Action  Plan3  that  it  would  propose  a  more  effective  prudential  and  supervisory  framework 

1 
See ‘Communication on the Mid-Term Review of the Capital Markets Union Action Plan’, COM(2017) 
292  final,  8 June  2017;  and,  ‘Communication  on  Reinforcing  integrated  supervision  to  strengthen  Capital 
Markets Union and financial integration in a changing environment’, COM(2017) 542 final, 20 September 2017. 
2 
EBA  report  on  investment  firms,  response  to  Commission’s  call  for  advice  of  December  2014 
(EBA/Op/2015/20),  Table  12:  Population  of 
https://www.eba.europa.eu/documents/10180/983359/EBA-Op-2015-20+Report+on+investment+firms.pdf 
3 

investment  firms,  by  category,  by  country,  p.  96.   

COM(2017) 292 final. 

EN 

1 

  EN 

 
 
                                                 
for investment firms, calibrated to the size and nature of investment firms, in order to boost 
competition and improve investors’ access to new opportunities and better ways of managing 
their risks. In view of the pivotal role played by UK investment firms in this area to date, the 
UK’s decision to withdraw from the EU further underlines the need to update the regulatory 
architecture in the EU in order to support this development.  

The  proposals  covering  this  Regulation  and  the  accompanying  Directive  (‘the  proposals’) 
were included in the 2017 Commission Work Programme as a REFIT exercise. They aim to 
ensure  that  investment  firms  are  subject  to  capital,  liquidity  and  other  key  prudential 
requirements and corresponding supervisory arrangements that are adapted to their business 
yet sufficiently robust to capture the risks of investment firms in a prudentially sound manner 
in order to protect the stability of the EU’s financial markets. The proposals are the outcome 
of a review mandated by Articles 493(2), 498(2), 508(2) and 508(3) of Regulation (EU) No 
575/2013  (Capital  Requirements  Regulation,  or  CRR)4  which,  together  with  Directive 
2013/36/EU  (Capital  Requirements  Directive  IV,  or  CRD  IV)5,  constitute  the  current 
prudential framework for investment firms. When agreeing these texts, co-legislators decided 
that the framework for investment firms should be reviewed given that its rules are largely 
geared to credit institutions. 

Unlike credit institutions, investment firms do not take deposits or make loans. This means 
that  they  are  a  lot  less  exposed  to  credit  risk  and  the  risk  of  depositors  withdrawing  their 
money at short notice. Their services focus on financial instruments – unlike deposits, these 
are  not  payable  at  par  but  fluctuate  according  to  market  movements.  They  do  however 
compete  with  credit  institutions  in  providing  investment  services,  which  credit  institutions 
can  offer  to  their customers  under  their  banking  licence.  Credit  institutions  and  investment 
firms  are  therefore  two  qualitatively  different  institutions  with  different  primary  business 
models but with some overlap in the services they can provide. 

Investment firms have been subject to EU prudential rules alongside credit institutions since 
1993, the year in which the first EU framework governing the activities of investment firms 
entered into force. Now replaced by the Markets in Financial Instruments Directive (MiFID)6 
and, as of January 2018, by MiFID II / MiFIR7, this framework sets out the conditions for 
authorisation and organisational and business conduct requirements under which investment 
services  can  be  provided  to  investors  as  well  as  other  requirements  governing  the  orderly 
functioning of financial markets. 

The  prudential  framework  for  investment  firms  in  the  CRR/CRD  IV  works  in  conjunction 

4 
Regulation  (EU)  No  575/2013  of  the  European  Parliament  and  of  the  Council  of  26 June  2013  on 
prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 
(OJ L 176, 27.6.2013, p. 1-337). 
5 
Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the 
activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending 
Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, p. 338-436). 
6 
Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in 
financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the 
European Parliament and of the Council and repealing Council Directive 93/22/EEC (OJ L 145, 30.4.2004, p. 1-
44). 
7 
Directive  2014/65/EU  of  the  European  Parliament  and  of  the  Council  of  15 May  2014  on  markets  in 
financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (OJ L 173, 12.6.2014, p. 
349-496) and Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on 
markets in financial instruments and amending Regulation (EU) No 648/2012 (OJ L 173, 12.6.2014, p. 84-148). 

EN 

2 

  EN 

 
                                                 
with  MiFID. Typically, prudential requirements on financial  institutions are designed to  (i) 
ensure that they have sufficient resources to remain financially viable and to carry out their 
services  through  economic  cycles;  or  (ii)  enable  an  orderly  wind-down  without  causing 
undue economic harm to their customers or to the stability of the markets they operate in. As 
a result, they should aim to reflect the risks that different financial institutions face and pose, 
be  proportionate  to  the  likelihood  of  the  risks  occurring,  and  broadly  strike  a  balance 
between  ensuring  the  safety  and  soundness  of  different  financial  institutions  and  avoiding 
excessive costs which could hinder them from carrying out their business in a viable way.  

Systemic investment firms, a number of which are identified as global, or other systemically 
important institutions under Article 131 of CRD IV should still be subject to the CRR/CRD 
IV  framework,  including  the  amendments  proposed  by  the  Commission  on  23 November 
20168, in accordance with the revised approach for identifying them in the proposals. This is 
because these firms typically incur and underwrite risks on a significant scale throughout the 
single  market.  Their  activities  expose  them  to  credit  risk,  which  is  mainly  in  the  form  of 
counterparty  credit  risk  as  well  as  market  risk  for  positions  they  take  on  own  account, 
whether for their clients or  themselves. They therefore constitute a greater risk to  financial 
stability given their size and interconnectedness. In light of these risks and in order to ensure 
a level playing field, such systemic investment firms should be treated as credit institutions. 

As announced in the Commission Communication of September 2017 on the review of the 
European  Supervisory  Authorities9  (ESAs),  this  would  also  imply  among  other  things  that 
their  operations  in  Member  States  participating  in  the  Banking  Union  are  subject  to  direct 
supervision  by  the  ECB  in  the  Single  Supervisory  Mechanism.  At  present,  these  firms  are 
largely concentrated in the UK but are in the process of considering plans to relocate parts of 
their operations to the EU-27, notably to Member States participating in the Banking Union. 
While this covers only a small number of firms, they nevertheless represent a sizeable share 
of the total assets and business volume of all investment firms in the EU. 

For other investment firms, the fact that the current prudential framework focuses on credit 
institutions  and  the  risks  they  face  and  pose  rather  than  investment  firms  is  more 
problematic. The services provided by these firms and the risks they can create are, to a large 
extent,  not  explicitly  addressed  by  the  existing  rules.  Of  the  eight  investment  services  that 
investment firms are authorised to perform under MiFID10, only (i) dealing on own account; 
and  (ii)  underwriting  or  placing  instruments  on  a  firm  commitment  basis  have  clear 
corresponding requirements under the CRR. For the other investment services (reception and 
transmission  of  orders,  execution  of  orders,  portfolio  management,  investment  advice, 
placing  instruments  without  a  firm  commitment  basis,  operation  of  a  multilateral  trading 

of 

on 

the 

the 

Part 

First 

for  Advice 

In  line  with  the  second  set  of  advice  from  EBA  of  October  2016  (Opinion  of  the  European  Banking 
Firms, 
Call 

8 
Authority 
https://www.eba.europa.eu/documents/10180/1639033/Opinion+of+the+European+Banking+Authority+on+the
+First+Part+of+the+Call+for+Advice+on+Investment+Firms+%28EBA-Op-2016-16%29.pdf),  the  Commission 
proposed  in  November  2016  that  investment  firms  identified  as  global  or  as  other  systemically  important 
institutions (G-SIIs, O-SIIs) in accordance with Article 131 of the Capital Requirements Directive should still be 
subject to the revised Capital Requirements Regulation. In March 2017, there were eight investment firms in this 
group, all based in the UK. The Commission also proposed that other investment firms could be unaffected by 
these  changes.  See:  Commission  proposals  to  revise  the  Capital  Requirements  Regulation  and  Directive  of 
23 November 
https://ec.europa.eu/info/law/banking-prudential-requirements-directive-2013-36-
eu/upcoming_en 
9 
10 

COM(2017) 542 final. 
MiFID II will add the investment service ‘operation of an organised trading facility’ to this list. 

Investment 

2016, 

on 

EN 

3 

  EN 

 
                                                 
facility),  such  requirements  are  missing  and  result  in  approximate  coverage  of  the  risks 
involved. While limited in some cases, the risks inherent in these activities for the firm and, 
as a consequence, for the firm’s clients and the wider markets they operate in are therefore 
not captured in a targeted way. 

This  gives  rise  to  three  main  problems,  which  are  assessed  in  the  staff  working  document 
accompanying the proposals.  

First, while the framework caters to some extent to the different types of business profiles of 
investment  firms  in  the  form  of  exemptions,  it  is  a  source  of  considerable  regulatory 
complexity  for  many  firms  in  general.  Second,  its  detailed  requirements  and  exemptions 
constitute  a  crude  and  risk-insensitive  proxy  for  the  actual  risks  incurred  and  posed  by 
investment firms, which differ from those of banks. Third, due to its inherent complexity and 
lack of risk sensitivity, its implementation by Member States gives rise to fragmentation in 
the  overall  regulatory  landscape  for  investment  firms,  with  scope  for  harmful  regulatory 
arbitrage. This could threaten the integrity and functioning of the single market.    

The objectives of the proposals are to address the problems of the existing framework while 
facilitating  the  take-up  and  pursuit  of  business  by  investment  firms  where  possible. 
Specifically,  they  set  out  a  prudential  framework  that  is  better  adapted  to  their  business 
models.  They  consist  of  more  appropriate  and  risk-sensitive  requirements  for  investment 
firms, better targeting the risks they actually pose and incur across different types of business 
models.  Finally,  they  constitute  a  more  streamlined  regulatory  toolkit  to  enable  prudential 
supervisors to carry out their oversight effectively. 

As  mandated  by  the  Articles  of  the  CRR,  the  review  of  the  prudential  framework  for 
investment firms has been carried out in consultation with EBA, the European Securities and 
Markets  Authority  (ESMA)  and  the  national  competent  authorities  represented  in  these 
ESAs.  Following  a  first  call  for  advice  by  the  Commission  in  December  2014,  EBA 
published its first report on the current prudential framework for investment firms, calling for 
changes to the current approach for all but the largest and most systemic investment firms in 
December 201511. Following a second call for advice by the Commission in June 2016, EBA 
published a discussion paper for consultation focusing on a potential new prudential regime 
for  the  vast  majority  of  investment  firms  in  November  201612.  Taking  account  of  the 
feedback and the additional data it had gathered from investment firms together with national 
competent authorities, EBA published  its final recommendations  in  September 201713. The 
proposals build on these recommendations in all key respects except for the identification of 
systemic  investment  firms,  for  the  reasons  explained  in  the  accompanying  staff  working 
document and summarised under the section on ‘impact assessment’ below. 

• 

Consistency with existing policy provisions in the policy area 

Designing 

EBA  report  on  investment  firms,  response  to  Commission’s  call  for  advice  of  December  2014 
http://www.eba.europa.eu/documents/10180/983359/EBA-Op-2015-

11 
(EBA/Op/2015/20), 
20+Report+on+investment+firms.pdf 
12 
(EBA/DP/2016/02), 
https://www.eba.europa.eu/documents/10180/1647446/Discussion+Paper+on+a+new+prudential+regime+for+In
vestment+Firms+%28EBA-DP-2016-02 %29.pdf/cf75b87e-2db3-47a3-b1f3-8a30fa6962da 
13 
http://www.eba.europa.eu/documents/10180/1976637/EBA+Advice+on+New+Prudential+Framework+on+Inve
stment+Firms+%28EBA-Op-2017-11 %29.pdf 

EBA  opinion  on  the  design  of  a  new  prudential  framework  for  investment  firms  (EBA/Op/2017/11), 

investment 

prudential 

regime 

firms 

new 

for 

a 

EN 

4 

  EN 

 
                                                 
This  proposal  complements  the  ongoing  review  of  the  CRR/CRD  IV  regime  for  credit 
institutions  following  the  proposals  adopted  by  the  Commission  on  23 November  2016, 
which allowed all non-systemic investment firms to opt out of its revised provisions14. This 
option  was  introduced  in  recognition  of  the  fact  that  these  revised  provisions  were  not 
designed  with  most  investment  firms  in  mind  and  they  would  have  created  further 
complexity in the existing rulebook. The review of the prudential regime for most investment 
firms also put forward in this proposal was already well underway at the time, and subjecting 
them to an even more complex regime for a brief period pending the application of the new 
regime was considered disproportionate. This proposal therefore creates a new regime for the 
majority  of  investment firms by carving  them entirely out  of the CRR/CRD IV framework 
and  leaving  only  systemic  investment  firms  within  the  scope  of  the  latter,  including  its 
revised  provisions,  in  accordance  with  the  revised  approach  for  identifying  them  in  this 
proposal.   

The  proposal  is  also  consistent  with  MiFID  and  MiFID  II  /  MiFIR.  By  setting  prudential 
requirements that are tailored to the business and risks of investment firms, it clarifies when 
and why these requirements apply. As such, it overcomes some cases of arbitrary application 
of  prudential  requirements  in  the  current  framework,  which  arise  because  they  are  set  first 
and foremost in relation to investment services listed in MiFID rather than the actual build-
up of risks in the type and volumes of business conducted by investment firms.   

MiFID  II  and  MiFIR  were  adopted  in  the  wake  of  the  financial  crisis  and  cover  securities 
markets,  investment  intermediaries  and  trading  venues.  The  new  framework  reinforces  and 
replaces the current MiFID I framework. In light of the revision of the prudential framework 
for investment firms, it is also necessary to ensure that third-country firms providing services 
cross-border in the EU do not enjoy a more favourable treatment than EU firms in terms of 
prudential, tax and supervisory requirements. This proposal would undertake targeted changes 
to the existing equivalence regime for third-country firms under Articles 46 and 47 of MiFIR 
to maintain a level playing field between EU firms and third-country firms.  

• 

Consistency with other Union policies 

Investment  firms  play  an  important  role  in  facilitating  investment  flows  across  the  EU. 
Accordingly, the review also forms part of the Commission initiatives to ensure a strong and 
fair  single  market  with  a  well-functioning  financial  system  and  CMU  in  order  to  mobilise 
investments  and  boost  growth  and  jobs15.  A  more  suitable  prudential  and  supervisory 
framework  with  lower  compliance  costs  for  investment  firms  should  help  (i)  improve  the 
overall conditions for businesses; (ii) boost market entry and competition in the process; and 
(iii) improve investors’ access to new opportunities and better ways of managing their risks. 

The revised approach for identifying systemic investment firms that should remain under the 
CRR/CRD IV framework is also consistent with the objective of avoiding loopholes in the 
functioning of the Banking Union. Recent structural market developments indicate that third-
country  banking  groups have  increasingly complex structures in  the EU, operating  through 
entities  that  escape  supervision  by  the  ECB  under  the  Single  Supervisory  Mechanism.  As 
outlined  in  the  Commission  Communication  of  October  2017  on  completing  the  Banking 

Commission  proposals  to  revise  the  Capital  Requirements  Regulation  and  Directive  of  23 November 

14 
2016, https://ec.europa.eu/info/law/banking-prudential-requirements-directive-2013-36-eu/upcoming_en 
15 
Communication  on  the  Mid-Term  Review  of  the  Capital  Markets  Union  Action  Plan,  June  2017 
(COM(2017) 292), https://ec.europa.eu/info/publications/mid-term-review-capital-markets-union-action-plan_en 

EN 

5 

  EN 

 
                                                 
Union16, ensuring that systemic investment firms remain in the CRR/CRD IV in accordance 
with the approach for identifying them in this proposal also brings them under the prudential 
supervision by banking supervisors and, for their operations in Member States participating 
in the Banking Union, under the prudential oversight of the ECB. 

2. 

• 

LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY 

Legal basis 

The Treaty on the Functioning of the European Union confers on  the European institutions 
the  competence  to  lay  down  appropriate  provisions  which  have  as  their  object  the 
establishment  and  functioning  of  the  internal  market  (Article 114  TFEU).  This  includes 
legislation dealing with prudential rules and other rules for providers of financial services, in 
this  case  the  provision  of  investment  services.  The  provisions  of  this  proposed  Regulation 
replace those in Regulation (EU) No 575/2013, which are also based on Article 114 TFEU, 
as they relate to investment firms. 

• 

Subsidiarity  

The proposal revises and simplifies the existing EU rules that govern the prudential treatment 
of  investment  firms  in  order  to  (i)  better  accommodate  and  address  risks  in  their  business 
models;  (ii)  improve  the  level  playing  field  among  firms;  and  (iii)  enhance  supervisory 
convergence.  To  achieve  this,  a  new  EU  framework  should  replace  the  existing  one  rather 
than devolve these choices to regulatory frameworks in the Member States. This is because 
investment firms authorised under MiFID today routinely provide their services to customers 
across  EU  borders.  Separate  and  disjointed  changes  to  the  rules  by  Member  States  could 
introduce  competitive  distortions  and  discriminatory  treatment,  which  would  fragment  the 
single  market.  This  could  increase  cases  of  harmful  regulatory  arbitrage,  with  possible 
knock-on effects for financial stability and investor protection in other Member States in case 
of problems. It could also skew the range and type of investment services that are available 
in a given Member State, to the possible detriment of overall market efficiency and investor 
choice.  The  revised  rules  should  avoid  undue  regulatory  disparities  and  ensure  a  level 
playing field for all authorised firms across the single market. 

• 

Proportionality 

As  a  REFIT  exercise,  the  key  objective  is  to  render  the  new  framework  more  suitable, 
relevant  and  proportionate  compared  to  the  existing  framework  for  investment  firms. 
Accordingly,  this  proposal  strikes  a  balance  between  ensuring  that  the  requirements  are  at 
once: 

 

 

comprehensive  and  robust  enough  to  capture  the  risks  of  investment  firms  in  a 
prudentially sound manner; and 

flexible  enough  to  cater  to  the  various  types  of  business  models  without  impeding 
their ability to operate in a commercially viable way.  

The  proposal  is  mindful  of  ensuring  that  the  costs  of  the  regime  in  terms  of  both  capital 
requirements  and  associated  compliance  and  administrative  costs,  which  are  generated  by 
the  need  to  manage  the  staff  and  systems  in  order  to  run  the  new  requirements  as  well  as 

16 

COM(2917) 592 final. 

EN 

6 

  EN 

 
                                                 
report on compliance to supervisors, are kept to the minimum to achieve this balance. 

As  outlined  in  the  accompanying  staff  working  document,  these  associated  costs  are 
expected to decrease on an ongoing basis, with some new one-off costs at the outset. In terms 
of  capital,  an  overarching  policy  choice  that  has  underpinned  work  on  the  review  and 
impacts  the  above  is  the  objective  of  ensuring  that,  on  aggregate,  EU-wide  capital 
requirements  on  investment  firms  do  not  increase  too  much.  This  translates  into  different 
distribution  effects  for  some  types  of  firms.  These  are  alleviated  by  the  provisions  of  the 
proposal so that the biggest impacts are phased in and capped.  

• 

Choice of the instrument 

A Regulation is  chosen since its provisions replace those in  Regulation (EU) No 575/2013 
relating  to  investment  firms.  This  achieves  the  same  direct  legal  effect  as  the  current 
rulebook, ensuring that the objectives of the proposal are achieved consistently across the EU 
and helping create greater certainty and a level playing field for firms. 

RESULTS 

3. 
CONSULTATIONS AND IMPACT ASSESSMENTS 

EX-POST 

OF 

ASSESSMENTS, 

STAKEHOLDER 

• 

Ex-post assessment of existing legislation 

The  assessment  of  the  existing  CRR/CRD  IV  framework,  which  is  based  on  the  analysis 
carried  out  by  the  EBA  and  ESMA  in  their  2015  report17  in  particular  and  on  the  parallel 
work  and  analysis  of  the  Commission  services,  is  summarised  in  the  accompanying  staff 
working document.  

It concludes that the existing rules, which are based on international regulatory standards for 
large banking groups and targeted at the risks of banks, only partially achieve their aims in 
terms  of  (i)  ensuring  sufficient  capital  for  the  risks  of  most  investment  firms;  (ii)  keeping 
compliance  costs  in  check;  (iii)  securing  a  level  playing  field  across  the  EU;  and  (iv) 
ensuring effective prudential oversight. Many of its provisions are considered ineffective and 
inefficient in this regard. The exception is large and systemic investment firms whose size, 
risk  profile  and  interconnectedness  with  other  participants  in  financial  markets  make  them 
‘bank-like’ in character.  

For  the  rest,  the  status  quo  was  assessed  to  create  (i)  excessive  complexity  and 
disproportionate compliance burdens especially for many small and medium-sized firms; (ii) 
poorly  tailored  and  risk-insensitive  prudential  metrics  and  requirements  for  accurately 
capturing the risks of investment firms; and (iii) cases of diverging national implementation 
of the rules and a fragmented regulatory landscape across the EU. 

• 

Stakeholder consultations 

Stakeholders  were  consulted  at  several  points  during  the  review.  In  terms  of  the  main 
milestones,  following  a  first  call  for  advice  by  the  Commission  in  December  2014,  EBA 
published  a  report  on  the  current  prudential  framework  for  investment  firms  together  with 
proposals  for  changes  in  December  2015.  This  constitutes  a  comprehensive  and  publicly 

17 
(EBA/Op/2015/20), 
20+Report+on+investment+firms.pdf 

EBA  report  on  investment  firms,  response  to  Commission’s  call  for  advice  of  December  2014 
https://www.eba.europa.eu/documents/10180/983359/EBA-Op-2015-

EN 

7 

  EN 

 
                                                 
available analysis of the status quo, with data on numbers and types of investment firms in 
Member  States.  This  analysis  helped  extend  the  review  to  stakeholders  who  may  not  be 
directly impacted by the rules and encouraged them to join in the subsequent discussion. 

On  4 November  2016,  EBA  published  a  discussion  paper  for  consultation  focusing  on  a 
potential new prudential regime for investment firms. The paper was open for comments for 
3 months. EBA published its draft recommendations on 3 July 2017, inviting comments from 
stakeholders.  Its  work  was  also  supported  by  a  detailed  data-gathering  exercise  involving 
investment firms. This was carried out by national competent authorities on behalf of EBA in 
two stages in 2016 and 2017.  

Given  the  detailed  public  consultation  and  data  collection  undertaken  by  EBA,  the 
Commission considered it unnecessary to run a general public consultation in parallel. The 
Commission  services  instead  consulted  stakeholders  in  a  targeted  fashion  to  gather  further 
views on the main elements of the review. This included: 

 

 

 

a  roundtable  with  industry  stakeholders  (investment  firms,  investors,  law  firms, 
consultants) on 27 January 2017 on EBA draft proposals for a future regime; 

a workshop on the costs of the current regime on 30 May 2017; and 

a workshop on EBA’s draft final recommendations on 17 July 2017.  

The review was discussed with Member States in the Financial Services Committee in March 
and October 2017 and in the Experts Group on Banking, Payments and Insurance in June and 
September  2017.  Stakeholder  input  received  on  the  Commission’s  inception  impact 
assessment published in March 2017 was also taken into account18. Finally, the Commission 
also  considered  input  received  previously  in  the  wide-ranging  call  for  evidence  on  the 
efficiency, consistency and coherence of the overall EU regulatory framework for financial 
services, in which several respondents pointed to various issues relevant for the review19. 

Investment firms represent various business models, and their views tend to focus on aspects 
of the proposals specific to them. This complicates cross-cutting comparisons of the relative 
weight  of  stakeholder  positions.  However,  in  general  the  large  majority  of  stakeholders 
welcome a tailored prudential framework more suited to their business models. They stress 
that  their  systemic  relevance  is  limited  and  that  capital  requirements  should  focus  on 
ensuring they can be wound down in an orderly way. In terms of specific requirements that 
apply to their particular business model, investment firms that conduct agency-only services 
and  do  not  enter  into  transactions  in  financial  instruments  using  their  own  balance  sheet 
generally  criticise  proposals  for  linking  capital  requirements  to  the  size  of  the  client 
portfolios they manage in a linear way. While many firms that trade on own account agree 
that the existing framework for capturing market risk has some merit in light of the risks they 
incur and pose, other trading firms note that it exaggerates risks in the methods and products 
they  trade  in.  These  views  have  been  taken  into  account  in  the  calibration  of  the  proposed 
new  risk  metrics  (K-factors  —  see  below)  and  the  possibility  to  phase  in  and  cap  higher 
requirements.   

   • 

Collection and use of expertise 

18 
19 
http://ec.europa.eu/finance/consultations/2015/financial-regulatory-framework-review/index_en.htm 

https://ec.europa.eu/info/law/better-regulation/initiatives/ares-2017-1546878_en 
See  e.g.  various 

the  Commission’s  Call 

replies  submitted 

in 

for  Evidence  of  2015 

EN 

8 

  EN 

 
                                                 
The review was carried out based on comprehensive advice provided by EBA in consultation 
with  ESMA,  as  required  by  the  relevant  Articles  in  Regulation  (EU)  No  575/2013,  which 
constitute  the  legal  basis  for  the  review  (notably  Article 508(2)  and  (3)).  The  main  public 
outputs of the EBA were as follows:  

 

 

 

the December 2015 report setting out a comprehensive assessment of the status quo 
and initial recommendations for changes; 

the November 2016 discussion paper published for consultation on the contours of a 
possible new regime; and 

the September 2017 final report with detailed recommendations.  

The precise calibration of the recommendations for new capital requirements was supported 
by  a  detailed  data-gathering  exercise  involving  investment  firms.  This  was  carried  out  by 
national  competent  authorities  on  behalf  of  EBA  in  two  stages  in  2016  and  2017.  The 
Commission was involved throughout and was able to benefit from the discussions assessing 
the advantages and disadvantages of the detailed policy recommendations as they unfolded.  

• 

Impact assessment 

According to the Better Regulation Toolbox (tool #9), no Commission impact assessment is 
necessary whenever an EU agency has been mandated to carry out policy design work and 
related analysis, to the extent that the Commission proposal does not deviate much from the 
agency’s  recommendations  and  the  Commission  services  consider  its  assessment  to  be  of 
sufficient quality.  

While the Regulatory Scrutiny Board examined a draft impact assessment for this initiative, a 
staff working document was deemed more appropriate given that the specific mandate of the 
review is based on the advice of the ESAs and their stakeholder consultation and technical 
work. The objective of the staff working document accompanying the proposals is therefore 
to  explain  the  advice  given  by  the  ESAs,  including  the  results  of  their  analysis  and 
consultation,  while  providing  the  Commission  services’  views  on  its  conclusions,  with  a 
view to guiding the Commission’s decision-making.  

On capital requirements, EBA assesses that its advice would increase these on aggregate for 
all non-systemic EU investment firms by 10 % compared to Pillar 1 requirements today, and 
decrease them by 16 % compared to total requirements applied as a result of Pillar 2 add-ons. 
The  way  in  which  these  impacts  would  be  distributed  among  investment  firms  depends  on 
their size, which investment services they provide and how the new capital requirements will 
apply  to  them.  As  detailed  in  the  Staff  Working  Document  accompanying  the  proposals, 
including  its  Annex  II,  the  10%  aggregate  increase  in  Pillar  1  requirements  is  the  sum  of 
considerably  lower  requirements  for  some  and  increases  in  excess  of  10%  for  others.  On 
available own funds, EBA finds that only a few firms would fail to have sufficient capital to 
comfortably  meet  the  new  requirements  –  this  involves  just  a  small  number  of  investment 
advisors,  trading  firms  and  multiservice  firms.  However,  for  firms  in  this  group  whose 
increases  would  be  over  twice  their  current  requirements,  a  cap  could  be  granted  for  a 
number of years. 

The accompanying staff working document concludes that, overall, EBA’s recommendations 
are  considered  to  be  an  appropriate  and  proportionate  means  of  achieving  the  review’s 
objectives in an effective and efficient manner compared to the status quo. More generally, 
EBA’s advice  is  a  clear positive step towards a prudential  framework  for investment firms 

EN 

9 

  EN 

 
that  can  both  ensure  that  they  operate  on  a  sound  financial  basis  while  not  hindering  their 
commercial prospects. As such, it should support the review’s aims in a balanced fashion. On 
the  one  hand,  it  should  help  ensure  that  the  risks  of  investment  firms  for  customers  and 
markets are addressed in a more targeted way both in their ongoing operations and in case 
they need to be wound down. On the other, it should help ensure that they can fully perform 
their role in facilitating investment flows across the EU, which is consistent with the aims of 
the CMU to mobilise savings and investments in order to boost growth and jobs. 

It only diverges with EBA’s recommendations on the identification of systemic investment 
firms.  Rather  than  postpone  this  so  it  is  clarified  via  criteria  to  be  developed  in  technical 
rules implementing the proposals as EBA recommends, it is considered more appropriate to 
set  this  out  in  the  proposals  themselves  in  order  to  ensure  a  regulatory  level  playing  field 
between  credit  institutions  and  systemic  investment  firms.  On  this  point,  the  proposals  go 
beyond  EBA’s  advice  in  its  opinion  on  the  review  of  investment  firms.  However,  the 
proposals thereby deliver on EBA's opinion on issues related to the UK’s decision to leave 
the EU20. 

• 

Regulatory fitness and simplification 

As  outlined  in  the  accompanying  staff  working  document,  simplification  of  the  prudential 
rules  for  the  vast  majority  of  investment  firms  is  expected  to  considerably  reduce  their 
administrative  and  compliance  burdens.  Various  redundant  regulatory  and  reporting 
requirements could be removed, allowing capital dedicated to regulatory purposes to switch 
to more productive uses. The proposals, by setting capital and other prudential requirements, 
including remuneration and governance, that are proportionate to investment firms alleviate 
for  the  first  time  the  significant  costs  that  firms  incur  as  a  result  of  the  bank-centric 
requirements  of  the  current  regime.  This  would  put  an  end  to  the  complicated  task  of 
matching  and  reconciling  business  data  to  an  ill-fitted  regulatory  framework  and  reporting 
regime. 

Investment firms that are SMEs21 are expected to be among the main beneficiaries. A more 
proportionate  and  appropriate  prudential  framework  for  them  should  help  improve  the 
conditions  for  conducting  business,  and  barriers  to  entry  should  decrease.  For  example, 
streamlining  the  onerous  reporting  framework  should  reduce  administrative  burdens  and 
compliance  costs  for  SMEs,  including  innovative  firms  seeking  to  grow  through  digital 
means.  Similarly,  by  exempting  small  and  non-interconnected  investment  firms  from  the 
current governance and remuneration rules as laid down under the current CRD IV/CRR the 
proposals would reduce administrative and compliance costs for these enterprises. Some one-
off costs of transitioning to the new regime are to be expected as firms need to overhaul risk 
management  systems,  update  compliance  departments  and  revise  contracts  with  law  firms 
and  other  service  providers  that  are  currently  used  to  facilitate  compliance.  However,  the 
compliance  cost  savings  should  support  the  CMU’s  aims  in  general  by  helping  investment 

the 

Union 

European 

Opinion of the European Banking Authority on issues related to the departure of the United Kingdom 
2017, 

20 
from 
http://www.eba.europa.eu/documents/10180/1756362/EBA+Opinion+on+Brexit+Issues+%28EBA-Op-2017-
12 %29.pdf 
21 
As  defined  in  the  Commission  Recommendation  of  6 May  2003  concerning  the  definition  of  micro, 
small and medium-sized enterprises (OJ L 124, 20.5.2003, p. 36-41), i.e. enterprises which employ fewer than 
250 persons and which have an annual turnover not exceeding EUR 50 million, and/or an annual balance sheet 
total not exceeding EUR 43 million. 

(EBA/Op/2017/12) 

12 October 

of 

EN 

10 

  EN 

 
                                                 
firms play their role in mobilising savings from investors towards productive uses. 

In  terms  of  compliance  costs,  firms  are  set  to  save  tens  of  thousands  to  hundreds  of 
thousands  of  euros  depending  on  the  type  and  size  of  firm.  How  these  reductions  in 
compliance costs relate and compare to changes in capital requirements for different types of 
firms is not known at this stage, but should feature in the future monitoring and evaluation of 
the framework. 

• 

Fundamental rights 

This  proposal  strengthens  the  exercise  of  the  right  of  various  investment  firms  to  conduct 
their business unencumbered by rules designed primarily for other types of economic actors. 
The  legislative  measures  in  the  proposals  setting  out  rules  for  remuneration  in  investment 
firms  observe  the  principles  recognised  by  the  Charter  of  Fundamental  Rights  of  the 
European  Union,  notably  the  freedom  to  conduct  a  business  and  the  right  of  collective 
bargaining and action. 

4. 

BUDGETARY IMPLICATIONS 

The proposal will not have implications for the EU budget. 

5. 

• 

OTHER ELEMENTS 

Implementation plans and monitoring, evaluation and reporting arrangements 

The changes envisaged by the proposals should be evaluated in order to determine the degree 
to which the following objectives have been met: 

 

 

 

 

a simpler categorisation of investment firms in a manner that captures their different 
risk profiles;  

a set of prudential rules, notably on capital, liquidity, remuneration and governance 
requirements,  that  are  appropriate,  proportionate  and  sensitive  to  the  specific  risks 
that investment firms are exposed to and that ensure that capital is assigned to where 
it is needed;  

a  framework  that  corresponds  to  the  risks  inherent  in  the  nature  and  range  of 
activities undertaken by investment firms in a direct and discernible way and thereby 
supports taking up the business; and 

a streamlined supervisory toolkit to enable the full and accurate oversight of business 
practices and the associated risks.  

To this end, some of the following information could be gathered as part of a future review in 
order to serve as indicators in evaluating the impact of the proposed changes: (i) compliance 
costs  in  terms  of  staff,  legal  advice  and  regulatory  reporting;  (ii)  levels  of  capital 
requirements; (iii) other new costs e.g. from liquidity rules; (iv) evolution in the numbers of 
firms  between  the  different  categories;  (v)  changes  in  recourse  to  Pillar  2  add-ons  by 
competent  authorities;  (vi)  cases  and  impact  of  failure  of  investment  firms  under  the  new 
regime; and (vii) evolution of the size of investment firms in terms of assets and client order 
volumes. 

• 

Detailed explanation of the specific provisions of the proposal 

EN 

11 

  EN 

 
Subject matter and scope 

The  proposal  sets  out  requirements  in  terms  of  own  funds,  levels  of  minimum  capital, 
concentration  risk,  liquidity,  reporting  and  public  disclosure  under  this  Regulation  for  all 
investment firms that are not systemic. 

Level of application 

All  investment  firms  within  the  scope  of  the  Regulation  are  to  apply  its  provisions  on  an 
individual  basis.  A  derogation  is  provided  for  small  and  non-interconnected  firms  within 
banking groups subject to consolidated application and supervision under the CRR/CRD IV. 
A  specific  group  capital  requirement  applies  to  groups  containing  only  investment  firms, 
with  the  parent  company  required to  ensure sufficient  capital  to  support  its  holdings  in  the 
investment firm subsidiaries.  

Own funds 

The capital instruments which qualify as own funds for investment firms to meet their capital 
requirements  under  this  Regulation  consist  of  the  same  items  as  under  CRR/CRD  IV.  For 
this  purpose,  Common  Equity  Tier  1  (CET1)  capital  should  constitute  at  least  56 %  of 
regulatory  capital,  with  Additional  Tier  1  (AT1)  capital  eligible  for  up  to  44 %  and  Tier  2 
capital eligible for up to 25 % of regulatory capital. 

Capital requirements 

All investment  firms shall maintain an amount equal to the initial capital required for their 
authorisation  as  permanent  minimum  capital  at  all  times.  Small  and  non-interconnected 
investment firms shall either apply this requirement or, if higher, one based on a quarter  of 
their previous year’s fixed overheads, calculated in accordance with Commission Delegated 
Regulation  (EU)  2015/48822,  as  their  capital  requirement.  These  firms  are  defined  as  those 
not  authorised  to  safeguard and administer  client  assets, hold  client  money  or  deal on own 
account in their own name, or which have assets under management under both discretionary 
portfolio  management  and  non-discretionary  (advisory)  arrangements  that  are  less  than 
EUR 1.2 billion, handle daily client orders that are less than EUR 100 million for cash trades 
or EUR 1 billion for derivatives, and have a balance sheet of less than EUR 100 million and 
total  gross  revenues  from  their  investment  activities  that  are  less  than  EUR 30  million. 
Investment firms which are above these thresholds shall apply the highest of their permanent 
minimum capital requirement, their fixed overheads requirement, or their requirement based 
on the sum of the K-factor requirement. 

K-factors 

K-factors  capture  risks  to  customer  (RtC),  and  for  firms  that  deal  on  own  account  and 
execute client orders in their own name, risks to market (RtM) and risks to firm (RtF). RtC 
encompasses  the  following  K-factors:  assets  under  management  (K-AUM),  client  money 
held (K-CMH), assets safeguarded and administered (K-ASA), and client orders handled (K-
COH). RtM encompasses a K-factor for net position risk (K-NPR) based on the market risk 

22 
Commission  Delegated  Regulation  (EU)  2015/488  of  4 September  2014  amending  Delegated 
Regulation (EU) No 241/2014 as regards own funds requirements for firms based on fixed overheads (OJ L 78, 
24.3.2015, p. 1-4). 

EN 

12 

  EN 

 
                                                 
requirements  of  the  CRR  (Title  IV  of  Part  Three),  or  alternatively  if  permitted  by  the 
competent  authority,  one  based  on  margins  posted  with  clearing  members  for  trades 
guaranteed by the latter (K-CMG).  

The  threshold  for  an  investment  firm  to  be  able  to  avail  of  the  simplified  standardised 
approach  for  market  risk  is  amended  to  only  refer  to  an  absolute  amount  of  total  assets  of 
EUR 300 million. RtF encompasses K-factors for trading counterparty default (K-TCD), for 
concentration  risk  in  excess  of  defined  thresholds  (K-CON  —  see  below)  and  for  daily 
trading flow (K-DTF).  

K-CMH, K-ASA, K-COH and K-DTF are calculated on the basis of a rolling average from 
the previous 3 months, while for K-AUM it is based on the previous year. These K-factors 
are  multiplied  by  the  corresponding  coefficients  set  out  in  this  Regulation  in  order  to 
determine the capital requirement. Capital requirements for K-NPR are determined as per the 
CRR,  and  for  K-CON  and  K-TCD  using  a  simplified  application  of  the  corresponding 
requirements  under  CRR  for,  respectively,  the  treatment  of  large  exposures  in  the  trading 
book and counterparty credit risk. 

Concentration risk 

Investment firms should monitor and control their concentration risk, including in respect of 
their  customers.  Only  firms  which  are  not  considered  small  and  non-interconnected  should 
report  to  competent  authorities  on  their  concentration  risks,  for  instance  in  the  form  of  a 
default of their counterparties, where they hold client money, securities and their own cash, 
and concentration risk from their earnings. Those firms that deal on own account or execute 
client  orders  in  their  own  name  should  not  exceed  an  exposure  to  a single  or  to  connected 
counterparties  equal  to  25 %  of  their  regulatory  capital,  subject  to  specific  derogations  for 
exposures to credit institutions or other investment firms. These limits may only be exceeded 
if  additional  K-CON  capital  requirements  are  met.  For  investment  firms  specialised  in 
commodity  derivatives or  emission  allowances or  derivatives  thereof  which  can  have  large 
concentrated  exposures  to  the  non-financial  groups  they  belong  to,  these  limits  may  be 
exceeded  without  additional  capital  as  long  as  they  serve  group-wide  liquidity  or  risk 
management purposes. 

Liquidity       

Investment  firms  should  have  internal  procedures  to  monitor  and  manage  their  liquidity 
needs and be required to hold a minimum of one third of their fixed overheads requirements 
in  liquid  assets.  These  should  consist  of  the  list  of  high-quality  liquid  assets  under  the 
Commission Delegated Regulation on the Liquidity Coverage Ratio23, supplemented with the 
unencumbered own cash of the firm (which cannot include any client money) and for small 
and non-interconnected firms (those not subject to the K-factors), trade debtors and fees or 
commissions  receivable  within  30  days  subject  to  specific  conditions.  In  exceptional 
circumstances,  investment  firms  may  fall  below  the  required  threshold  by  monetising  their 
liquid  assets  to  cover  liquidity  needs,  provided  they  notify  their  competent  authority 
immediately. 

23 
Commission  Delegated  Regulation  (EU) 2015/61 of 10 October  2014  to  supplement  Regulation  (EU) 
No  575/2013  of  the  European  Parliament  and  the  Council  with  regard  to  liquidity  coverage  requirement  for 
credit institutions (OJ L 11, 17.1.2015, p. 1-36). 

EN 

13 

  EN 

 
                                                 
Supervisory reporting and public disclosure 

Investment  firms  are  required  to  report  to  their  competent  authorities  on  their  compliance 
with the prudential framework in accordance with detailed requirements to be articulated in 
Level 2 implementing measures. Firms which are subject to the K-factors have more granular 
reporting  requirements  than  those  subject  to  the  capital  requirement  either  in  terms  of 
permanent  minimum  capital  or  fixed  overheads.  These  firms  shall  publicly  disclose  their 
levels  of  capital,  their  capital  requirements,  remuneration  policies  and  practices,  and  their 
governance arrangements whereas small and non-interconnected firms shall not be subject to 
public disclosure requirements. 

Transitional provisions 

To  facilitate  a  smooth  transition  for  investment  firms  into  the  new  regime,  capital 
requirements  would  be  subject  to  phase-in  provisions  as  follows.  For  a  period  of  five  years 
from  the  date  of  application  of  this  Regulation,  investment  firms  for  which  capital 
requirement under the new regime would more than double compared to their existing capital 
requirement under the current framework should be allowed to limit their capital requirement 
to twice their relevant capital requirement under CRR/CRD IV. Further, for this period, new 
investment firms which were never subject to capital requirements under CRR/CRD IV could 
apply a limit at twice their fixed overheads requirement, while investment firms which were 
only subject to a requirement for initial capital under CRR/CRD IV could limit their capital 
requirement to twice this requirement to mitigate such increases. Finally, for a period of five 
years  from  the  date  of  application  of  this  Regulation,  or  until  the  date  of  application  of  the 
changes adopted to CRR/CRD IV as regards capital requirements for market risk pursuant to 
Article  1(84)  of  the  Commission  Proposal  for  a  Regulation  amending  Regulation  (EU)  No 
575/2013,  whichever  is  earlier,  investment  firms  subject  to  the  corresponding  provisions  of 
this Regulation should continue to calculate their capital requirement for the trading book in 
accordance with the existing CRR.      

Systemic investment firms 

This proposal amends the definition of credit institutions in article 4(1)(1) of CRR. This will 
grant the status of credit institutions to large investment firms which carry out the activities 
referred to in points (3) and (6) of Section A of Annex I of Mifid and have assets above EUR 
30  billion.  As  a  consequence,  large  investment  firms  of  systemic  importance  will  continue 
applying  CRR/CRD  IV  and  will  be  fully  subject  to  the  prudential  and  supervisory 
requirements applicable to credit institutions.. This includes the provisions on individual and 
consolidated  supervision  of  the  parent  undertaking  by  the  competent  authorities.  This  will 
imply,  among  other  things,  that  the  operations  of  large  investment  firms  established  in 
Member  States  participating  in  the  banking  union  are  subject  to  direct  supervision  by  the 
ECB in the framework of the Single Supervisory Mechanism. This approach would also be 
in  line  with  regulatory  development  in  other  jurisdictions  (e.g.  United  States,  Switzerland, 
Japan) where, since the financial crisis, the regulatory and supervisory treatment of systemic 
institutions.
increasingly  aligned  with 
investment  firms  have  been 

that  of  credit 

EN 

14 

  EN 

 
2017/0359 (COD) 

Proposal for a 

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

on the prudential requirements of investment firms and amending Regulations (EU) No 
575/2013, (EU) No 600/2014 and (EU) No 1093/2010 

(Text with EEA relevance) 

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 114 thereof, 

Having regard to the proposal from the European Commission, 

After transmission of the draft legislative act to the national parliaments, 
Having regard to the opinion of the European Central Bank,24 
Having regard to the opinion of the European Economic and Social Committee,25 

Acting in accordance with the ordinary legislative procedure, 

Whereas: 

(1) 

(2) 

Robust  prudential  requirements  are  an  integral  part  of  the  regulatory  conditions  in 
which financial institutions may provide services within the Union. Investment firms 
are,  together  with  credit  institutions,  subject  to  Directive  2013/36/EU26  and  to 
Regulation (EU) No 575/201327as regards their prudential treatment and supervision, 
while  their  authorisation  and  other  organisational  and  conduct  requirements  are  set 
out in Directive 2004/39/EC28. 

The existing prudential regimes  under Regulation (EU) No 575/2013  and Directive 
2013/36/EU are largely based on successive iterations of the international regulatory 
standards  set  for  large  banking  groups  by  the  Basel  Committee  on  Banking 
Supervision  and  only  partially  address  the  specific  risks  inherent  to  the  diverse 

24 
OJ C […], […], p. […]. 
25 
OJ C […], […], p. […]. 
26 
Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the 
activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending 
Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, p. 338–436) 
27 
Regulation  (EU)  No  575/2013  of  the  European  Parliament  and  of  the  Council  of  26  June  2013  on 
prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 
(OJ L 176, 27.6.2013, p. 1–337) 
28 
Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in 
financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the 
European Parliament and of the Council and repealing Council Directive 93/22/EEC (OJ L 145, 30.4.2004, p. 1–
44)   

EN 

15 

  EN 

 
 
 
                                                 
(3) 

(4) 

(5) 

(6) 

(7) 

activities  of  investment  firms.  The  specific  vulnerabilities  and  risks  inherent  to 
investment firms should therefore be specifically addressed by means of appropriate 
and proportionate prudential arrangements at Union level. 

The risks which investment firms themselves incur and pose for their clients and the 
wider  markets  in  which  they  operate  depend  on  the  nature  and  volume  of  their 
activities, including whether investment firms act as agents for their clients and are 
not party to the resulting transactions themselves, or whether they act as principals to 
the trades.    

Sound  prudential  requirements  should  ensure  that  investment  firms  are  managed  in 
an orderly way and in the best interests of their clients. They should take into account 
the potential for investment firms and their clients to engage in excessive risk-taking 
and  the  different  degrees  of  risk  assumed  and  posed  by  investment  firms.  Equally, 
such  prudential  requirements  should  aim  to  avoid  undue  administrative  burden  on 
investment firms.  

Many  of  the  requirements  that  stem  from  Regulation  (EU)  No  575/2013  and 
Directive  2013/36/EU  framework  are  designed  to  address  common  risks  faced  by 
credit  institutions.  Accordingly,  the  existing  requirements  are  largely  calibrated  to 
preserve  the  lending  capacity  of  credit  institutions  through  economic  cycles  and  to 
protect  depositors  and  taxpayers  from  possible  failure,  and  are  not  designed  to 
address the different risk-profiles of investment firms. Investment firms do not have 
large portfolios of retail and corporate loans and do not take deposits. The likelihood 
that their failure can have detrimental impacts for overall financial stability is lower 
than in the case of credit institutions. The risks faced and posed by investment firms 
are thus substantially different to the risks faced and posed by credit institutions and 
such difference should be clearly reflected in the prudential framework of the Union. 

The  prudential  requirements  under  Directive  2013/36/EU  and  the  Regulation  (EU) 
No  575/2013  which  investment  firms  are  subject  to  are  based  on  those  of  credit 
institutions.  Investment  firms  whose  scope  of  authorisation  is  limited  to  specific 
investment services which are not targeted by the current prudential framework are 
subject to numerous exemptions from these requirements. This recognises that in this 
capacity  these  firms  do  not  incur  risks  of  the  same  nature  as  credit  institutions. 
Investment  firms  which  carry  out  activities  which  are  targeted  by  the  current 
framework  involving  trading  in  financial  instruments  but  on  a  limited  basis,  are 
subject to the corresponding requirements of the framework in terms of capital, but 
can have exemptions in other areas such as liquidity, large exposures and leverage. 
Investment firms whose scope of authorisation is not subject to these limitations are 
subject to the full framework together with credit institutions. 

Trading financial instruments, whether for the purposes of risk-management, hedging 
and  liquidity-management  or  for  taking  directional  positions  on  the  value  of  the 
instruments over time, is an activity in which both credit institutions and investment 
firms  authorised  for  dealing  on  own  account  may  engage  and  which  is  already 
addressed by the Directive 2013/36/EU and Regulation (EU) No 575/2013 prudential 
framework. In order to avoid an unlevel playing field which could lead to regulatory 
arbitrage  between  credit  institutions  and  investment  firms  in  this  area,  the  capital 
requirements resulting from these rules to cover this risk should therefore continue to 
apply  to  these  investment  firms.  The  exposures  of  these  investment  firms  to  their 
trading counterparties in specific transactions and corresponding capital requirements 
are  also  covered  by  the  rules  and  should  therefore  also  continue  to  apply  in  a 

EN 

16 

  EN 

 
(8) 

(9) 

(10) 

simplified way. Finally, the large exposures rules of the current framework are also 
relevant  when  the  trading  exposures  of  these  investment  firms  to  specific 
counterparties are particularly large and thereby generate an excessively concentrated 
source  of  risk  for  an  investment  firm  from  the  default  of  the  counterparty.  These 
provisions should therefore also continue to apply to investment firms in a simplified 
way.  

Differences in the application of the existing framework in different Member States 
threaten  the  level  playing-field  for  investment  firms  within  the  Union.  These 
differences stem from the overall complexity of the application of the framework to 
different investment firms based on the services they provide, where some national 
authorities  adjust  or  streamline  such  application  in  national  law  or  practice.  Given 
that the existing prudential framework does not address all the risks faced and posed 
by some types of investment firms, large capital add-ons have been applied to certain 
investment firms in some Member States. Uniform provisions addressing those risks 
should  be  established  in  order  to  ensure  harmonised  prudential  supervision  of 
investment firms across the Union. 

A specific prudential regime is therefore required for investment firms which are not 
systemic  by  virtue  of  their  size  and  interconnectedness  with  other  financial  and 
economic actors. Systemic investment firms should, however, remain subject to the 
existing prudential framework under Directive 2013/36/EU and Regulation (EU) No 
575/2013.  Those  investment  firms  are  a  subset  of  investment  firms  to  which  the 
Directive  2013/36/EU/Regulation  (EU)  No  575/2013  framework  currently  applies 
and do not benefit from dedicated exemptions from any of its principle requirements. 
The largest and most interconnected investment firms have business models and risk 
profiles  that  are  similar  to  those  of  significant  credit  institutions  –  they  provide 
‘‘bank-like’’  services  and  underwrite  risks  on  a  significant  scale.  Therefore  it  is 
appropriate that those investment firms remain subject to the provisions set out in the 
Directive  2013/36/EU  and  Regulation  (EU)  No  575/2013.  Furthermore,  systemic 
investment firms are large enough, and have business models and risk-profiles which 
represent a threat for the stable and orderly functioning of financial markets on par 
with large credit institutions.  

The specific prudential regime for investment firms which, by virtue of their size and 
interconnectedness  with  other  financial  and  economic  actors,  are  not  considered 
systemic  should  address  the  specific  business  practices  of  different  types  of 
investment firms. Investment firms with the highest possibility of generating risks to 
clients, markets or the orderly functioning of the investment firms themselves should 
in  particular  be  subject  to  clear  and  effective  prudential  requirements  tailored  to 
those specific risks. Those prudential requirements should be calibrated in a manner 
proportionate to the type of investment firm, the best interests of the clients of that 
type of investment firm and the promotion of the smooth and orderly functioning of 
the markets in which those types of investment firms operate. They should mitigate 
identified  areas  of  risk  and  help  ensure  that,  if  an  investment  firm  fails,  it  can  be 
wound  down  in  an  orderly  manner  with  minimal  disruption  to  the  stability  of 
financial markets. 

(11) 

The  prudential  regime  for  investment  firms  which,  by  virtue  of  their  size  and 
interconnectedness  with  other  financial  and  economic  actors,  are  not  considered 
systemic  should  apply  to  each  investment  firm  on  an  individual  basis.  However, 
since the risks incurred by small and non-interconnected investment firms are limited 
for the most part, they should be allowed to avail themselves of an exemption from 

EN 

17 

  EN 

 
the  specific  prudential  requirements  where  they  are  part  of  a  banking  group 
headquartered  and  subject  to  consolidated  supervision  under  Regulation  (EU)  No 
575/2013/Directive  2013/36/EU  in  the  same  Member  State,  as  in  such  cases  the 
consolidated application of Regulation (EU) No 575/2013/ Directive 2013/36/EU  to 
the group should adequately cover those risks. In order to mirror the possible existing 
treatment  of  groups  of  investment  firms  under  the  Regulation  (EU)  No  575/2013/ 
Directive 2013/36/EU, the parent undertaking  in such  groups should be required to 
have  sufficient  capital to support  the book value of its  holdings  in  the subsidiaries. 
Further,  in  order  to  account  for  cases  where  such  investment  firm  groups  carry  a 
higher  degree  of  risk  or  interconnectedness,  they  could  be  subject  to  capital 
requirements based on the consolidated situation of the group.  

In order to allow investment firms to continue to rely on their existing own funds to 
meet  their  capital  requirements  under  the  prudential  framework  specific  to 
investment  firms,  the  definition  and  composition  of  own  funds  should  be  aligned 
with Regulation (EU) No 575/2013. This includes full deductions from balance-sheet 
items  from  own  funds  in  accordance  with  Regulation  (EU)  No  575/2013,  such  as 
deferred  tax  assets  and  holdings  of  capital  instruments  of  other  financial  sector 
entities.  However,  investment  firms  should  be  able  to  exempt  non-significant 
holdings of capital instruments in financial sector entities from deductions if held for 
trading purposes in order to support market-making in these instruments. In order to 
align the composition of own funds with the Regulation (EU) No 575/2013, at least 
56%  of  the  capital  requirement  should  be  met  by  investment  firms  with  Common 
Equity Tier 1 items, while Additional Tier 1 and Tier 2 items could be eligible up to 
44% and 25% of regulatory capital, respectively. 

In order to ensure that investment firms always operate on the basis of the level of 
capital required for their authorisation, all investment firms should, at all times, meet 
a  permanent  minimum  capital  requirement  equal  to  the  initial  capital  required  for 
authorisation  to  conduct  the  relevant  investment  services  set  in  accordance  with 
Directive (EU) ----/--/[IFD].  

In order to ensure a simple application of the minimum capital requirement for small 
and  non-interconnected  investment  firms,  they  should  have  capital  equal  to  the 
higher  of  their  permanent  minimum  capital  requirement  or  a  quarter  of  their  fixed 
overheads measured on the basis of their activity of the preceding year in accordance 
with Commission Delegated Regulation (EU) 2015/48829.  

To  account  for  the  higher  risks  of  investment  firms  which  are  not  small  and  non-
interconnected,  the  minimum  capital  requirement  for  them  should  be  the  higher  of 
their  permanent  minimum  requirement,  a  quarter  of  their  fixed  overheads  for  the 
preceding year, or the sum of their requirement under the set of risk factors tailored 
to investment firms (‘K-factors’) which sets capital in relation to the risks in specific 
business areas of investment firms.  

Investment  firms  should  be  considered  small  and  non-interconnected  for  the 
purposes of the specific prudential requirements for investment firms where they do 
not  conduct  investment  services  which  carry  a  high  risk  for  clients,  markets  or 
themselves and whose size means they are less likely to cause widespread negative 

(12) 

(13) 

(14) 

(15) 

(16) 

29 
Commission  Delegated  Regulation  (EU)  2015/488  of  4  September  2014  amending  Delegated 
Regulation (EU) No 241/2014 as regards own funds requirements for firms based on fixed overheads (OJ L 78, 
24.3.2015, p. 1 

EN 

18 

  EN 

 
                                                 
impacts for clients and markets in case risks inherent in their business materialise or 
in case they fail. Accordingly, small and non-interconnected investment firms should 
be  defined  as  those  that  do  not  deal  on  own  account  or  incur  risk  from  trading 
financial instruments, have no client assets or money under their control, have assets 
under  both  discretionary  portfolio  management  and  non-discretionary  (advisory) 
arrangements of less than EUR 1.2 billion, handle fewer than EUR 100 million per 
day of client orders in cash trades or EUR 1 billion per day in derivatives, and have a 
balance sheet smaller than EUR 100 million and total gross annual revenues from the 
performance of their investment services of less than EUR 30 million.  

In order to prevent regulatory arbitrage and reduce the incentive for investment firms 
to structure their operations in order to avoid exceeding the thresholds above which 
they do not qualify as small and non-interconnected firms, the thresholds for assets 
under management, client orders handled, balance sheet size and total gross revenues 
should  be  applied  on  a  combined  basis  for  all  investment  firms  that  are  part  of  the 
same  group.  The  other  criteria,  namely  whether  an  investment  firm  holds  client 
money,  administers  or  safeguards  client  assets,  or  trades  financial  instruments  and 
incurs  market  or  counterparty  risk,  are  binary  and  leave  no  scope  for  such 
restructuring  and  should  therefore  be  assessed  on  an  individual  basis.  In  order  to 
capture evolving business models and the risks they represent on an ongoing basis, 
these  criteria  and  thresholds  should  be  assessed  on  an  end-of-day  basis,  with  the 
exception  of  holding  client  money  which  should  be  assessed  on  an  intra-day  basis 
and balance sheet  size and total  gross  revenues which should be  assessed based on 
the situation of the investment firm at the end of the last financial year.  

An investment firm that exceeds the regulatory thresholds or fails to meet the other 
criteria should not be considered small and non-interconnected and should be subject 
the  requirements  for  other  investment  firms,  subject  to  the  specific  transitional 
provisions set out in this Regulation. This should incentivise investment firms to plan 
their  business  activities  so  as  to  clearly  qualify  as  small  and  non-interconnected 
firms.  For  an  investment  firm  which  does  not  satisfy  the  requirements  to  be 
considered small and non-interconnected to qualify for such treatment, a monitoring 
phase should be provided where that firm meets the criteria and remains below the 
relevant thresholds for at least six consecutive months.    

All investment firms should calculate their capital requirement with reference to a set 
of K-factors  which capture  Risk-To-Customer (‘RtC’),  Risk-to-Market  (‘RtM’) and 
Risk-to-Firm  (‘RtF’).  The  K-factors  under  RtC  capture  client  assets  under 
management and ongoing advice (K-AUM), assets safeguarded and administered (K-
ASA), client money held (K-CMH), and customer orders handled (K-COH).  

The K-factor under RtM captures net position risk (K-NPR) in accordance with the 
market  risk  provisions  of  CRR  or,  where  permitted  by  the  competent  authority  for 
specific  types  of  investment  firms  which  deal  on  own  account  through  clearing 
members,  based  on  margins  posted  with  an  investment  firm's  clearing  member  (K-
CMG).  

The K-factors under RtF capture an investment firm's exposure to the default of their 
trading  counterparties  (K-TCD)  in  accordance  with  simplified  provisions  for 
counterparty  credit  risk  based  on  CRR,  concentration  risk  in  an  investment  firm's 
large  exposures  to  specific  counterparties  based  on  CRR-provisions  for  large 
exposures  risk  in  the  trading  book  (K-CON),  and  operational  risks  from  an 
investment firm's daily trading flow (K-DTF).  

(17) 

(18) 

(19) 

(20) 

(21) 

EN 

19 

  EN 

 
(22) 

(23) 

(24) 

The overall capital requirement under the K-factors is the sum of the requirements of 
the K-factors under RtC, RtM and RtF. K-AUM, K-ASA, K-CMH, K-COH and K-
DTF relate to the volume of activity referred to by each K-factor. The volumes for 
K-CMH,  K-ASA,  K-COH,  and  K-DTF  are  calculated  on  the  basis  of  a  rolling 
average  from  the  previous  three  months,  while  for  K-AUM  it  is  based  on  the 
previous year. The volumes are multiplied by the corresponding coefficients set out 
in  this  Regulation  in  order  to  determine  the  capital  requirement.  The  capital 
requirements for K-NPR is derived from CRR, while the capital requirements for K-
CON  and  K-TCD  use  a  simplified  application  of  the  corresponding  requirements 
under CRR for, respectively, the treatment of large exposures in the trading book and 
of  counterparty  credit  risk.  The  amount  of  a  K-factor  is  zero  if  a  firm  does  not 
undertake the relevant activity. 

The K-factors under RtC are proxies covering the business areas of investment firms 
from  which  harm  to  clients  can  conceivably  be  generated  in  case  of  problems.  K-
AUM  captures  the  risk  of  harm  to  clients  from  an  incorrect  discretionary 
management of customer portfolios or poor execution and provides reassurance and 
customer  benefits  in  terms  of  the  continuity  of  service  of  ongoing  portfolio 
management and advice. K-ASA captures the risk of safeguarding and administering 
customer assets, and ensures that investment firms hold capital in proportion to such 
balances,  regardless  of  whether  they  are  on  its  own  balance  sheet  or  segregated  in 
other accounts. K-CMH captures the risk of potential for harm where an investment 
firm  holds  the  money  of  its  customers,  regardless  of  whether  they  are  on  its  own 
balance sheet or segregated in other accounts. K-COH captures the potential risk to 
clients of a firm which executes its orders (in the name of the client, and not in the 
name of the firm itself), for example as part of execution-only services to clients or 
when a firm is part of a chain for client orders.  

The K-factor for RtM for investment firms which deal on own account is based on 
the rules for market risk for positions in financial instruments, in foreign exchange, 
and in commodities in accordance with Regulation (EU) No 575/2013 as amended30. 
This  allows  investment  firms  to  choose  to  apply  either  the  standardised  approach 
under  Regulation  (EU)  No  575/2013  (simplified  standardised  approach  under 
Regulation (EU) No 575/2013 as amended) if their assets are below EUR 300 million 
or  the  revised  standardised  approach  under  Regulation  (EU)  No  575/2013  as 
amended  as  well  as  the  option  to  use  internal  models.  In  the  two  last  cases,  the 
resulting  capital  requirement  may  be  decreased  to  65%,  making  permanent  the 
possibility  under  Regulation  (EU)  No  575/2013  as  amended  to  apply  this  on  a 
temporary basis for three years, in order to take account of investment firms' overall 
lower  prudential  relevance.  Alternatively,  the  capital  requirement  of  trading  firms 
whose business is centrally cleared should, subject to the approval of the competent 
authority, be equal to the margins posted with their clearing member.   

(25) 

For investment firms which deal on own account, the K-factors for K-TCD and K-
CON  under  RtF  constitute  a  simplified  application  of  CRR  rules  on  counterparty 
credit  risk  and  large  exposure  risk,  respectively.  K-TCD  captures  the  risk  to  an 

30 
Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 
575/2013  as  regards  the  leverage  ratio,  the  net  stable  funding  ratio,  requirements  for  own  funds  and  eligible 
liabilities,  counterparty  credit  risk,  market  risk,  exposures  to  central  counterparties,  exposures  to  collective 
investment undertakings, large exposures, reporting and disclosure requirements and amending Regulation (EU) 
No 648/2012.  

EN 

20 

  EN 

 
                                                 
(26) 

(27) 

investment firm of counterparties in over-the-counter (OTC) derivatives, repurchase 
transactions,  securities  and  commodities  lending  or  borrowing  transactions,  long-
settlement  transactions  and  margin  lending  transactions  failing  to  fulfil  their 
obligations by multiplying the value of the exposures, based on replacement cost and 
an add-on for potential future exposure, by risk factors based on Regulation (EU) No 
575/2013, accounting for the mitigating effects of effective netting and the exchange 
of  collateral.  K-CON  captures  concentration  risk  in  relation  to  individual  or  highly 
connected private sector counterparties with whom firms have exposures above 25% 
of  their  regulatory  capital,  or  specific  alternative  thresholds  in  relation  to  credit 
institutions  or  other  investment  firms,  by  imposing  a  capital  add-on  in  line  with 
Regulation  (EU)  No  575/2013  for  excess  exposures  above  these  limits.  Finally,  K-
DTF captures the operational risks to an investment firm in large volumes of trades 
concluded for its own account or for clients in its own name in one day which could 
result  from  inadequate  or  failed  internal  processes,  people  and  systems  or  from 
external events, based on the notional value of daily trades.  

All investment firms should monitor and control their concentration risk, including in 
respect  of  their  customers.  However,  only  investment  firms  which  are  subject  to  a 
minimum  capital  requirement  under  the  K-factors  should  report  to  competent 
authorities  on  their  concentration  risks.  For  investment  firms  specialised  in 
commodity  derivatives  or  emission  allowances  or  derivatives  thereof  with  large 
concentrated exposures to the non-financial groups to which they belong, the limits 
for concentration risk may be exceeded without additional capital under K-CON as 
long as they serve group-wide liquidity or risk management purposes. 

All  investment  firms  should  have  internal  procedures  to  monitor  and  manage  their 
liquidity requirements. These procedures should help ensure that they can function in 
an orderly way over time, without entailing a need to set aside liquidity specifically 
for times of stress. For this purpose, all investment firms should hold a minimum of 
one  third  of  their  fixed  overheads  requirement  in  liquid  assets  at  all  times.  Those 
liquid assets should be of high quality and aligned with those listed in Commission 
Delegated Regulation (EU) 2015/61 on the Liquidity Coverage Ratio31 together with 
the haircuts which apply to these assets under that Delegated Regulation. To account 
for  the  difference  in  liquidity-profiles  of  investment  firms  compared  to  credit 
institutions,  the  list  of  appropriate  liquid  assets  should  be  supplemented  by  the 
unencumbered  own  cash  of  the  firm  (which  should  not  include  any  client  money). 
Small  and  non-interconnected  firms  could  further  include  items  related  to  trade 
debtors and fees or commissions receivable within 30 days as liquid assets, provided 
these  do  not  exceed  one-third  of  the  minimum  liquidity  requirement,  do  not  count 
towards  any  additional  liquidity  requirements  imposed  by  the  competent  authority, 
and  that  they  are  subject  to  a  haircut  of  50%.  In  exceptional  circumstances, 
investment  firms  should  be  permitted  to  fall  below  the  required  threshold  by 
monetising  their  liquid  assets  to  cover  liquidity  requirements,  provided  they  notify 
their  competent  authority  immediately.  All  financial  guarantees  provided  to 
customers which can give rise to increased liquidity needs if triggered, should reduce 
the  amount  of  available  liquid  assets  by  at  least  1.6%  of  the  total  value  of  such 
guarantees.  

31 
Commission Delegated Regulation (EU) 2015/61 of 10 October 2014 to supplement Regulation (EU) 
No  575/2013  of  the  European  Parliament  and  the  Council  with  regard  to  liquidity  coverage  requirement  for 
Credit Institutions (OJ L 11, 17.1.2015, p. 1–36) 

EN 

21 

  EN 

 
                                                 
(28) 

(29) 

(30) 

A proportionate corresponding regulatory reporting framework should be developed 
in conjunction with the new prudential regime and should be carefully tailored to the 
business  of  investment  firms  and  the  requirements  of  the  prudential  framework. 
Reporting  requirements  for  investment  firms  should  concern  the  level  and 
composition  of  their  own  funds,  their  capital  requirements,  the  basis  for  the 
calculation of their capital requirements, their activity profile and size in relation to 
the  parameters  for  considering  investment  firms  as  small  and  non-interconnected, 
their  liquidity  requirements  and  their  adherence  to  the  provisions  on  concentration 
risk. EBA should be charged with developing draft implementing technical standards 
to  further  specify  the  detailed  templates  and  arrangements  for  that  regulatory 
reporting and those standards should be proportionate to the scale and complexity of 
different  investment  firms  and  should  notably  take  account  of  whether  investment 
firms are considered to be small and non-interconnected. 

In order to provide transparency to their investors and the wider markets, investment 
firms  which  are  not  considered  to  be  small  and non-interconnected  should  publicly 
disclose  their  levels  of  capital,  their  capital  requirements,  their  governance 
arrangements  and  remuneration  policies  and  practices.  The  transparency  regarding 
the remuneration of high earners serves the general interest of contributing to sound 
and stable financial markets, given the important role high earners play in directing 
the  business  and  long  term  performance  of  the  investment  firms.  For  reasons  of 
confidentiality, disclosure of the remuneration of high earners should be required on 
an  aggregated  basis.  Small  and  non-interconnected  firms  should  not  be  subject  to 
public  disclosure  requirements,  except  where  they  issue  Additional  Tier  1 
instruments in order to provide transparency to the investors in these instruments. 

In order to facilitate a smooth transition for investment firms from the requirements 
of  Regulation  (EU)  No  575/2013  and  Directive  2013/36/EU  to  the  requirements 
under this Regulation and Directive (EU) ----/--[IFD], it is appropriate to provide for 
appropriate transitional measures. Notably, for a period of five years from the date of 
application of this Regulation, investment firms for which capital requirements under 
this Regulation would more than double compared to their capital requirement under 
Regulation (EU) No 575/2013/Directive 2013/36/EU should be able to mitigate the 
effects  of  potential  increases  by  limiting  the  capital  requirement  to  twice  their 
relevant  capital  requirement  under  Regulation  (EU)  No  575/2013/Directive 
2013/36/EU.  

In  order  not  to  disadvantage  new  investment  firms  with  similar  profiles  to  existing 
firms,  investment  firms  which  were  never  subject  to  capital  requirements  under 
Regulation  (EU)  No  575/2013/Directive  2013/36/EU  should  be  able  to  limit  their 
capital requirements under this Regulation to twice their fixed overheads requirement 
for a period of five years from the date of application of this Regulation.  

Equally, investment firms which were only subject to a requirement for initial capital 
under  Regulation  (EU)  No  575/2013/Directive  2013/36/EU  and  for  which  capital 
requirements  under  this  Regulation  would  more  than  double  compared  to  their 
situation under Regulation (EU) No 575/2013/Directive 2013/36/EU should be able 
to  limit  their  capital  requirement  under  this  Regulation  to  twice  their  initial  capital 
requirement under Regulation (EU) No 575/2013/Directive 2013/36/EU for a period 
of five years from the date of application of this Regulation.  

These transitional measures should, where applicable, be available also to investment 
firms  referred  to  in  Article  498  of  Regulation  (EU)  No  575/2013  which  exempts 

EN 

22 

  EN 

 
these  firms  from  own  funds  requirements  under  that  Regulation,  whereas  the 
requirements for initial capital with respect to those investment firms depend on the 
investment  services  or  activities  they  provide.  For  a  period  of  five  years  from  the 
date  of  application  of  this  Regulation,  their  capital  requirements  under  the 
transitional  provisions  of  this  Regulation  should  be  calculated  in  view  of  these 
applicable levels.  

For a period of five years from the date of application of this Regulation, or until the 
date  of  application  of 
(EU)  No 
the  changes  adopted 
575/2013/Directive  2013/36/EU  as  regards  capital  requirements  for  market  risk 
pursuant  to  Article  1(84)  of  the  Commission  Proposal  for  a  Regulation  amending 
Regulation (EU) No 575/2013, whichever is earlier, investment firms subject to the 
corresponding provisions of this Regulation should continue to calculate their capital 
requirement for the trading book in accordance with Regulation (EU) No 575/2013.      

to  Regulation 

The  largest  investment  firms  providing  key  wholesale  market  and  investment 
banking  services  (dealing  on  own  account  in  financial  instruments  or  underwriting 
financial  instruments  or  placing  financial  instruments  on  a  firm  commitment  basis) 
have business models and risk profiles that are similar to those of significant credit 
institutions.  Their  activities  expose  the  firms  to  credit  risk,  mainly  in  the  form  of 
counterparty  credit  risk,  as  well  as  market  risk  for  positions  they  take  on  own 
account, client related or not. As such, they present a risk to financial stability, given 
their size and systemic importance.  

Those  large  firms  present  an  additional  challenge  for  their  effective  prudential 
supervision  by  national  competent  authorities.  Even  though  the  largest  investment  
firms  provide  cross-border  investment  banking  services  on  a  significant  scale,  as 
investment firms they are subject to prudential supervision by authorities designated 
under  Directive  2004/39/EU,  which  are  not  necessarily  the  same  competent 
authorities as those designated under Directive 2013/36/EU, which may result in an 
un-level  playing  field in the application of Regulation (EU) No 575/2013/Directive 
2013/36/EU  provisions  within  the  Union.  This  prevents  supervisors  from  obtaining 
an  overall  prudential  perspective  which  is  essential  for  effectively  addressing  the 
risks  associated  with  large  cross-border  firms.  As  a  consequence,  prudential 
supervision  may  become  less  effective  and  may  also  distort  competition  within  the 
Union.  The  largest  investment  firms  should  therefore  be  given  the  status  of  credit 
institutions so as to create synergies from supervising cross-border wholesale market 
activities in a peer group, promoting a level playing field, and allowing for consistent 
supervision across groups.   

Those  firms,  by  virtue  of  becoming  credit  institutions,  should  therefore  continue 
applying  Regulation  (EU)  No  575/2013  and  Directive  2013/36/EU  be  subject  to 
supervision  by  competent  authorities,  including  the  ECB  in  the  framework  of  the 
Single  Supervisory  Mechanism,  in  charge  of  credit  institutions.  This  would  ensure 
that the prudential supervision of credit institutions is implemented in a coherent and 
effective manner, that the single rulebook for financial services is applied in the same 
manner  to  all  credit  institutions  in  light  of  their  systemic  importance.  In  order  to 
prevent  regulatory  arbitrage  and  reduce  the  risks  of  circumvention,  competent 
authorities  should  endeavour  to  avoid  situations  where  potentially  systemic  groups 
would structure their operations in such a way as to not exceed the thresholds set out 
in  Article  4(1)(1)(b)  and  circumvent  the  obligation  to  seek  authorization  as  credit 
institutions pursuant to Article 8a of Directive 2013/36/EU. 

(31) 

(32) 

(33) 

EN 

23 

  EN 

 
(34) 

(35) 

(36) 

(37) 

In addition, supervision of credit institutions on a consolidated basis aims to ensure, 
inter alia, the stability of the financial system and, in order to be effective, should be 
applied to all groups, including those the parent undertakings of which are not credit 
institutions  or  investment  firms..  Therefore,  all  credit  institutions,  including  those 
that previously had the status of investment firms, should be subject to the rules on 
individual and consolidated supervision of the parent undertaking by the competent 
authorities pursuant to Section I of Chapter 3 of Title VII of Directive 2013/36/EU. 

Regulation  (EU)  No  600/2014  introduced  a  Union  harmonised  regime  for  granting 
access for third country firms providing investment services or activities to eligible 
counterparties  and  professional  clients  that  are  established  in  the  Union.  Access  to 
the  internal  market  is  conditional  on  the  Commission  adopting  an  equivalence 
decision  and  ESMA  registering  the  third  country  firm.  It  is  important  that  the 
assessment of equivalence is done on the basis of the relevant applicable Union law 
and  that  effective  tools  to  monitor  that  the  conditions  under  which  equivalence  is 
granted  are  in  place.  For  those  reasons,  third-country  registered  firms  should  be 
required to report annually to ESMA information concerning the scale and scope of 
services provided and activities carried out in the Union. Supervisory cooperation in 
relation to monitoring, enforcement and the fulfilment of the equivalence conditions 
should also be improved.  

To  ensure  investor  protection  as  well  as  the  integrity  and  the  stability  of  financial 
markets  in  the  Union,  the  Commission,  when  adopting  an  equivalence  decision, 
should  take into  account  the  potential  risks  posed  by  the services  and  the  activities 
that  firms  from  that  third-country  could  carry  out  in  the  Union  following  that 
decision. Their systemic importance should be considered based on criteria such as 
the likely scale and scope of service provision and performance of activities by firms 
from  the  third  country  concerned.  For  the  same  purpose,  the  Commission  may 
consider appropriate to take into account whether the third county is identified as a 
non-cooperative jurisdiction for tax purposes under the relevant Union policy or as a 
high-risk third country pursuant to Article 9(2) of Directive (EU) 2015/84932.  

Since  the  objectives  of  this  Regulation,  namely  to  set  up  an  effective  and 
proportionate  prudential  framework  to  ensure  that  investment  firms,  which  are 
authorised  to  operate  within  the  Union  operate  on  a  sound  financial  basis  and  are 
managed  in  an  orderly  way  including,  where  relevant,  in  the  best  interests  of  their 
clients, cannot be sufficiently achieved by the Member States but by reason of their 
scale  and  effects  would  be  better  achieved  at  Union  level,  the  Union  may  adopt 
measures, in accordance with the principle of subsidiarity as set out in Article 5 of 
the Treaty on European Union. In accordance with the principle of proportionality, as 
set out in that Article, this Regulation does not go beyond what is necessary in order 
to achieve those objectives.  

(38) 

The  European  Banking  Authority  (EBA),  with  the  participation  of  the  European 
Securities  and  Markets  Authority  (ESMA),  has  issued  a  report  based  on  thorough 
background  analysis,  data  collection  and  consultation  for  a  bespoke  prudential 

32 

Directive  (EU)  2015/849  of  the  European  Parliament  and  of  the  Council  of  20  May  2015  on  the 
prevention  of  the  use  of  the  financial  system  for  the  purposes  of  money  laundering  or  terrorist 
financing, amending Regulation (EU) No 648/2012 of the European Parliament and of the Council, and 
repealing  Directive  2005/60/EC  of  the  European  Parliament  and  of  the  Council  and  Commission 
Directive 2006/70/EC (OJ L 141, 5.6.2015, p. 73). 

EN 

24 

  EN 

 
                                                 
(39) 

(40) 

(41) 

(42) 

regime  for  all  non-systemic  investment  firms  which  serves  as  the  basis  for  the 
revised prudential framework for investment firms.  

In  order  to  ensure  the  harmonised  application  of  this  Regulation,  EBA  should  be 
charged  with  drafting  technical  standards  to  specify  the  calculation  of  fixed 
overheads, the calculation for setting capital requirements equal to the initial margin 
posted  with  clearing  members,  and  the  templates  for  the  public  disclosures  and 
regulatory reporting required under this Regulation.   

In order to ensure the uniform application of this Regulation and to take account of 
developments  in  financial  markets,  the  power  to  adopt  acts  in  accordance  with 
Article  290  of  the  Treaty  on  the  Functioning  of  the  European  Union  should  be 
delegated to the Commission in respect of the further specification of the definitions 
in  this  Regulation  and  of  technical  adjustment  to  the  non-essential  elements  of  the 
capital  requirements  in  this  Regulation.  It  is  of  particular  importance  that  the 
Commission  carry  out  appropriate  consultations  during  its  preparatory  work, 
including  at  expert  level,  and  that  those  consultations  be  conducted  in  accordance 
with  the  principles  laid  down  in  the  Interinstitutional  Agreement  on  Better  Law-
Making  of  13  April  2016.  In  particular,  to  ensure  equal  participation  in  the 
preparation  of  delegated  acts,  the  European  Parliament  and  the  Council  receive  all 
documents  at  the  same  time  as  Member  States'  experts,  and  their  experts 
systematically  have  access  to  meetings  of  Commission  expert  groups  dealing  with 
the preparation of delegated acts. 

To  ensure  uniform  conditions  for  the  implementation  of  this  Regulation,  and  in 
particular with regard to the adoption the draft implementing technical standards of 
EBA regarding  disclosure and reporting templates, implementing powers should be 
conferred on the Commission.  

In order to ensure legal certainty and avoid overlaps between the current prudential 
framework  applicable  to  both  credit  institutions  and  investment  firms  and  this 
Regulation, Regulation (EU) No 575/2013 and Directive 2013/36/EU are amended in 
order  to  remove  investment  firms  from  their  scope.  However,  investment  firms 
which  are  part  of  a  banking  group  should  remain  subject  to  those  provisions  in 
Regulation (EU) No 575/2013 and Directive 2013/36/EU which are relevant for the 
banking  group,  such  as  the  provisions  on  the  intermediate  EU  parent  undertaking 
referred  to  in  [Article  21b]  of  Directive  2013/36/EU  and  to  the  rules  on  prudential 
consolidation  set  out  in  Chapter  2  of  Title  2  of  Part  One  of  Regulation  (EU)  No 
575/2013.  

HAVE ADOPTED THIS REGULATION: 

EN 

25 

  EN 

 
 
PART ONE  
GENERAL PROVISIONS 

TITLE I 

SUBJECT MATTER, SCOPE AND DEFINITIONS 

Article 1 

Subject matter and scope  

This Regulation lays down uniform prudential requirements which apply to investment firms 
authorised  and  supervised  under  Directive  2014/65/EU  and  supervised  for  compliance  with 
prudential requirements under Directive (EU) ----/--[IFD] in relation to the following: 

(a) 

(b) 

(c) 

capital  requirements  relating  to  quantifiable,  uniform  and  standardised 
elements of risk-to-firm, risk-to-customers and risk-to-market; 

requirements limiting concentration risk; 

liquidity  requirements  relating  to  quantifiable,  uniform  and  standardised 
elements of liquidity risk; 

(d) 

reporting requirements related to points (a), (b) and (c); 

(e)  public disclosure requirements. 

Article 2  

Supervisory powers  

For  the  purposes  of  ensuring  compliance  with  this  Regulation,  competent  authorities  shall 
have the powers and shall follow the procedures set out in Directive (EU) ----/--[IFD]. 

Article 3  
Application of stricter requirements by investment firms  

This  Regulation  shall  not  prevent  investment  firms  from  holding  own  funds  and  their 
components  in  excess  of,  or  applying  measures  that  are  stricter  than,  those  required  by  this 
Regulation. 

Article 4 
Definitions  

1. 

(1) 

For the purpose of this Regulation, the following definitions shall apply:  

‘ancillary  services  undertaking’  means  ancillary  services  undertaking  as  defined  in 
Article 4(1)(18) of Regulation (EU) No 575/2013;  

EN 

26 

  EN 

 
 
 
 
 
 
(2) 

(3) 

(4) 

(5) 

(6) 

(7) 

(8) 

(9) 

(10) 

‘client’ means client as defined in Article 4(1)(9) of Directive 2014/65/EU;  

‘commodity  dealers’  means  commodity  dealers  as  defined  in  Article  4(1)(145)  of 
Regulation (EU) No 575/2013;  

‘commodity  derivatives’  means  commodity  derivatives  as  defined  in  Article  2 
(1)(30) of Regulation (EU) No 600/2014;  

‘competent  authority’  means  competent  authority  as  defined  in  Article  3(5)  of 
Directive (EU) ----/--[IFD] ;  

‘credit institution’ means credit institution as defined in Article 4(1)(1) of Regulation 
(EU) No 575/2013;  

‘daily  trading  flow’  means  the  value  of  transactions  in  the  trading  book  where  the 
firm is dealing on own account, whether for itself or on behalf of a client;  

‘dealing on own account’ means dealing on own account as defined in Article 4(1)(6)  
of Directive 2014/65/EU;  

‘derivatives’ means derivatives as defined in Article 2(1)(29) of Regulation (EU) No 
600/2014;  

‘K-factor  consolidated  situation’  means  the  situation  that  results  from  applying  the 
requirements of this Regulation in accordance with K-factors to an investment firm 
as  if  that  investment  firm  formed,  together  with  one  or  more  other  entities  in  the 
same group, a single investment firm; 

(11) 

‘execution  of  orders  on  behalf  of  clients’  means  execution  of  orders  on  behalf  of 
clients as defined in Article 4(1)(5) of Directive 2014/65/EU;  

(12) 

‘exposure’ means the following: 

(a) 

for  the  purposes  of  concentration  risk  limits,  any  asset  or  off-balance 
sheet  item  held  in  the  trading  book  and  not  explicitly  exempt  under 
Article 40; 

(b) 

for the purposes of reporting concentration risk, any asset or off-balance 
sheet item;  

(13) 

(14) 

(15) 

(16) 

‘financial  institution’  means  an  undertaking  other  than  a  credit  institution  or 
investment  firm,  the  principal  activity  of  which  is  to  acquire  holdings  or  to  pursue 
one or more of the activities listed in points (2) to (12) and point (15) of Annex I to 
Directive  2013/36/EU,  including  a  financial  holding  company,  a  mixed  financial 
holding company, an investment holding company, a payment institution within the 
meaning of Directive 2007/64/EC of the European Parliament and of the Council of 
13  November  2007  on  payment  services  in  the  internal  market,  and  an  asset 
management  company,  but  excluding  insurance  holding  companies  and  mixed-
activity  insurance  holding  companies  as  defined  in  point  (g)  of  Article  212(1)  of 
Directive 2009/138/EU; 

‘financial  instrument’  means  financial  instrument  as  defined  in  Article  4(1)(50)  of 
Regulation (EU) No 575/2013;  

‘financial holding company’ means financial holding company as defined in point of 
Article 4(1)(20) of Regulation (EU) No 575/2013;  

‘financial sector entity’ means financial sector entity as defined in Article 4(1)(27) of 
Regulation (EU) No 575/2013;  

EN 

27 

  EN 

 
(17) 

(18) 

(19) 

(20) 

(21) 

(22) 

(23) 

(24) 

(25) 

(26) 

(27) 

(28) 

‘initial capital’ means initial capital as defined in Article 3(17) of Directive (EU) ----
/--[IFD];  

‘group of connected clients’ means group of connected clients as defined in  Article 
4(1)(39) of Regulation (EU) No 575/2013;  

‘investment  advice’  means  investment  advice  as  defined  in  Article  4(1)(4)  of 
2014/65/EU;  

‘investment  firm’  means  investment  firm  as  defined  in  Article  4(1)(1)  of  Directive 
2014/65/EU;   

‘investment  holding  company’  means  a  financial  institution,  the  subsidiaries  of 
which  are  exclusively  or  mainly  investment  firms  or  financial  institutions,  at  least 
one  of  such  subsidiaries  being  an  investment  firm,  and  which  is  not  a  financial 
holding company as defined in Article 4(1)(20) of Regulation (EU) No 575/2013;   

‘investment  services  and  activities’  means  investment  services  and  activities  as 
defined in Article 4(1)(2) of 2014/65/EU;  

‘investment  firm  group’  means  a  group  of  undertakings  which  does  not  include  a 
credit  institution,  where  the  parent  undertaking  is  either  an  investment  firm,  an 
investment holding company or a mixed financial holding company and which may 
include other financial institutions and tied agents owned by the investment firm. The 
investment firm group may consist either of a parent undertaking and its subsidiaries, 
or  of  undertakings  which  meet  the  conditions  set  out  in  Article  22  of  Directive 
2013/34/EU;  

‘K-factors’ means capital requirements set out in Title II of Part Three for risks that 
an investment firm poses to customers, markets and to itself; 

‘K-AUM’  or  ‘K-factor  in  relation  to  assets  under  management  (AUM)’  means  the 
capital  requirement  relative  to  the  value  of  assets  that  an  investment  firm  manages 
for its clients  under both discretionary portfolio  management and non-discretionary 
arrangements  constituting  investment  advice,  including  assets  delegated  to  another 
undertaking  and  excluding  assets  that  another  undertaking  has  delegated  to  the 
investment firm;  

‘K-CMH’  or  ‘K-factor  in  relation  to  client  money  held  (CMH)’  means  the  capital 
requirement relative to the amount of client money that an investment firm holds or 
controls,  regardless  of  any  legal  arrangements  in  relation  to  asset  segregation  and 
irrespective of the national accounting regime applicable to client money held by the 
investment firm;  

‘K-ASA’  or  ‘K-factor  in  relation  to  assets  safeguarded  and  administered  (ASA)’ 
means the capital requirement relative to the value of assets that an investment firm 
safeguards  and  administers  for  clients,  including  assets  delegated  to  another 
undertaking and assets that another undertaking has delegated to the investment firm, 
irrespective of whether assets appear on the investment firm's own balance sheet or 
are segregated in other accounts;  

‘K-COH’ or ‘K-factor in relation to client orders handled (COH)’ means the capital 
requirement relative to the value of orders that an investment firm handles for clients, 
through the reception and transmission of client orders and through the execution of 
orders on behalf of clients;  

EN 

28 

  EN 

 
(29) 

(30) 

(31) 

(32) 

(33) 

(34) 

(35) 

(36) 

(37) 

(38) 

(39) 

(40) 

(41) 

(42) 

(43) 

(44) 

‘K-CON’  or  ‘K-factor  in  relation  to  concentration  risk  (CON)’  means  the  capital 
requirement relative to the exposures in the trading book of an investment firm to a 
client or a group of connected clients the value of which exceeds the limits in Article 
36(1);  

‘K-CMG’ or ‘K-factor in relation to clearing member guarantee (CMG)’ means the 
capital  requirement  equal  to  the  amount  of  initial  margins  posted  with  a  clearing 
member,  where  the  execution  and  settlement  of  transactions  of  an  investment  firm 
dealing  on  own  account  take  place  under  the  responsibility  of  a  general  clearing 
member;  

‘K-DTF’  or  ‘K-factor  in  relation  to  daily  trading  flow  (DTF)’  means  the  capital 
requirement relative to the daily value of transactions that an investment firm enters 
through dealing on own account or the execution of orders on behalf of clients in its 
own name;  

‘K-NPR’  or  ‘K-factor  in  relation  to  net  position  risk  (NPR)’  means  the  capital 
requirement relative to  the value of transactions recorded in the trading book of an 
investment firm;  

‘K-TCD’ or ‘K-factor in relation to trading counterparty default risk (TCD)’ means 
the capital requirement relative to the exposures in the trading book of an investment 
firm in instruments and transactions referred to in Article 25 giving rise to the risk of 
trading counterparty default;  

‘long  settlement  transactions’  means  long  settlement  transactions  as  defined  in 
Article 272(2) of Regulation (EU) No 575/2013; 

‘margin lending transaction’ means margin lending transactions as defined in Article 
272(3) of Regulation (EU) No 575/2013; 

‘management  body’  means  management  body  as  defined  in  Article  4(1)(36)  of 
Directive 2014/65/EU;  

‘parent  undertaking’  means  parent  undertaking  within  the  meaning  of  Articles  2(9) 
and 22 of Directive 2013/34/EU;  

‘participation’ means participation as defined in Article 4(1)(35) of Regulation (EU) 
No 575/2013;  

‘profit’ means profit as defined in Article 4(1)(121)of Regulation (EU) No 575/2013; 

‘qualifying central counterparty’ or ‘QCCP’ means qualifying central counterparty as 
defined in Article 4(1)(88) of Regulation (EU) No 575/2013;  

‘portfolio management’ means portfolio management as defined in Article 4(1)(8)  of 
Directive 2014/65/EU;  

‘regulatory capital’ means the capital requirement specified in Article 11;  

‘repurchase transaction’ means repurchase transaction as defined in Article 4(1)(83)  
of Regulation (EU) No 575/2013; 

‘subsidiary’  means  subsidiary  within  the  meaning  of  Article  2(10)  and  22  of 
Directive  2013/34/EU,  including  any  subsidiary  of  a  subsidiary  undertaking  of  an 
ultimate parent undertaking;  

(45) 

‘tied agent’ means tied agent as defined in Article 4(1)(29) of Directive 2014/65/EU; 

EN 

29 

  EN 

 
(46) 

(47) 

(48) 

(49) 

(50) 

(51) 

‘total  gross  revenue’  means  the  annual  operating  income  of  an  investment  firm,  in 
connection  with  the  firm's  investment  services  and  activities  it  is  authorised  to 
perform, including income stemming from interest receivable, from shares and other 
securities whether fixed yield  or  variable, from commission  and  fees,  any  gain and 
losses that the investment firms incurs on its trading assets, assets held at fair value, 
or  from  hedging  activities,  but  excluding  any  income  which  is  not  linked  to  the 
investment services and activities performed;  

‘trade  exposure’  means  trade  exposure  as  defined  in  point  (91)  of  Article  4(1)  of 
Regulation (EU) No 575/2013;  

‘trading  book’  means  trading  book  as  defined  in  point  (86)  of  Article  4(1)  of 
Regulation (EU) No 575/2013; 

‘Union parent investment firm’ means an investment firm in a Member State which 
is not itself a subsidiary of another investment firm authorised in any Member State, 
or of an investment holding company or mixed financial holding company set up in 
any Member State;  

‘Union parent investment holding company’ means an investment holding company 
in a Member State which is not itself a subsidiary of an investment firm authorised in 
any Member State or of another investment holding company in any Member State;  

‘Union  parent  mixed financial  holding company’  means a parent undertaking of an 
investment  firm  group  which  is  a  mixed  financial  holding  company  as  defined  in 
Article 2(15) of Directive 2002/87/EC.  

2. 

The  Commission  shall  be  empowered  to  adopt  delegated  acts  in  accordance  with 
Article 54 in order to clarify:   

(a) 

(b) 

the  definitions  set  out  in  paragraph  1  to  ensure  uniform  application  of  this 
Regulation; 

the definitions set out in paragraph 1 to take account, in the application of this 
Regulation, of developments on financial markets.  

LEVEL OF APPLICATION OF REQUIREMENTS  

TITLE II 

CHAPTER 1 

Application of requirements on an individual basis 

Article 5 
General principle 

An investment firm shall comply with the requirements laid down in Parts Two to Seven on 
an individual basis.  

EN 

30 

  EN 

 
 
 
Article 6 
Exemptions 

1. 

Competent  authorities  may  exempt  an  investment  firm  from  the  application  of 
Article 5 in respect of Parts Two to Four, Six and Seven, where all of the following 
apply: 

(a) 

the investment firm is a subsidiary and is included in the supervision on a 
consolidated basis of a credit institution, a financial holding company or 
a mixed financial holding company, in accordance with the provisions of 
Chapter 2, Title II, Part One of Regulation (EU) No 575/2013;  

(b)  both  the  investment  firm  and  its  parent  undertaking  are  subject  to 

authorisation and supervision by the same Member State; 

(c) 

the  authorities  competent  for  the  supervision  on  consolidated  basis  in 
accordance  with  Regulation  (EU)  No  575/2013  agree  to  such  an 
exemption; 

(d)  own funds are distributed adequately between the parent undertaking and 
the investment firm and all of the following conditions are satisfied:  

(i) 

the investment firm meets the conditions set out in Article 12(1); 

(ii) 

there  is  no  current  or  foreseen  material  practical  or  legal 
impediment  to  the  prompt  transfer  of  capital  or  repayment  of 
liabilities by the parent undertaking; 

(iii)  upon  prior  approval  by  the  competent  authority,  the  parent 
undertaking  declares  that  it  guarantees  the  commitments  entered 
into by the investment firm or that the risks in the investment firm 
are of negligible interest; 

(iv) 

(v) 

the  risk  evaluation,  measurement  and  control  procedures  of  the 
parent undertaking include the investment firm; and 

the  parent  undertaking  holds  more  than  50%  of  the  voting  rights 
attached  to  shares  in  the  capital  of  the  investment  firm  or  has  the 
right  to  appoint  or  remove  a  majority  of  the  members  of  the 
investment firm’s management body. 

2. 

Competent authorities may exempt investment firms from the application of Article 5 
in respect of Part Five where all of the following conditions are satisfied: 

(a) 

(b) 

(c) 

the investment firm is included in the supervision on a consolidated basis 
in accordance with Chapter 2, Title II of Part One of Regulation (EU) No 
575/2013; 

the  group  has  established  centralised  liquidity  management  functions; 
and 

the  authorities  competent  for  the  supervision  on  consolidated  basis  in 
accordance  with  Regulation  (EU)  No  575/2013  agree  to  such  an 
exemption. 

EN 

31 

  EN 

 
 
CHAPTER 2  

Application of requirements for compliance with the group capital 
test and exemptions  

Article 7 
The group capital test  

1. 

A  Union  parent  investment  firm,  a  Union  parent  investment  holding  company,  a 
Union parent mixed financial holding company shall hold at least enough own funds 
to cover the sum of the following: 

(a) 

the sum of the full book value of any holdings, subordinated claims and 
instruments  referred  to  in  points  (h)  and  (i)  of  Article  36(1),  points  (c) 
and (d) of Article 56, and points (c) and (d) of Article 66 of Regulation 
(EU)  No  575/2013  in  investment  firms,  financial  institutions,  ancillary 
services undertakings and tied agents in the investment firm group; and 

(b) 

the total amount of any contingent liability in favour of investment firms, 
financial institutions, ancillary services undertakings and tied agents. 

2. 

3. 

Competent authorities may  allow  a  Union  parent  investment  holding  company  or  a 
Union parent mixed financial holding company to hold a lower amount of own funds 
than the amount calculated under paragraph 1, provided that this amount is no lower 
than  the  sum  of  the  own  funds  requirements  imposed  on  an  individual  basis  on 
investment  firms,  financial  institutions,  ancillary  services  undertakings  and  tied 
agents  in  the  group,  and  the  total  amount  of  any  contingent  liabilities  in  favour  of 
these entities.  

For  the  purposes  of  paragraph  1,  where  no  Union  or  national  prudential  legislation 
applies  for  any  of  the  entities  referred  to  in  paragraph  1,  a  notional  own  funds 
requirement shall apply.  

A  Union  parent  investment  firm,  a  Union  parent  investment  holding  company,  a 
Union  parent  mixed  financial  holding  company  shall  have  systems  in  place  to 
monitor  and  control  the  sources  of  capital  and  funding  of  all  investment  firms, 
investment  holding  companies,  mixed  financial  holding  companies,  financial 
institutions,  ancillary  services  undertakings  and  tied  agents  within  the  investment 
firm group. 

Article 8  
K-factor consolidation  

The  competent  authorities  of  a  Union  parent  investment  firm  or  the  competent  authorities 
determined  in  accordance  with  Article  42(2)  of  Directive  (EU)----/--[IFD]  may  require  a 
Union parent investment firm, a Union parent investment holding company or a Union parent 
mixed financial holding company to comply with the requirements set out in Article 15 on the 
basis of the K-factor consolidated situation where either of the following conditions applies:  

EN 

32 

  EN 

 
 
 
(a) 

(b) 

there  are  significant  material  risks  to  customers  or  to  market,  stemming  from  the 
group as a whole which are not fully captured by the capital requirements applicable 
to the investment firms in the group on an individual basis; or 

for investment firm groups with a high degree of inter-connectedness in terms of risk 
management, the application of requirements to the investment firm on an individual 
basis may lead to a duplication of the requirements for those firms.  

EN 

33 

  EN 

 
PART TWO 
OWN FUNDS  

Article 9  
Own funds requirements  

1. 

An investment firm shall have own funds consisting of the sum of its Tier 1 capital 
and Tier 2 capital where:  

(a) 

at least 56 % of the sum shall consist of Common Equity Tier 1 capital in 
accordance with Chapter 2 of Title 1 of Part Two of Regulation (EU) No 
575/2013;  

(b)  up  to  44  %  of  the  sum  may  consist  of  additional  Tier  1  capital  in 
accordance with Chapter 3 of  Title 1 of Part Two of Regulation (EU) No 
575/2013;  

(c)  up  to  25%  of  the  sum  may  consist  of  Tier  2  capital  in  accordance  with 
Chapter 4 of Title 1 of Part Two of Regulation (EU) No 575/2013;  

2. 

By  way  of  derogation  from  paragraph  1,  the  following  shall  not  apply  to  the 
determination of own funds:  

(a) 

(b) 

(c) 

(d) 

the threshold exemptions referred to in Article 48 of Regulation (EU) No 
575/2013; 

the deductions referred to in  Articles  46, 60 and 70 of Regulation (EU) 
No 575/2013; 

the  trigger  event  referred  to  in  Article  54(1)(a)  of  Regulation  (EU)  No 
575/2013. The trigger event shall instead be specified by the investment 
firm  in  the  terms  of  the  additional  Tier  1  instrument  referred  to  in 
paragraph 1;  

the aggregate amount referred to in Article 54(4)(a) of Regulation (EU) 
No 575/2013. The amount to be written down or converted  shall be the 
full  principal  amount  of  the  additional  Tier  1  instrument  referred  to  in 
paragraph 1. 

3.  

An investment firms shall apply the provisions set out in Chapter 6 of Title 1 in Part 
Two of Regulation (EU) No 575/2013 where determining the own funds requirements 
pursuant to this Regulation.  

Article 10 
Holdings outside the financial sector 

1. 

For the purposes of this Part, an investment firm shall deduct amounts in excess of 
the limits specified in points (a) and (b) from the determination of Common Equity 
Tier 1 items referred to in Article 26 of Regulation (EU) No 575/2013: 

(a) 

a holding, the amount of which exceeds 15 % of the regulatory capital of 
the  investment  firm,  in  an  undertaking  which  is  not  a  financial  sector 
entity; 

EN 

34 

  EN 

 
 
 
(b) 

the  total  amount  of  the  holdings  of  an  investment  firm  in  undertakings 
other  than  financial  sector  entities  that  exceeds  60  %  of  its  regulatory 
capital.  

2. 

3. 

Competent  authorities  may  prohibit  an  investment  firm  from  having  holdings 
referred to in paragraph 1 the amount of which exceeds the percentages of regulatory 
capital  laid  down  in  that  paragraph.  Competent  authorities  shall  make  public  their 
decision exercising this power without delay. 

Shares in undertakings other than financial sector entities shall not be included in the 
calculation specified in paragraph 1 where any of the following conditions is met: 

(a) 

(b) 

(c) 

those shares are held temporarily during a financial assistance operation 
as referred to in Article 79 of Regulation (EU) No 575/2013;  

the  holding  of  those  shares  is  an  underwriting  position  held  for  five 
working days or fewer; 

those  shares  are  held  in  the  own  name  of  the  investment  firm  and  on 
behalf of others. 

4. 

Shares which are not financial fixed assets as referred to in Article 35(2) of Directive 
86/635/EEC shall not be included in the calculation specified in paragraph 1.  

EN 

35 

  EN 

 
 
PART THREE  
CAPITAL REQUIREMENTS 

TITLE I 
GENERAL REQUIREMENTS  

Article 11  
Capital requirement 

1. 

An  investment  firm  shall  at  all  times  have  capital  which  amounts  to  the  highest  of  
the following:  

(a) 

(b) 

(c) 

its fixed overheads requirement calculated according to Article 13.  

its permanent minimum requirement according to Article 14.  

its K-factor requirement calculated according to Article 15.  

2. 

3. 

An investment firm that meets the conditions set out in Article 12(1) shall at all times 
only have capital which amounts to the highest of the amounts specified in points (a) 
and (b) of paragraph 1.  

Where  competent  authorities  consider  that  there  has  been  a  material  change  in  the 
business activities of an investment firm, they may require the investment firm to be 
subject  to  a  different  capital  requirement  referred  to  in  this  Article,  in  accordance 
with Title IV, Chapter 2, section IV of Directive (EU) ----/--[IFD].  

Article 12  
Small and non-interconnected investment firms 

1. 

An investment firm shall be deemed a small and non-interconnected investment firm 
for the purposes of this Regulation where it meets all of the following conditions: 

(a)  AUM  (or  assets  under  management)  calculated  in  accordance  with 

Article 17 is less than EUR 1.2 billion; 

(b)  COH (or client orders handled) calculated in accordance with Article 20 

is less than either: 

i) EUR 100 million/day for cash trades or  

ii) EUR 1 billion/day for derivatives.  

(c)  ASA  (or  assets  safeguarded  and  administered)  calculated  in  accordance 

with Article 19 is zero;  

(d)  CMH (or client money held) calculated in accordance with Article 18 is 

zero; 

(e)  DTF (daily trading flow) calculated in accordance with Article 32 is zero;  

(f)  NPR (net position risk) or CMG (clearing member guarantee) calculated 

in accordance with Articles 22 and 23 is zero; 

EN 

36 

  EN 

 
 
 
(g)  TCD (trading counterparty default) calculated in accordance with Article 

26 is zero; 

(h) 

(i) 

the  balance  sheet  total  of  the  investment  firm  is  less  than  EUR  100 
million; 

the total annual gross revenue from investment services and activities of 
by the investment firm is less than EUR 30 million. 

For the purposes of points (a), (b), (c), (e), (f), and (g), end-of day levels 
shall apply.  

For the purposes of point (d), intra-day levels shall apply.  

For the purposes of points (h) and (i), the levels applicable at the end of 
the last financial year shall apply. 

2. 

The conditions set out in points (a), (b), (h) and (i) of paragraph 1 shall apply on a 
combined basis for all investment firms that are part of a group.  

The conditions set out in points (c), (d), (e), (f) and (g) shall apply to each investment 
firm on an individual basis. 

Where an investment firm no longer meets all the conditions set out in paragraph 1, it 
shall  not  be  considered  a  small  and  non-interconnected  investment  firm  with 
immediate effect.  

Where an investment firm no longer meets the conditions set out in points (a) or (b) 
of  paragraph  1  but  continues  to  meet  the  conditions  set  out  in  points  (c)  to  (i)  of 
paragraph  1,  it  shall  not  be  considered  a  small  and  non-interconnected  investment 
firm after a period of 3 months, calculated from the date when the threshold has been 
exceeded.  

Where  an  investment  firm  which  has  not  met  all  of  the  conditions  set  out  in 
paragraph  1  subsequently  meets  those  conditions,  it  shall  be  considered,  subject  to 
approval by the competent authority, a small and non-interconnected investment firm 
after a period of 6 months from the date when those conditions are met. 

In order to take account of developments in financial markets, the Commission shall 
be empowered to adopt delegated acts in accordance with Article 54 in order to adjust 
the conditions for investment firms to qualify as small and non-interconnected firms in 
accordance with this Article. 

Article 13  
Fixed overheads requirement 

For the purposes of Article 11(1)(a), the fixed overheads requirement shall amount to 
at least one quarter of the fixed overheads of the preceding year. 

Where the competent authority considers that there has been a material change in the 
activity  of  an  investment  firm,  the  competent  authority  may  adjust  the  amount  of 
capital referred to in paragraph 1.  

Subject  to  approval  by  the  competent  authorities,  where  an  investment  firm  has  no 
fixed overheads from the previous year, it shall have capital amounting to at least one 
quarter of the fixed overheads which have been projected in its business plan for the 
year following the year of commencement of its activities.  

3. 

4. 

5. 

1. 

2. 

3. 

EN 

37 

  EN 

 
 
4. 

EBA,  in  consultation  with  ESMA,  and  taking  into  account  Commission  Delegated 
Regulation  (EU)  2015/488  shall  develop  draft  regulatory  technical  standards  to 
further specify the calculation of the requirement referred to in paragraph 1.  

EBA  shall  submit  those  draft  regulatory  technical  standards  to  the  Commission  by 
[nine month from the date of entry into force of this Regulation].   

Power  is  delegated  to  the  Commission  to  adopt  the  regulatory  technical  standards 
referred  to  in  the  first  subparagraph  in  accordance  with  Articles  10  to  14  of 
Regulation (EU) No 1093/2010. 

Article 14 
Permanent minimum requirement 

For  the  purposes  of  Article  11(1)(b),  the  permanent  minimum  requirement  shall 
amount to at least the levels of initial capital specified in Article 8 of Directive (EU) --
--/--[IFD]. 

TITLE II  
K-FACTOR CAPITAL REQUIREMENT  

CHAPTER 1  
General principles  

Article 15  
K-factor requirement and applicable coefficients  

1. 

For the purposes of Article 11(1)(c), the K-factor requirement shall amount to at least 
the sum of the following:  

(a)  Risk-to-Customer (RtC) K-factors calculated in accordance with Chapter 

2;  

(b)  Risk-to-Market (RtM) K-factors calculated in accordance with Chapter 3; 

(c)  Risk-to-Firm (RtF) K-factors calculated in accordance with Chapter 4. 

2. 

The following coefficients shall apply to the corresponding K-Factors: 

Table 1  

K-FACTORS 

COEFFICIENT 

Assets  under  management  under  both 
discretionary  portfolio  management  and  non-
discretionary (advisory) arrangements 

K-AUM 

0.02% 

Client money held 

K-CMH 

Assets under safekeeping and administration 

K-ASA 

0.45% 

0.04% 

EN 

38 

  EN 

 
 
 
 
Client orders handled 

K-COH cash trades 

K-COH derivatives 

0.1% 

0.01% 

Daily trading flow  

K-DTF cash trades 

0.1% 

K-DTF derivatives 

               0.01% 

3. 

4. 

5. 

An investment firm shall monitor the value of its K-factors for any trends that could 
leave it with a materially different capital requirement for the next reporting period 
and  shall  notify  its  competent  authority  of  that  materially  different  capital 
requirement.  

Where  competent  authorities  consider  that  there  has  been  a  material  change  in  the 
business  activities  of  an  investment  firm  that  impacts  the  amount  of  a  relevant  K-
factor, they may adjust the corresponding amount in accordance with Article 36(2)(a) 
of Directive (EU) ----/--[IFD].   

In order to ensure the uniform application of this Regulation and to take account of 
developments  in  financial  markets,  the  Commission  shall  be  empowered  to  adopt 
delegated acts in accordance with Article 54 in order to:  

(a) 

(b) 

specify the methods for measuring the K-factors in Title II of Part Three;  

adjust the coefficients specified in paragraph 2 of this Article. 

CHAPTER 2  
RtC K-factors  

Article 16  
RtC K-factor requirement    

The RtC K-factor requirement is determined by the following formula: 

K-AUM + K-CMH + K-ASA + K-COH 

where  

(a) 

(b) 

(c) 

(d) 

K-AUM is equal to AUM measured in accordance with Article 17, multiplied by the 
corresponding coefficient in Article 15(2); 

K-CMH is equal to CMH measured in accordance with Article 18, multiplied by the 
corresponding coefficient in Article 15(2); 

K-ASA is equal to ASA measured in accordance with Article 19, multiplied by the 
corresponding coefficient in Article 15(2); 

K-COH is equal to COH measured in accordance with Article 20, multiplied by the 
corresponding coefficient in Article 15(2); 

EN 

39 

  EN 

 
 
 
 
 
 
 
1. 

2. 

3. 

1. 

2. 

Article 17 
Measuring AUM for the purposes of calculating K-AUM  

For  the  purposes  of  calculating  K-AUM,  AUM  shall  be  the  rolling  average  of  the 
value of the total monthly assets under management, measured on the last business 
day of each of the previous 15 calendar months, excluding the 3 most recent monthly 
values. 

AUM  shall  be  the  average  or  simple  arithmetic  mean  of  the  remaining  12  monthly 
measurements. 

K-AUM shall be calculated within the first 14 days of each calendar month. 

Where  the  investment  firm  has  formally  delegated  the  assets  under  management  to 
another financial entity, those delegated assets shall be included in the total amount 
of AUM measured in accordance with paragraph 1. 

Where another financial entity has formally delegated the assets under management 
to  the  investment  firm,  those  delegated  assets  shall  not  be  included  in  the  total 
amount of assets under management measured in accordance with paragraph 1.  

Where an investment firm has been managing assets for less than 15 months, it may 
use  business  projections  of  AUM  to  calculate  K-AUM,  subject  to  the  following 
cumulative requirements:  

(a)  historical data is used as soon as it becomes available;  

(b) 

the business projections of the investment firm submitted in accordance 
with Article 7 of Directive 2014/65/EU have been positively assessed by 
the competent authority. 

Article 18  
Measuring CMH for the purposes of calculating K-CMH  

For  the  purposes  of  calculating  K-CMH,  CMH  shall  be  the  rolling  average  of  the 
value of total daily client money held, measured at the end of each business day for 
the previous 3 calendar months.  

CMH shall be the average or simple arithmetic mean of the daily measurements   in 
the 3 calendar months.  

K-CMH  shall  be  calculated  by  the  end  of  business  day  following  the  measurement 
referred to in the first subparagraph.   

Where an investment firm has been holding client money for less than 3 months, it 
may  use  business  projections  to  calculate  K-CMH,  subject  to  the  following 
cumulative requirements:  

(a)  historical data is used as soon as it becomes available;  

(b) 

the business projections of the investment firm submitted in accordance 
with Article 7 of Directive 2014/65/EU have been positively assessed by 
the competent authority. 

EN 

40 

  EN 

 
   
 
Article 19  
Measuring ASA for the purposes of calculating K-ASA  

1. 

2. 

1. 

For the purposes of calculating K-ASA, ASA shall be the rolling average of the value 
of the total daily assets safeguarded and administered, measured at the end  of  each 
business  day  for  the  previous  6  calendar  months,  excluding  the  3  most  recent 
calendar months.  

ASA shall be the average or simple arithmetic mean of the daily measurements from 
the remaining 3 calendar months.   

K-ASA shall be calculated within the first 14 days of each calendar month.  

Where an investment firm has been in operation for less than 3 months, it may use 
business  projections  to  calculate  K-ASA,  subject  to  the  following  cumulative 
requirements:  

(a)  historical data is used as soon as it becomes available;  

(b) 

the business projections of the investment firm submitted in accordance 
with Article 7 of Directive 2014/65/EU have been positively assessed by 
the competent authority. 

Article 20   
Measuring COH for the purposes of calculating K-COH  

For  the  purposes  of  calculating  K-COH,  COH  shall  be  the  rolling  average  of  the 
value of the total daily client orders handled, measured at the end of each business 
day  over  the  previous  6  calendar  months,  excluding  the  3  most  recent  calendar 
months. 

COH shall be the average or simple arithmetic mean of the daily measurements for 
the remaining 3 calendar months. 

K-COH shall be calculated within the first 14 days of each quarter. 

2. 

COH  shall  be  measured  as  the  sum  of  the  absolute  value  of  buys  and  the  absolute 
value of sells for both cash trades and derivatives in accordance with the following:  

(a) 

(b) 

for cash trades, the value is the amount paid or received on each trade.  

for  derivatives,  the  value  of  the  trade  is  the  notional  amount  of  the 
contract.  

COH  shall  include  transactions  executed  by  investment  firms  providing  portfolio 
management services on behalf of investment funds. 

COH  shall  exclude  transactions  executed  by  the  investment  firm  in  its  own  name 
either for itself or on behalf of a client.  

3. 

Where an investment firm has been in operation for less than 3 months, it may use 
business  projections  to  calculate  K-COH,  subject  to  the  following  cumulative 
requirements:  

(a)  historical data is used as soon as it becomes available;  

EN 

41 

  EN 

 
 
 
(b) 

the business projections of the investment firm submitted in accordance 
with Article 7 of Directive 2014/65/EU have been positively assessed by 
the competent authority.  

CHAPTER 3  
RtM K-Factors  

Article 21 
RtM K-factor requirement  

The RtM K-factor requirement for the trading book positions of an investment firm dealing on 
own  account,  whether  for  itself  or  on  behalf  of  a  client  shall  be  the  higher  of  K-NPR 
calculated in accordance with Article 22 or K-CMG calculated in accordance with Article 23.  

Article 22  
Calculating K-NPR 

1.  

For the purposes of  K-NPR, the capital requirement for the trading book positions of 
an investment firm dealing on own account, whether for itself or on behalf of a client 
shall be calculated using one of the following approaches: 

(a) 

(b) 

(c) 

the [simplified standardised] approach set out in Chapters 2 to 4 of 
Title IV of Part Three of Regulation (EU) No 575/2013 where the 
investment  firm's  trading  book  business  is  equal  to  or  less  than 
EUR 300 million; 

the  standardised  approach  set  out  in  [Chapter  1(a)  of  Title  IV  of 
Part Three of the Regulation No (EU) No 575/2013, in accordance 
with Article 1(84) of the Proposal for a Regulation of the European 
Parliament  and  of  the  Council  amending  Regulation  (EU)  No 
575/2013  as  regards  the  leverage  ratio,  the  net  stable  funding 
liabilities, 
ratio,  requirements 
funds  and  eligible 
for  own 
counterparty  credit  risk,  market  risk,  exposures 
to  central 
counterparties,  exposures  to  collective  investment  undertakings, 
large  exposures,  reporting  and  disclosure  requirements  and 
amending Regulation (EU) No 648/2012]; 

the internal model approach set out in [Chapter 1(b) of Title IV of 
Part Three of the Regulation No (EU) No 575/2013 in accordance 
with Article 1(84) of the Proposal for a Regulation of the European 
Parliament  and  of  the  Council  amending  Regulation  (EU)  No 
575/2013  as  regards  the  leverage  ratio,  the  net  stable  funding 
liabilities, 
funds  and  eligible 
for  own 
ratio,  requirements 
counterparty  credit  risk,  market  risk,  exposures 
to  central 
counterparties,  exposures  to  collective  investment  undertakings, 
large  exposures,  reporting  and  disclosure  requirements  and 
amending Regulation (EU) No 648/2012].  

EN 

42 

  EN 

 
 
 
 
 
K-NPR  calculated  under  the  approaches  specified  under  points  (b)  and  (c)  shall  be 
multiplied by a factor of 65%.   

2.  

For  the  purposes  of  the  second  sentence  of  point  (a)  of  paragraph  1,  an  investment 
firm shall calculate the size of on- and off- balance sheet business in accordance with 
[paragraphs 2 to 7 of Article 325a of Regulation No (EU) No 575/2013].  

Article 23 
Calculating K-CMG  

1. 

By  way  of  derogation  from  Article  22,  the  competent  authority  may  allow  an 
investment firm to calculate K-CMG for positions that are centrally cleared subject to 
the following conditions:  

(a) 

(b) 

(c) 

the investment firm is not part of a group containing a credit institution; 

the  execution  and  settlement  of  the  transactions  of  the  investment  firm 
that are centrally cleared take place under the responsibility of a clearing 
member and are either guaranteed by that clearing member or otherwise 
settled on a delivery-versus-payment basis; 

the calculation of the initial margin posted by the investment firm to the 
clearing  member  is  based  on  an  internal  model  of  the  clearing  member 
that  complies  with  the  requirements  set  out  in  Article  41  of  Regulation 
(EU) No 648/2012;  

(d) 

the clearing member is a credit institution.  

K-CMG  shall  be  the  highest  total  amount  of  initial  margin  posted  to  the  clearing 
member by the investment firm over the preceding 3 months.  

2. 

EBA, in consultation with ESMA, shall develop draft regulatory technical standards to 
specify  the  calculation  of  the  amount  of  the  initial  margin  referred  to  in  paragraph 
1(c).  

The EBA shall submit those draft regulatory technical standards to the Commission by 
[nine months from the date of entry into force of this Regulation]. 

Power  is  delegated  to  the  Commission  to  adopt  the  revised  regulatory  technical 
standards referred to in the first subparagraph in accordance with Articles 10 to 14 of 
Regulation (EU) No 1093/2010. 

EN 

43 

  EN 

 
 
 
 
 
 
CHAPTER 4  
Rtf K-Factors 

Article 24 
RtF K-factor requirement  

1. 

The RtF K-factor requirement is determined by the following formula:  

K-TCD +K-DTF + K-CON 

where  

K-TCD is equal to the amount calculated in accordance with Article 26;  

K-DTF is  equal to  DTF  measured in  accordance with  Article 32,  multiplied by the 
corresponding coefficient established in Article 15(2) and  

K-CON is equal to the amount calculated in accordance with Article 38.  

K-TCD and K-CON shall be based on the transactions recorded in the trading book 
of  an  investment  firm  dealing  on  own  account,  whether  for  itself  or  on  behalf  of  a 
client.  

K-DTF  shall  be  based  on  the  transactions  recorded  in  the  trading  book  of  an 
investment firm dealing on own account, whether for itself or on behalf of a client, 
and  the  transactions  that  an  investment  firm  enters  into  through  the  execution  of 
orders on behalf of clients in its own name.  

SECTION I  

TRADING COUNTER PARTY DEFAULT 

Article 25  
Scope 

1. 

The following transactions shall be subject to this Section: 

(a)  derivative  instruments  listed  in  Annex  II  of  Regulation  (EU)  No 

575/2013, with the exception of the following:  

(i) 

OTC  derivatives  traded  with  central  governments  and  central 
banks of Member States; 

(ii)   OTC  derivatives  cleared 
counterparty (QCCP); 

through  a  qualifying  central 

(iii)   OTC  derivatives  cleared  through  a  clearing  member,  where 
transactions  are  subject  to  a  clearing  obligation  pursuant  to 
Article  4  of  Regulation  (EU)  No  648/2012  or  to  an  equivalent 
requirement to clear that contract in a third country, or where all 
of  the following conditions are met: 

EN 

44 

  EN 

 
 
 
 
aa.  the  positions  and  assets  of  the  investment  firm 
related  to  those  transactions  are  distinguished  and 
segregated, at the level of both the clearing member and 
the  QCCP,  from  the  positions  and  assets  of  both  the 
clearing  member  and  the  other  clients  of  that  clearing 
member  and,  as  a  result  of  that  distinction  and 
segregation,  those  positions  and  assets  are  bankruptcy 
remote under national law in the event of the default or 
insolvency of the clearing member or one or more of its 
other clients; 

bb.  laws,  regulations  and  contractual  arrangements 
applicable  to  or  binding  the  clearing  member  facilitate 
the  transfer  of  the  client's  positions  relating  to  those 
contracts  and  transactions  and  of  the  corresponding 
collateral 
the 
applicable  margin  period  of  risk  in  the  event of  default 
or insolvency of the original clearing member; 

to  another  clearing  member  within 

cc.  the  investment  firm  has  obtained  an  independent, 
written and reasoned legal opinion which concludes that, 
in  the  event  of  legal  challenge,  the  investment  firm 
would bear no losses on account of the insolvency of its 
clearing  member  or  of  any  of  its  clearing  member's 
clients.  

(iv)  

(v) 

exchange-traded derivatives;  

derivatives  held  for  hedging  a  position  of  the  firm  resulting 
from a non-trading book activity;  

(b) 

(c) 

(d) 

long settlement transactions; 

repurchase transactions;  

securities or commodities lending or borrowing transactions;  

(e)  margin lending transactions.  

2. 

By way of derogation from this Section, an investment firm may calculate its capital 
requirement  for  the  transactions  referred  to  in  paragraph  1  by  applying  one  of  the 
methods  set  out  in  [Sections  3,  4  or  5,  Title  II,  Part  3  of  Regulation  (EU)  No 
575/2013] and shall immediately inform the competent authority thereof.  

Article 26  
Calculating K-TCD  

For  the  purposes  of  K-TCD,  the  capital  requirement  shall  be  determined  by  the  following 
formula: 

Capital requirement = Exposure value * RF 

where RF is the risk factor defined per counterparty type according to Table 2. 

EN 

45 

  EN 

 
 
 
 
 
Table 2  

Counterparty type 

Risk factor 

Credit institutions and investment firms 
Other counterparties 

1.6% 
8% 

Article 27  
Calculation of exposure value 

The calculation of the exposure value shall be determined in  accordance  with the following 
formula: 

Exposure value = Max (0; RC + PFE - C) 

where: 

RC = replacement cost as determined in Article 28.  
PFE = potential future exposure as determined in Article 29; and  
C = collateral as determined in Article 30. 

The  replacement  cost  (RC)  and  collateral  (C)  shall  apply  to  all  transactions  referred  to  in 
Article 25.  

The potential future exposure (PFE) applies only to derivative contracts and long settlement 
transactions.  

Article 28 
Replacement cost (RC)  

The replacement cost referred to in Article 27 shall be determined as follows:  

(a) 

(b) 

(c) 

for  derivative  contracts,  RC  is  determined  as  the  current  market  value 
(CMV); 

for  long  settlement  transactions,  RC  is  determined  as  the  settlement 
amount; 

for  repurchase  transactions  and  securities  or  commodities  lending  or 
borrowing  transactions,  RC  is  determined  as  the  net  amount  of  cash 
borrowed and received. 

Article 29 
Potential future exposure 

1. 

The potential future exposure (PFE) referred to in Article 28 shall be calculated for 
each derivative and long-settlement transaction as the product of: 

EN 

46 

  EN 

 
 
 
 
 
 
 
 
 
 
 
(a) 

(b) 

the  effective  notional  (EN)  amount  of  the  transaction  set  in  accordance 
with paragraphs 2 to 6 of this Article;   

the  supervisory  factor  (SF)  set  according to  paragraph  7  of this  Article; 
and 

(c) 

a maturity factor (MF) set according to paragraph 8 of this Article. 

2. 

3. 

The  effective  notional  (EN)  amount  shall  be  the  product  of  the  notional  amount 
calculated in accordance with paragraph 3 of this Article, its duration for interest rate 
and  credit  derivative  contracts  calculated  in  accordance  with  paragraph  4  of  this 
Article, and its delta for option contracts calculated in accordance with paragraph 6 
of this Article. 

The  notional  amount,  unless  clearly  stated  and  fixed  until  maturity,  shall  be 
determined as follows:  

(a) 

(b) 

(c) 

for  foreign  exchange  derivatives,  the  notional  amount  is  defined  as  the 
notional  of  the  foreign  currency  leg  of  the  contract,  converted  to  the 
domestic  currency.  If  both  legs  of  a  foreign  exchange  derivative  are 
denominated in currencies other than the domestic currency, the notional 
amount of each leg is converted to the domestic currency and the leg with 
the larger domestic currency value is the notional amount; 

for  equity  and  commodity  derivatives  and  emission  allowances  and 
derivatives thereof, the notional amount is defined as the product of the 
current (future) price of one unit of the stock or and the number of units 
referenced by the trade; 

for transactions with multiple payoffs that are state contingent including 
digital  options  or  target  redemption  forwards,  an  investment  firm  shall 
calculate the notional amount for each state and use the largest resulting 
calculation; 

(d)  where  the  notional  is  a  formula  of  market  values,  the  investment  firm 
shall  enter  the  current  market  values  to  determine  the  trade  notional 
amount; 

(e) 

(f) 

(g) 

for  variable  notional  swaps  such  as  amortising  and  accreting  swaps, 
investment firms shall use the average notional over the remaining life of 
the swap as the trade notional amount; 

leveraged  swaps  shall  be  converted  to  the  notional  amount  of  the 
equivalent  unleveraged  swap  so  that  where  all  rates  in  a  swap  are 
multiplied  by  a  factor,  the  stated  notional  amount  is  multiplied  by  the 
factor on the interest rates to determine the notional amount; 

for  a  derivative  contract  with  multiple  exchanges  of  principal,  the 
notional  amount  shall  be  multiplied  by  the  number  of  exchanges  of 
principal in the derivative contract to determine the notional amount.  

4. 

The notional amount of interest rate and credit derivatives for the time to maturity (in 
years)  of  these  contracts  shall  be  adjusted  according  to  the  duration  set  out  in  the 
following formula: 

Duration = (1 – exp (-0.05 * time to maturity)) / 0.05; 

EN 

47 

  EN 

 
 
5. 

The  maturity  of  a  contract  shall  be  the  latest  date  when  the  contract  may  still  be 
executed.  

If the derivative references the value of another interest rate or credit instrument, the 
time period shall be determined on the basis of the underlying instrument.  

For options, the maturity shall be the latest contractual exercise date as specified by 
the contract.  

For  a  derivative  contract  that  is  structured  such  that  on  specified  dates  any 
outstanding  exposure  is  settled  and  the  terms  are  reset  so  that  the  fair  value  of  the 
contract is zero, the remaining maturity shall equal the time until the next reset date.  

The delta of options and swaptions may be calculated by the investment firm itself, 
using  an  appropriate  model.  The  model  shall  estimate  the  rate  of  change  of  the 
option’s value with respect to small changes in the market value of the underlying. 
For  transactions  other  than  options  and  swaptions,  the  delta  shall  be  1  for  long 
positions and -1 for short positions.  

The  supervisory  factor  (SF)  for  each  asset  class  shall  be  set  according  to  the 
following table:  

Table 3 

Asset class 

Supervisory factor 

6. 

7. 

Interest rate 
Foreign exchange 
Credit 
Equity single name 
Equity index 
Commodity and emission allowance 

0.5% 
4% 
1% 
32% 
20% 
18% 

8. 

The maturity factor (MF) for each transaction shall be determined by the following 
formula: 

MF = (min (M;1 year) / 1 year)^0.5 

For unmargined trades, maturity (M) shall be the shorter of one year and remaining maturity 
of the derivative contract, as  determined in  the second subparagraph of paragraph 5, but  no 
less than ten business days.   

For margined trades, maturity (M) shall be the margin period of risk. The minimum margin 
period  of  risk  shall  be  at  least  ten  business  days  for  non-centrally  cleared  derivative 
transactions  subject  to  daily  margin  agreements  and  five  business  days  for  centrally  cleared 
derivative transactions subject to daily margin agreements. 

Article 30 
Collateral 

1. 

All non-cash collateral posted and received by an investment firm, both in bilateral 
and  cleared  transactions  referred  to  in  Article  23,  shall  be  subject  to  haircuts  in 
accordance with the following table:  

EN 

Table 4  

48 

  EN 

 
 
 
 
 
 
 
Asset class 

Haircut repurchase 
transactions 

Haircut other 
transactions 

≤ 1 year 
> 1 year ≤ 5 years 
> 5 years 

0.707% 
2.121% 
4.243% 

Debt 
securities 
issued by 
central 
governments 
or central 
banks 
Debt 
securities 
issued by 
other entities 
Securitisation 
positions 

≤ 1 year 
> 1 year ≤ 5 years 
> 5 years 

≤ 1 year 
> 1 year ≤ 5 years 
> 5 years 

Listed equities and convertibles 
Gold 
Cash 

1.414% 
4.243% 
8.485% 

2.828% 
8.485% 
16.970% 
14.143% 
10.607% 
0% 

1% 
3% 
6% 

2% 
6% 
12% 

4% 
12% 
24% 
20% 
15% 
0% 

For  the  purposes  of  Table  4,  securitisation  positions  shall  not  include  re-
securitisation positions.  

2. 

3. 

The  value  of  non-cash  collateral  posted  by  the  investment  firm  to  its  counterparty 
shall be increased and the value of the non-cash collateral received by the investment 
firm from its counterparty shall be decreased according to Table 4. 

Where  there  is  a  currency  mismatch  between  the  transaction  and  the  collateral 
received or posted, an additional currency mismatch haircut of 8% shall apply. 

Article 31 
Netting 

For  the  purposes  of  this  Section,  an  investment  firm  may  treat  perfectly  matching  contracts 
included  in  a  netting  agreement  as  if  they  were  a  single  contract  with  a  notional  principal 
equivalent to the net receipts, may net other transactions subject to novation under which all 
obligations between the investment firm and its counterparty are automatically amalgamated 
in  such  a  way  that  the  novation  legally  substitutes  one  single  net  amount  for  the  previous 
gross obligations, and other transactions where the investment firm ensures to the satisfaction 
of the competent authority that the following conditions have been met: 

(a) 

a  netting  contract  with  the  counterparty  or  other  agreement  which  creates  a    
single  legal  obligation,  covering  all  included  transactions,  such  that  the 
investment firm would have either a claim to receive or obligation to pay only 
the  net  sum  of  the  positive  and  negative  mark-to-market  values  of  included 
individual transactions in the event a counterparty fails to perform due to any 
of the following:  

(i) 

default;  

(ii)  bankruptcy;  

EN 

49 

  EN 

 
 
 
(iii) 

liquidation; 

(iv)  similar circumstances. 

(b) 

(c) 

the netting contract does not contain any clause which, in the event of default 
of  a  counterparty,  permits  a  non-defaulting  counterparty  to  make  limited 
payments only, or no payments at all, to the estate of the defaulting party, even 
if the defaulting party is a net creditor;  

the  investment  firm  has  obtained  an  independent,  written  and  reasoned  legal 
opinion  that,  in  the  event  of  a  legal  challenge  of  the  netting  agreement,  the 
investment firm’s claims and obligations would be equivalent to those referred 
to in point (a) under the following legal regime: 

– 

– 

– 

– 

the  law  of  the  jurisdiction  in  which  the  counterparty  is 
incorporated; 

if  a  foreign  branch  of  a  counterparty  is  involved,  the  law  of 
jurisdiction in which the branch is located; 

the law that governs the individual transactions in the netting 
agreement; or  

the law that governs any contract  or  agreement necessary to 
effect the netting. 

SECTION II 
DAILY TRADING FLOW 

Article 32 
Measuring DTF for the purposes of calculating K-DTF  

1. 

2. 

3. 

For the purposes of calculating K-DTF, DTF shall be the rolling average of the value 
of  the  total  daily  trading  flow,  measured  at  the  end  of  each  business  day  over  the 
previous 6 calendar months, excluding the 3 most recent calendar months.  

DTF shall  be  the average  or  simple arithmetic mean  of the daily  measurements  for 
the remaining 3 calendar months 

K-DTF shall be calculated within the first 14 days of each quarter.  

DTF  shall  be  measured  as  the  sum  of  the  absolute  value  of  buys  and  the  absolute 
value sells for both cash trades and derivatives in accordance with the following:   

(a) 

(b) 

for cash trades, the value is the amount paid or received on each trade.  

for  derivatives,  the  value  of  the  trade  is  the  notional  amount  of  the 
contract.  

DTF  shall  exclude  transactions  executed  by  an  investment  firm  providing  portfolio 
management services on behalf of investment funds.  

DTF shall include transactions executed by an investment firm in its own name either 
for itself or on behalf of a client.   

EN 

50 

  EN 

 
      
 
 
4. 

Where an investment firm has been in operation for less than 3 months, it may use 
business  projections  to  calculate  K-DTF  subject  to  the  following  cumulative 
requirements:  

(a)  historical data is used as soon as it becomes available;  

(b) 

the business projections of the investment firm submitted in accordance 
with Article 7 of Directive 2014/65/EU have been positively  assessed by 
the competent authority. 

PART FOUR  
CONCENTRATION RISK  

Article 33 
Monitoring obligation   

1. 

2. 

An  investment  firm  shall  monitor  and  control  its  concentration  risk  in  accordance 
with  this  Part,  by  means  of  sound  administrative  and  accounting  procedures  and 
robust internal control mechanisms.  

For  the  purposes  of  this  Part,  the  terms  credit  institution  and  investment  firm  shall 
include  private  or  public  undertakings,  including  their  branches,  which,  were  they 
established  in  the  Union,  would  be  a  credit  institution  or  an  investment  firm  as 
defined  in  this  Regulation  and  have  been  authorised  in  a  third  country  that  applies 
prudential  supervisory  and  regulatory  requirements  at  least  equivalent  to  those 
applied in the Union.  

Article 34 
Reporting requirements  

An investment firm that does not meet the conditions set out in Article 12(1) shall report the 
following levels of risk to the competent authorities on at least an annual basis: 

(a) 

(b) 

(c) 

(d) 

level  of  concentration  risk  associated  with  the  default  of  counterparties 
for  trading  book  exposures,  both  on  an  individual  counterparty  and 
aggregate basis; 

level  of  concentration  risk  towards  the  credit  institutions,  investment 
firms and other entities where client money is held; 

level  of  concentration  risk  towards  the  credit  institutions,  investment 
firms and other entities where client securities are deposited;  

level of concentration risk towards the credit institutions where the firm’s 
own cash is deposited; and 

(e) 

level of  concentration risk from earnings.  

EN 

51 

  EN 

 
 
 
 
 
Article 35  
Calculation of the exposure value 

1. 

An  investment  firm  that  does  not  meet  the  conditions  set out  in  Article  12(1)  shall 
calculate the following exposures for the purposes of this Part: 

(a) 

exposures to individual clients which arise on the trading book, by 
adding  those  exposures  to  the  net  exposures  in  all  financial 
instruments issued by that individual client.  

The  net  exposure  shall  be  calculated  by  deducting 
those 
underwriting positions which are subscribed or sub-underwritten by 
third parties based on a formal agreement, reduced by the following 
factors:  

Table 5 

working day 0: 

working day 1: 

working days 2 to 3: 

working day 4: 

working day 5: 

after working day 5: 

100 % 

90 % 

75 % 

50 % 

25 % 

0 %. 

2. 

1. 

An investment firm shall set up systems to monitor and control its 
underwriting exposures between the time of the initial commitment 
and  the  next  business  day,  in  the  light  of  the  nature  of  the  risks 
incurred in the markets in question. 

(b) 

exposures  to  groups  of  connected  clients,  by  adding  all  the 
exposures to the individual clients within the group, which shall be 
treated as a single exposure.  

In calculating the exposure to a client or a group of connected clients, an investment 
firm  shall  take  all  reasonable  steps  to  identify  underlying  assets  in  relevant 
transactions and the counterparty of the underlying exposures.   

Article 36  
Limits to concentration risks 

An  investment  firm  dealing  on  own  account,  whether  for  itself  or  on  behalf  of  a 
client,  shall  not  incur  an  exposure  to  an  individual  client  or  group  of  connected 
clients the value of which exceeds 25% of its regulatory capital, unless it meets the 
obligation to notify set out in Article 37 and the K-CON capital requirement set out 
in Article 38.   

Where that individual client is a credit institution or an investment firm, or where a  
group  of  connected  clients  includes  one  or  more  credit  institutions  or  investment 
firms,  that  value  shall  not  exceed  25%  of  the  investment  firm's  regulatory  capital  

EN 

52 

  EN 

 
 
 
 
calculated in  accordance  with  Article  11  or  EUR  150  million,  whichever  is  higher, 
provided that the sum of exposure values, to all connected clients that are not credit 
institutions  or  investment  firms  does  not  exceed  25  %  of  the  investment  firms' 
regulatory capital. 

Where the amount of EUR 150 million is higher than 25% of the investment firm's 
regulatory capital, the value of the exposure shall not exceed 100% of the investment 
firm's regulatory capital.  

2. 

The  limits  referred  to  in  paragraph  1  may  be  exceeded  where  the  following 
conditions are met: 

(a) 

the investment firm meets the K-CON capital requirement on the excess 
in respect of the limit laid down in paragraph 1, calculated in accordance 
with Article 38;  

(b)  where 10 days or less have elapsed since the excess occurred, the trading-
book  exposure  to  the  individual  client  or  group  of  connected  clients  in 
question  shall  not  exceed  500%  of  the  investment  firm's  regulatory 
capital; 

(c) 

any  excesses  that  have  persisted  for  more  than  10  days  do  not,  in 
aggregate, exceed 600 % of the investment firm's regulatory capital. 

Article 37  
Obligation to notify  

1. 

2. 

1. 

2. 

3. 

4. 

Where the limits referred to in Article 36(1) are exceeded, an investment firm shall 
notify  the  amount  of  the  excess,  the  name  of  the  individual  client  concerned  and, 
where  applicable,  the  name  of  the  group  of  connected  clients  concerned,  without 
delay to the competent authorities.  

Competent authorities may grant the investment firm a limited period to comply with 
the limit referred to in Article 36(1).  

Where the amount of EUR 150 million referred to in Article 36(1) is applicable, the 
competent authorities may allow the 100% limit of the investment firm's regulatory 
capital to be exceeded. 

Article 38  
Calculating K-CON  

For the purposes of calculating K-CON, the excess referred to in Article 36(2) shall 
be the exposure to the individual client or group of connected clients in question that 
arises in the trading book.   

Where  the  excess  has  not  persisted  for  more  than  10  days,  the  K-CON  capital 
requirement shall be 200% of the requirements referred to in paragraph 1. 

After  the  period  of  10  days  calculated  from  the  date  on  which  the  excess  has 
occurred, the excess shall be allocated to the appropriate line in Column 1 of Table 6. 

The K-CON capital requirement shall be the product of the excess multiplied by the 
corresponding factor in Column 2 of Table 6. 

EN 

53 

  EN 

 
 
 
Table 6 

Column 1: 
Excess over the limits 
(based on a percentage of regulatory 
capital) 

Column 2: 
Factors 

Up to 40 % 

From 40 % to 60 % 

From 60 % to 80 % 

From 80 % to 100 % 

From 100 % to 250 % 

Over 250 % 

200 % 

300 % 

400 % 

500 % 

600 % 

900 % 

5. 

1. 

2. 

In order to ensure the uniform application of this Regulation and to take account of 
developments  in  financial  markets,  the  Commission  shall  be  empowered  to  adopt 
delegated  acts  in  accordance  with  Article  54  in  order  to  specify  the  method  for 
measuring the K-factor in this Article. 

Article 39  
Procedures to prevent investment firms from avoiding the K-CON capital requirement 

Investment firms shall not temporarily transfer the exposures exceeding the limit laid 
down in Article 36(1) to another company, whether within the same group or not, or 
by  undertaking  artificial  transactions  to  close  out  the  exposure  during  the  10-day 
period referred to in Article 38 and creating a new exposure.  

Investment firms shall maintain systems which ensure that any transfer referred to in 
the paragraph 1 is immediately reported to the competent authorities.  

Article 40  
Exclusions 

1. 

The following exposures shall be excluded from the requirements set out in Article 
38(1): 

(a) 

(b) 

(c) 

exposures not arising in the trading book; 

exposures  which  are  entirely  deducted  from  an  investment  firm’s  own 
funds; 

certain  exposures  incurred  in  the  ordinary  course  of  settlement  of 
payment  services,  foreign  currency  transactions,  securities  transactions 
and provision of money transmission;  

(d) 

asset items constituting claims on central governments: 

EN 

54 

  EN 

 
 
 
 
(i) 
exposures  to  central  governments,  central  banks,  public  sector 
entities,  international  organisations  or  multilateral  development  banks 
(MDBs) and exposures guaranteed by or attributable to such persons; 

(ii)  
exposures  to  central  governments  or  central  banks  (other  than 
those  referred  to  under  point  (i)  which  are  denominated  and,  where 
applicable, funded in the national currency of the borrower; 

(iii) 
states’ regional governments and local authorities.  

exposures to, or guaranteed by European Economic Area (EEA) 

(e) 

exposures and default fund contributions to central counterparties. 

2. 

Competent  authorities  may  fully  or  partially  exempt  the  following  exposures  from 
the application of Article 38(1): 

(a) 

(b) 

(c) 

covered bonds; 

exposures  to,  or  guaranteed  by  EEA  states’  regional  governments  and 
local authorities; 

liquidity requirements held in government securities, provided that, at the 
discretion  of  the  competent  authority  they  are  assessed  as  investment 
grade;  

(d) 

exposures  to  recognised  exchanges  as  defined  in  Article  4(1)(72)  of 
Regulation (EU) 575/2013. 

Article 41 
Exemption for commodity and emission allowance dealers  

1. 

The  provisions  of  this  Part  shall  not  apply  to  commodity  and  emission  allowance 
dealers when all the following conditions are met for intra-group transactions: 

(a) 

the other counterparty is a non-financial counterparty;  

(b)  both counterparties are included in the same consolidation;  

(c)  both counterparties are subject to appropriate centralised risk evaluation, 

measurement and control procedures;  

(d) 

the transaction  can  be  assessed  as  reducing risks  directly relating  to  the 
commercial  activity  or  treasury  financing  activity  of  the  non-financial 
counterparty or of that group. 

2. 

For the purposes of this Article, counterparties shall be considered to be included in 
the same consolidation under one of the following conditions:  

(a) 

(b) 

(c) 

the  counterparties  are  included  in  a  consolidation  in  accordance  with 
Article 22 of Directive 2013/34/EU; 

the  counterparties  are  included  in  a  consolidation  in  accordance  with 
Article 4 of Regulation (EC) No 1606/2002; 

in relation to a group the parent undertaking of which has its head office 
in  a  third  country,  the  counterparties  are  included  in  consolidation  in 
accordance  with  generally  accepted  accounting  principles  of  a  third 
country determined to be equivalent to IFRS in accordance with Article 3 

EN 

55 

  EN 

 
 
of  Regulation  (EC)  No 1569/2007  or  to  accounting  standards  of  a  third 
country the use of which is permitted in accordance with Article 4 of that 
Regulation. 

3. 

An investment firm shall notify the competent authority before using the exemption 
referred to in paragraph 1.  

The competent authority shall permit the application of the exemption only if all the 
conditions set out in paragraph 1 are met. 

EN 

56 

  EN 

 
 
 
PART FIVE  
LIQUIDITY 

Article 42  
Liquidity requirement 

1. 

An investment firm shall  hold  an amount of liquid assets equivalent to at least one 
third of the fixed overhead requirements calculated in accordance with Article 13(1).  

For the purposes of the first subparagraph, liquid assets shall be any of the following: 

(a) 

the  assets  referred  to  in  Articles  10  to  13  of  Commission  Delegated 
Regulation (EU) 2015/61;  

(b)  unencumbered cash.  

2. 

For the purposes of paragraph 1, an investment firm that meets the conditions set out 
in  Article  12(1)  may  also  include  receivables  from  trade  debtors  and  fees  or 
commissions receivable within 30 days in their liquid assets, where those receivables 
comply with the following conditions:  

(a) 

(b) 

they account for up to one third of the minimum liquidity requirements as 
referred to in paragraph 1;  

they are not to be counted towards any additional liquidity requirements 
required by the competent authority for firm-specific risks in accordance 
with Article 36(2)(k) of Directive (EU) ----/--[IFD];  

(c) 

they are subject to a haircut of 50%. 

Article 43 
Temporary reduction of the liquidity requirement 

1. 

2. 

An investment firm may, in exceptional circumstances, reduce the amount of  liquid 
assets  held.  Where  such  reduction  occurs,  the  investment  firm  shall  notify  the 
competent authority without delay.  

Compliance with the liquidity requirement set out in Article 42(1) shall be restored 
within 30 days of the original reduction.  

Article 44 
Customer guarantees  

An investment firm shall increase their liquid assets by 1.6% of the total amount of guarantees 
provided to customers.  

EN 

57 

  EN 

 
 
 
 
 
 
PART SIX  
DISCLOSURE BY INVESTMENT FIRMS 

Article 45 
Scope  

1. 

2. 

3. 

4. 

An  investment  firm  that  does  not  meet  the  conditions  set out  in  Article  12(1)  shall 
publicly disclose the information specified in this Part on the same day it publishes 
its annual financial statements.  

An  investment  firm  that  meets  the  conditions  set  out  in  Article  12(1)  which  issues 
Additional  Tier  1  instruments  shall  publicly  disclose  the  information  set  out  in 
Articles  46,  48,  49  and  50  on  the  same  day  it  publishes  its  annual  financial 
statements.  

An investment firm shall publicly disclose the information set out in Articles 47 and 
51  where  it  meets  the  requirements  set  out  in  Article  23  of  Directive  (EU)  ----/--
[IFD].  

The investment firm that meets the requirements set out in Art 23 of Directive (EU) -
---/--[IFD]  shall  disclose  the  information  as  of  the  financial  year  following  the 
financial year in which the assessment referred to in Article 23(1) of Directive (EU) -
---/--[IFD] took place. 

An investment firm may determine the appropriate medium and location to comply 
effectively  with  the  disclosure  requirements  referred  to  in  paragraphs  1  and  2.  All 
disclosures shall be provided in one medium or location where possible. If the same 
or  similar  information  is  disclosed  in  two  or  more  media,  a  reference  to  the 
synonymous information in the other media shall be included within each medium.  

Article 46  
Risk management objectives and policies 

An  investment  firm  shall  disclose  its  risk  management  objectives  and  policies  for  each 
separate category of risk in Parts Three to Five in accordance with Article 45, including the 
strategies  and  processes  to  manage  those  risks  and  a  risk  statement  approved  by  the 
management body succinctly describing the investment firm's overall  risk profile associated 
with the business strategy.  

Article 47  
Governance 

An  investment  firm  shall  disclose  the  following  information  regarding  internal  governance 
arrangements, in accordance with Article 45: 

(a) 

the number of directorships held by members of the management body; 

EN 

58 

  EN 

 
 
 
 
 
(b) 

the  policy  on  diversity  with  regard  to  the  selection  of  members  of  the 
management body, its objectives and any relevant targets set out in that policy, 
and the extent to which those objectives and targets have been achieved; 

(c)  whether or not the investment firm has set up a separate risk committee and the 

number of times the risk committee has met annually. 

Article 48  
Own funds  

1. 

An investment firm shall disclose the following information regarding its own funds, 
in accordance with Article 45:  

(a) 

(b) 

(c) 

(d) 

(e) 

a  full  reconciliation  of  Common  Equity  Tier  1  items,  Additional  Tier  1 
items, Tier 2 items and applicable filters and deductions applied to own 
funds  of  the  investment  firm  and  the  balance  sheet  in  the  audited 
financial statements of the investment firm;  

a  description  of  the  main  features  of  the  Common  Equity  Tier  1  and 
Additional  Tier  1  instruments  and  Tier  2  instruments  issued  by  the 
investment firm;  

the  full  terms  and  conditions  of  all  Common  Equity  Tier  1,  Additional 
Tier 1 and Tier 2 instruments;  

separate disclosure of the nature and amounts of the prudential filters and 
deductions  applied  as  well  as  of  items  not  deducted  in  relation  to  own 
funds;  

a description of all restrictions applied to the calculation of own funds in 
accordance  with  this  Regulation  and  the  instruments,  prudential  filters 
and deductions to which those restrictions apply;  

2. 

EBA,  in  consultation  with  ESMA,  shall  develop  draft  implementing  technical 
standards  to  specify  templates  for  disclosure  under  points  (a),  (b),  (d)  and  (e)  of 
paragraph 1.  

EBA  shall  submit  those  draft  implementing  technical  standards  to  the  Commission 
by [nine months from the date of entry into force of this Regulation].  

Power is conferred on the Commission to adopt the implementing technical standards 
referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) 
No 1093/2010.  

Article 49 
Capital requirements 

An investment firm shall disclose the following information regarding its compliance with the 
requirements  laid  down  in  Article  11(1)  and  in  Article  22  of  Directive  (EU)  ----/--[IFD],  in 
accordance with Article 45:  

(a) 

a summary of the investment firm's approach to assessing the adequacy 
of its internal capital to support current and future activities;  

EN 

59 

  EN 

 
 
 
(b)  upon demand from the competent authority, the result of the investment 
firm's  internal  capital  adequacy  assessment  process,  including  the 
composition of the additional own funds based on the supervisory review 
process as referred to in Article 36(2)(a) of Directive (EU) ----/--[IFD] ;  

(c) 

the  capital  requirements  calculated  separately,  in  accordance  with  each 
K-factor applicable to the investment firm as set out in Article 15, and in 
aggregate form, based on the sum of the applicable K-factors; 

(d) 

the  fixed  overheads  requirement  determined  in  accordance  with  Article 
13.  

Article 50  
Disclosure of return on assets  

An investment firm shall disclose its return on assets calculated as its net profit divided by its 
total balance sheet in its annual report as referred to in Article 45. 

Article 51 
Remuneration policy and practices 

Investment firms shall disclose the following information regarding their remuneration policy 
and practices for those categories of staff whose professional activities have a material impact 
on investment firm's risk profile, in accordance with Article 45; 

(a) 

(b) 

(c) 

the most important design characteristics of the remuneration system, including 
the  level  of  variable  remuneration  and  criteria  for  its  award,  pay  out  in 
instruments policy, deferral policy and vesting criteria; 

the  ratios  between  fixed  and  variable  remuneration  set  in  accordance  with 
Article 28(2) of Directive (EU) ----/--[IFD]; 

aggregate  quantitative  information  on  remuneration,  broken  down  by  senior 
management and members of staff whose actions have a material impact on the 
risk profile of the investment firm, indicating the following:  

i)  the  amounts  of  remuneration  awarded  in  the  financial  year,  split  into 
fixed remuneration including a description of the fixed components, and 
variable remuneration, and the number of beneficiaries; 

ii)  the  amounts  and  forms  of  awarded  variable  remuneration,  split  into 
cash, shares, share-linked instruments and other types separately for the 
part paid upfront and the deferred part; 

iii)  the  amounts  of  deferred  remuneration  awarded  for  previous 
performance  periods,  split  into  the  amount  due  to  vest  in  the  financial 
year and the amount due to vest in subsequent years; 

iv) the amount of deferred remuneration due to vest in the financial year, 
and that is reduced through performance adjustments; 

v) the guaranteed variable remuneration awards during the financial year, 
and the number of beneficiaries of those awards; 

EN 

60 

  EN 

 
 
 
vi) the severance payments awarded in previous periods, that have been 
paid out during the financial year; 

vii)  the  amounts  of  severance  payments  awarded  during  the  financial 
year, split into paid upfront and deferred, the number of beneficiaries of 
those  payments  and  highest  payment  that  has  been  awarded  to  a  single 
person; 

(d) 

the number of individuals that have been remunerated EUR 1 million or more 
per financial year, with the remuneration between EUR 1 million and EUR 5 
million  broken  down  into  pay  bands  of  EUR  500  000  and  with  the 
remuneration of EUR 5 million and above broken down into pay bands of EUR 
1 million; 

(e)  upon  demand  from  the  competent  authority,  the  total  remuneration  for  each 

member of the management body or senior management; 

(f) 

information  on  whether  the  investment  firm  benefits  from  a  derogation  laid 
down in Article 30(4) of Directive (EU) ----/--[IFD].  

For  the  purposes  of  point  (f),  investment  firms  that  benefit  from  such  a  derogation  shall 
indicate  whether  that  derogation  has  been  granted  on  the  basis  of  point  (a)  or  point  (b)  of 
Article 30(4) of Directive (EU) ----/--[IFD], or both. They shall also indicate for which of the 
remuneration  principles  they  apply  the  derogation(s),  the  number  of  staff  members  that 
benefit  from  the  derogation(s)  and  their  total  remuneration,  split  into  fixed  and  variable 
remuneration. 

This Article shall be without prejudice to the provisions set out in Regulation (EU) 2016/679. 

EN 

61 

  EN 

 
 
 
PART SEVEN  
REPORTING BY INVESTMENT FIRMS 

Article 52  
Reporting requirements 

1. 

An  investment  firm  shall  submit  an  annual  report  to  the  competent  authorities 
including all of the following information:  

(a) 

(b) 

(c) 

(d) 

(e) 

(f) 

level and composition of own funds;  

capital requirements;  

capital requirement calculations;  

the level of activity in respect of the conditions set out in Article 12(1), 
including  the  balance  sheet  and  revenue  breakdown  by  investment 
service and applicable K-factor;   

concentration risk;  

liquidity requirements.  

By way of derogation from paragraph 1, an investment firm that meets the conditions 
in Article 12(1) shall not be required to report the information specified in points (e) 
and (f).  

EBA,  in  consultation  with  ESMA,  shall  develop  draft  implementing  technical 
standards to specify the formats, reporting dates, definitions and the IT solutions to 
be applied for the reporting referred to in paragraph 1, which take into account the 
difference in granularity of information submitted by an investment firm that meets 
the conditions in Article 12(1).  

EBA  shall  develop  the  implementing  technical  standards  referred  to  in  the  first 
subparagraph by [nine months from the date of entry into force of this Regulation]. 

Power is conferred on the Commission to adopt the implementing technical standards 
referred  to  in  this  paragraph  in  accordance  with  Article  15  of  Regulation  (EU)  No 
1093/2010.  

Article 53  
Reporting requirements for investment firms carrying out activities referred to in Article 
4(1)(1)(b) of Regulation (EU) No 575/2013 

Investment firms which do not meet the conditions of Article 12(1) and which carry 
out  any  of  the  activities  referred  to  in  Article  4(1)(1)(b)  of  Regulation  (EU)  No 
575/2013,  shall  verify  the  size  of  their  total  assets  on  a  monthly  basis  and  report 
quarterly that information to the competent authority and to the EBA.  

Where an investment firm referred to in paragraph 1 is part of a group in which one 
or  more  other  undertakings  is  an  investment  firm  which  carries  out  any  of  the 
activities  referred  to  in  Article  4(1)(1)(b)  of  Regulation  (EU)  No  575/2013,  such 
investment  firms  shall  verify  the  size  of  their  total  assets  on  a  monthly  basis  and 

2. 

3. 

1. 

2. 

EN 

62 

  EN 

 
 
 
3. 

4. 

inform each other. Those investment firms shall then report quarterly their combined 
total assets to the relevant competent authorities and to the EBA. 

Where  the  average  of  monthly  total  assets  of  the  investment  firms  referred  to  in 
paragraphs  1  and  2  reaches  any  of  the  thresholds  set  out  in  Article  4(1)(1)(b)  of 
Regulation  (EU)  No  575/2013  calculated  over  a  period  of  twelve  consecutive 
months,  EBA  shall  notify  those  investment  firms  and  the  authorities  competent  for 
granting  authorisation  in  accordance  with  Article  [8a]  of  Directive  2013/36/EU 
thereof. 

EBA, in consultation with ESMA, shall develop draft regulatory technical standards 
to  specify  further  the  obligation  to  provide  information  to  the  relevant  competent 
authorities referred to in paragraphs 1 and 2 in order to allow effective monitoring of 
the  thresholds  set  out  in  paragraphs  1  (a)  and  (b)  of  Article  [8a]  of  Directive 
2013/36/EU.  
EBA shall submit those draft technical standards to the Commission by [1st January 
2019]. 

Power  is  conferred  on  the  Commission  to  adopt  the  regulatory  technical  standards 
referred to in this paragraph, in accordance with Articles 10 to 14 of Regulation (EU) 
No 1093/2010.  

EN 

63 

  EN 

 
 
1. 

2. 

3. 

4. 

5. 

6. 

PART EIGHT 
DELEGATED AND IMPLEMENTING ACTS 

Article 54 
Exercise of the delegation 

The  power  to  adopt  delegated  acts  is  conferred  on  the  Commission  subject  to  the 
conditions laid down in this Article. 

The power to adopt delegated acts referred to in Articles 4(2), 12(5), 15(5) and 38(5) 
shall be conferred on the Commission for an indeterminate period of time from [date 
of entry into force of this Regulation]. 

The delegation of power referred to in Articles 4(2) and 15(5) may be revoked at any 
time by the European Parliament or by the Council. A decision to revoke shall put an 
end to the delegation of the power specified in that decision. It shall take effect the 
day following the publication of the decision in the Official Journal of the European 
Union  or  at  a  later  date  specified  therein.  It  shall  not  affect  the  validity  of  any 
delegated acts already in force. 

Before adopting a delegated act, the Commission shall consult experts designated by 
each  Member  State 
the 
in  accordance  with 
Interinstitutional Agreement of 13 April 2016 on Better Law-Making. 

the  principles 

laid  down 

in 

As soon as it adopts a delegated act, the Commission shall notify it simultaneously to 
the European Parliament and to the Council. 

A  delegated  act  adopted  pursuant  to  Articles  4(2)  and  15(5)  shall  enter  into  force 
only  if  no  objection  has  been  expressed  either  by  the  European  Parliament  or  the 
Council  within  a  period  of  [two months]  of  notification  of  that  act  to  the  European 
Parliament  and  the  Council  or  if,  before  the  expiry  of  that  period,  the  European 
Parliament  and  the  Council  have  both  informed  the Commission  that  they  will  not 
object.  That  period  shall  be  extended  by  [two months]  at  the  initiative  of  the 
European Parliament or of the Council. 

Article 55  
Implementing Acts 

The  specification  of  templates  for  disclosure  prescribed  in  Article  48(2)  and  of  formats, 
reporting dates, definitions and IT solutions to be applied to reporting as prescribed in Article 
52(2)  shall  be  adopted  as  implementing  acts  in  accordance  with  the  examination  procedure 
referred to in Article 56(2). 

EN 

64 

  EN 

 
 
 
 
 
 
Article 56 
Committee procedure 

1. 

2. 

The Commission shall be assisted by the European Banking Committee established 
by Commission Decision 2004/10/EC33. That committee shall be a committee within 
the meaning of Regulation (EU) No 182/2011 of the European Parliament and of the 
Council34. 

Where  reference  is  made  to  this  paragraph,  Article  5  of  Regulation  (EU) 
No 182/2011 shall apply. 

Commission Decision 2004/10/EC of 5 November 2003 establishing the European Banking Committee 

33 
(OJ L 3, 7.1.2004, p. 36). 
34 
Regulation  (EU)  No 182/2011  of  the  European  Parliament  and  of  the  Council  of  16  February  2011 
laying  down  the  rules  and  general  principles  concerning  mechanisms  for  control  by  Member  States  of  the 
Commission’s exercise of implementing powers (OJ L 55, 28.2.2011, p. 13). 

EN 

65 

  EN 

 
 
                                                 
PART NINE 
TRANSITIONAL PROVISIONS, REPORTS, REVIEWS 
AND AMENDMENTS 

TITLE I 
TRANSITIONAL PROVISIONS 

Article 57 
Transitional provisions  

1. 

2. 

Articles  42  to  44  and  45  to  51  shall  apply  to  commodity  and  emission  allowance 
dealers from [five years from the date of application of this Regulation].  

Until  five  years  from  the  date  of  application  of  this  Regulation  or  the  date  of 
application  of  the  provisions  referred  to  in  Article  22(1)(b)  and  (c)  pursuant  to  
[Chapters  1(a)  and  1(b)  of  Title  IV  of  Part  Three  of  the  Regulation  No  (EU)  No 
575/2013, in accordance with Article 1(84) of the Proposal for a Regulation of the 
European Parliament and of the Council amending Regulation (EU) No 575/2013 as 
regards the leverage ratio, the net stable funding ratio, requirements for own funds 
and  eligible  liabilities,  counterparty  credit  risk,  market  risk,  exposures  to  central 
counterparties,  exposures  to  collective  investment  undertakings,  large  exposures, 
reporting  and  disclosure  requirements  and  amending  Regulation  (EU)  No 
648/2012], whichever is the earlier, an investment firm shall apply the requirements 
set out in Title IV of Part Three of Regulation (EU) No 575/2013. 

3. 

By  way  of  derogation  from  Article  11,  investment  firms  may  limit  their  capital 
requirements  for  a  period  of  five  years  from  [the  date  of  application  of  this 
Regulation] as follows:  

(a) 

(b) 

(c) 

twice the relevant capital requirement pursuant to Chapter 1 of Title 1 of Part 
Three of Regulation (EU) No 575/2013 had it continued to be subject to that 
Regulation;  

twice  the  applicable  fixed  overhead  requirement  set  out  in  Article  13  of  this 
Regulation where an investment firm was not in existence on or before [date of 
application of this Regulation]; 

twice the applicable initial capital requirement set out in Title IV of Directive 
2013/36/EU on [date of  application of  this Regulation] where  an undertaking 
was subject only to an initial capital requirement until that point in time.  

Article 58 
Derogation for undertakings referred to in Article 4(1)(1)(b) of Regulation (EU) 575/2013 

Investment firms which on the date of entry into force of this Regulation meet the conditions 
of Article 4(1)(1)(b) of Regulation (EU) 575/2013 and have not yet obtained authorisation as 
credit institutions in accordance with Article 8 of Directive 2013/36/EU shall continue to be 
subject to Regulation (EU) 575/2013 and to Directive 2013/36/EU. 

EN 

66 

  EN 

 
 
 
TITLE II 
REPORTS AND REVIEWS 

Article 59  
Review clause  

1. 

By  [3  years  from  the  date  of  entry  into  force  of  this  Regulation],  the  Commission 
shall carry out a review the application of the following:  

(a) 

(b) 

(c) 

(d) 

(e) 

(f) 

the  conditions  for  investment  firms  to  qualify  as  small  and  non-
interconnected firms in accordance with Article 12; 

the methods for measuring the K-factors in Title II of Part Three and in 
Article 38;  

the coefficients in Article 15(2); 

the provisions set out in Articles 42 to 44;  

the provisions set out in Section 1 of Chapter 4 of Title II of Part Three; 

the  application  of  Part  Three  to  commodity  and  emission  allowance 
dealers.  

2. 

By  [3  years  from  the  date  of  entry  into  force  of  this  Regulation],  the  Commission 
shall submit the report referred to in paragraph 1 to the European Parliament and the 
Council, together with legislative proposals where appropriate.   

TITLE III 
AMENDMENTS 

Article 60 
Amendments of Regulation (EU) No 575/2013 

Regulation (EU) No 575/2013 is amended as follows: 

1. 

2. 

In the title, the words ‘and investment firms’ are deleted.  

Article 4(1) is amended as follows:  

(a)  point (1) is replaced by the following:    

‘‘(1)  ‘credit  institution’  means  an  undertaking  the  business  of  which 
consists of any of the following:  

(a) 

(b) 

to take deposits or other repayable funds from the public and 
to grant credits for its own account;  

to carry out any of the activities referred to in points (3) and 
(6) of Section A of Annex I of Directive 2014/65/EU, where 

EN 

67 

  EN 

 
 
 
 
 
 
one  of  the  following  applies,  but  the  undertaking  is  not  a 
commodity  and  emission  allowance  dealer,  a  collective 
investment undertaking or an insurance undertaking:  

i)  the  total  value  of  the  assets  of  the  undertaking  exceeds 
EUR 30 billion, or  

ii)  the  total  value  of  the  assets  of  the  undertaking  is  below 
EUR  30  billion,  and  the  undertaking  is  part  of  a  group  in 
which  the  combined  total  value  of  the  assets  of  all 
undertakings in the group that carry out any of the activities 
referred  to  in  points  (3)  and  (6)  of  Section  A  of  Annex  I  of 
Directive  2014/65/EU  and  have  total  assets  below  EUR  30 
billion exceeds EUR 30 billion, or 

iii)  the  total  value  of  the  assets  of  the  undertaking  is  below 
EUR  30  billion,  and  the  undertaking  is  part  of  a  group  in 
which  the  combined  total  value  of  the  assets  of  all 
undertakings in the group that carry out any of the activities 
referred  to  in  points  (3)  and  (6)  of  Section  A  of  Annex  I  of 
Directive  2014/65/EU  exceed  EUR  30  billion,  where  the 
consolidating supervisor in consultation with the supervisory 
college  so  decides  in  order  to  address  potential  risks  of 
circumvention and potential risks for the financial stability of 
the Union. 

(b)  point (2) is replaced by the following: 

‘‘(2)  ‘investment  firm’  means  a  person  as  defined  in  Article  4(1)(1)  of 
Directive  2014/65/EU,  which  is  authorised  under  that  Directive,  excluding  a 
credit institution;’’. 

(c)  point (3) is replaced by the following:  

(3) 

‘institution’ means a credit institution authorised under Article 8 of 
Directive 2013/36/EU or an undertaking referred to in Article 8a(3) 
of Directive 2013/36/EU;’’.  

(d)  point (4) is deleted;  

(e)  point (26) is replaced by the following:  

‘‘(26)  ‘financial  institution’  means  an  undertaking  other  than  an 
institution,  the  principal  activity  of  which  is  to  acquire  holdings  or  to 
pursue one or more of the activities listed in points 2 to 12 and point 15 
of  Annex  I  to  Directive  2013/36/EU,  including  an  investment  firm,  a 
financial  holding  company,  a  mixed  financial  holding  company,  an 
investment  holding  company,  a  payment  institution  within  the  meaning 
of Directive 2007/64/EC of the European Parliament and of the Council 
of 13 November 2007 on payment services in the internal market, and an 
asset management company, but excluding insurance holding companies 
and  mixed-activity  insurance  holding  companies  as  defined  in  point  (g) 
of Article 212(1) of Directive 2009/138/EU;’’.  

(f) 

point (51) is replaced by the following:  

EN 

68 

  EN 

 
 
‘‘(51) ‘initial capital’ means the amount and types of own funds specified 
in Article 12 of Directive 2013/36/EU;’’;  

(g)  point (145) is added:  

‘‘(145)  ‘commodity  and  emission  allowance  dealers’  mean  undertakings  the 
main  business  of  which  consists  exclusively  of  the  provision  of 
investment services or activities in relation to commodity derivatives or 
commodity  derivatives  contracts  referred  to  in  points  5,  6,  7,  9  and  10, 
derivatives  of  emission  allowances  referred  to  in  point  4,  or  emission 
allowances referred to in point 11 of Section C of Annex I  to Directive 
2014/65/EU;’’.  

3. 

Article 6 is amended as follows: 

(a)  paragraph 4 is replaced by the following:  

‘‘(4)  Credit  institutions  shall  comply  with  the  requirements  laid 
down in Parts Six and Seven on an individual basis.’’.  

(b)  paragraph 5 is deleted. 

4. 

In  Part  I,  Title  II,  Chapter  2  on  Prudential  consolidation,  a  new  Article  10a  is 
inserted: 

‘‘For the purposes of application of this Chapter, parent financial holding companies 
in  a  Member  State  and  Union  parent  financial  holding  companies  shall  include 
investment  firms  where  such  investment  firms  are  parent  undertakings  of  an 
institution.’’.  

5. 

In Article 11, paragraph 3 is replaced by the following: 

‘‘3.  EU parent institutions, institutions controlled by an EU parent financial holding 
company  and  institutions  controlled  by  an  EU  parent  mixed  financial  holding 
company shall comply with the obligations laid down in Part Six on the basis of the 
consolidated situation of that parent institution, financial holding company or mixed 
financial holding company, if the group comprises one or more credit institutions or 
investment firms that are authorised to provide the investment services and activities 
listed in points (3) and (6) of Section A of Annex I to Directive 2004/39/EC’’.  

6. 

7. 

8. 

9. 

Article 15 is deleted.  

Article 16 is deleted.  

Article 17 is deleted.  

In Article 81, point (a) of paragraph 1 is replaced by the following:   

‘‘(a) the subsidiary is one of the following:  

(i) 

an institution;  

(ii) 

an undertaking that is subject by virtue of applicable national law to the 
requirements of this Regulation and Directive 2013/36/EU;  

(iii)  an investment firm;’’. 

10. 

In Article 82, point (a) of paragraph 1 is replaced by the following:  

‘‘(a) the subsidiary is one of the following:  

(i) 

an institution;   

EN 

69 

  EN 

 
(ii) 

an undertaking that is subject by virtue of applicable national law to    the 
requirements of this Regulation and Directive 2013/36/EU;  

(iii)  an investment firm;’’. 

11. 

Article 93 is amended as follows: 

(a)  paragraph 3 is deleted.  

(b)  paragraphs 4, 5 and 6 are replaced by the following:  

‘‘4.  Where  control  of  an  institution  falling  within  the  category  referred  to  in 
paragraph  2  is  taken  by  a  natural  or  legal  person  other  than  the  person  who 
controlled  the  institution  previously,  the  amount  of  own  funds  of  that 
institution shall attain the amount of initial capital required.  

5.  Where  there  is  a  merger  of  two  or  more  institutions  falling  within  the 
category referred to in paragraph 2, the amount of own funds of the institution 
resulting  from  the  merger  shall  not  fall  below  the  total  own  funds  of  the 
merged institutions at the time of the merger, as long as the amount of initial 
capital required has not been attained.  

6. Where competent authorities consider it necessary to ensure the solvency of 
an  institution  that  the  requirement  laid  down  in  paragraph  1  is  met,  the 
provisions laid down in paragraphs 2 to 4 shall not apply.’’.  

12. 

Section  2  of  Chapter  I,  Title  I,  Part  Three  is  deleted  on  [5  years  from  the  date  of 
application of Regulation (EU) ____/___IFR]. 

13. 

In Article 197, point (c) of paragraph 1 replaced by the following:   

‘‘(c) debt securities issued by institutions and investment firms, which securities 
have a credit assessment by an ECAI which has been determined by EBA to be 
associated  with  credit  quality  step  3  or  above  under  the  rules  for  the  risk 
weighting of exposures to institutions under Chapter 2;’’. 

14. 

In Article 202, the introductory phrase is replaced by the following:   

‘‘An institution may use institutions, investment firms, insurance and reinsurance 
undertakings and export credit agencies as eligible providers of unfunded credit 
protection  which  qualify  for  the  treatment  set  out  in  Article  153(3)  where  they 
meet all the following conditions:’’. 

15. 

16. 

17. 

18. 

19. 

Article 388 is deleted.  

In Article 456(1), points (f) and (g) are deleted.  

In Article 493, paragraph 2 is deleted. 

Article 498 is deleted.  

In Article 508, paragraphs 2 and 3 are deleted.  

Article 61 

Amendment to Regulation (EU) No 600/2014  

Regulation (EU) No 600/2014 is amended as follows: 

EN 

70 

  EN 

 
 
 
(1) 

Article 46 is amended as follows:  

(a) 

in paragraph 2, the following point (d) is added: 

‘‘(d)  the  firm  has  established  the  necessary  arrangements  and  procedures  to 
report the information set out in paragraph 6a.’’;  

(b) 

the following paragraph 6a is added:  

‘‘6a.  Third-country  firms  providing  services  or  performing  activities  in 
accordance with this Article shall, on an annual basis, inform ESMA about the 
following: 

(a) 

(b) 

the scale and scope of the services and activities carried out by the firms 
in the Union; 

the turnover and the aggregated value of the assets corresponding to the 
services and activities referred to in point (a); 

(c)  whether investor protection arrangements have been taken, and a detailed 

description thereof;  

(d) 

the risk management policy and arrangements applied by the firm to the 
carrying out of the services and activities referred to in point (a).’’; 

(c)  paragraph 7 is replaced by the following:  

‘‘7. ESMA, in consultation with EBA, shall develop draft regulatory technical 
standards to specify the information that the applicant third-country firm is to 
provide  in  the  application  for  registration  referred  to  in  paragraph  4  and  the 
information to be reported in accordance with paragraph 6a.  

ESMA  shall  submit  those  draft  regulatory  technical  standards  to  the 
Commission by [date to be inserted]. 

Power  is  delegated  to  the  Commission  to  adopt  the  regulatory  technical 
standards referred to in the first subparagraph in accordance with Articles 10 to 
14 of Regulation (EU) No 1095/2010.’’; 

(d) 

the following paragraph 8 is added:  

‘‘8. ESMA shall develop draft implementing technical standards to specify the 
format in which the application for registration referred to in paragraph 4 is to 
be submitted and the information referred to in paragraph 6a is to be reported. 

ESMA  shall  submit  those  draft  implementing  technical  standards  to  the 
Commission by [date to be inserted]. 

Power  is  delegated  to  the  Commission  to  adopt  the  implementing  technical 
standards referred to in the first subparagraph in accordance with Article 15 of 
Regulation (EU) No 1095/2010.’’. 

(2)   Article 47 is amended as follows:  

(a) 

the first subparagraph of paragraph 1 is replaced by the following: 

‘‘The  Commission  may  adopt  a  decision  in  accordance  with  the  examination 
procedure referred to in Article 51(2) in relation to a third country stating that 
the  legal  and  supervisory  arrangements  of  that  third  country  ensure  all of  the 
following: 

EN 

71 

  EN 

 
 
(a) 

(b) 

(c) 

that  firms  authorised  in  that  third  country  comply  with  legally 
binding  prudential  and  business  conduct  requirements  which  have 
equivalent effect to  the requirements set out in this  Regulation, in 
Directive  2013/36/EU,  in  Regulation  (EU)  No  575/2013,  in 
Directive (EU) ----/--[IFD] and in Regulation (EU)----/---[IFR] and 
in  Directive  2014/65/EU  and  in  the  implementing  measures 
adopted under those Regulations and Directives; 

that  firms  authorised  in  that  third  country  are  subject  to  effective 
the 
supervision  and  enforcement  ensuring  compliance  with 
applicable    legally  binding  prudential  and  business  conduct 
requirements; and  

that  the  legal  framework  of  that  third  country  provides  for  an 
effective equivalent system for the recognition of investment firms 
authorised under third-country legal regimes; 

Where  the  services  provided  and  the  activities  performed  by  third-country 
firms  in  the  Union  following    the  adoption  of  the  decision  referred  to  in  the 
first  subparagraph  are  likely  to  be  of  systemic  importance  for  the  Union,  the 
legally binding prudential and business conduct requirements referred to in the 
first  subparagraph  may  only  be  considered  to  have  equivalent  effect  to  the 
requirements set out in the acts referred to in that subparagraph after a detailed 
and granular assessment. For these purposes, the Commission shall also assess 
and  take  into  account  the  supervisory  convergence  between  the  third  country 
concerned and the Union. 

When  adopting  the  decision  referred  to  in  the  first  subparagraph,  the 
Commission shall take into account whether the third country is identified as a 
non-cooperative jurisdiction for tax purposes under the relevant Union policy 
or  as  a  high-risk  third  country  pursuant  to  Article  9(2)  of  Directive  (EU) 
2015/849.”; 

(b) 

in paragraph 2, point (c) is replaced by the following:  

‘‘(c)  the  procedures  concerning  the  coordination  of  supervisory  activities 
including investigations and on-site inspections.’’; 

(c) 

the following paragraph 5 is added: 

‘‘5.  ESMA  shall  monitor  the  regulatory  and  supervisory  developments,  the 
enforcement  practices  and  other  relevant  market  developments  in  third 
countries  for  which  equivalence  decisions  have  been  adopted  by  the 
Commission pursuant to paragraph 1 in order to verify whether the conditions 
on  the  basis  of  which  those  decisions  have  been  taken  are  still  fulfilled.  The 
Authority shall submit a confidential report on its findings to the Commission 
on an annual basis.’’. 

Article 62 
Amendment to Regulation (EU) No 1093/2010 

Regulation (EU) No 1093/2010 is amended as follows: 

 (1)  

In Article 4(2), the following point (v) is added: 

EN 

72 

  EN 

 
 
‘‘(v)  with  regard  to  Regulation  (EU)  ----/----  [IFR]  and  Directive  (EU)----/--[IFD], 
competent authorities as defined in Article 3(5) of Directive (EU)----/--[IFD].’’.  

EN 

73 

  EN 

 
 
 
 
PART TEN  
FINAL PROVISIONS 

Article 63 
Entry into force and date of application 

1. 

2. 

3. 

This Regulation shall enter into force on the […] day following that of its publication 
in the Official Journal of the European Union. 

This Regulation shall apply from [18 months after the date of entry into force].  

For  the  purposes  of  prudential  requirements  of  investment  firms,  references  to 
Regulation (EU) No 575/2013 in other Union acts shall be construed as references to 
this Regulation.  

This Regulation shall be binding in its entirety and directly applicable in all Member States. 

Done at Brussels, 

For the European Parliament 
The President 

For the Council 
The President 

EN 

74 

  EN