Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on the prudential supervision of investment firms and amending Directives 2013/36/EU and 2014/65/EU
Date: 2017-12-20
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: administrative supervision, capital market, financial control, financial legislation, investment company, market supervision, private-sector liquidity

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   EUROPEAN COMMISSION  Brussels, 20.12.2017  COM(2017) 791 final 2017/0358 (COD)  Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on the prudential supervision of investment firms and amending Directives 2013/36/EU and 2014/65/EU (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 
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 

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. 

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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  Directive  and  the  accompanying  Regulation  (‘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 
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, 

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). 
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). 
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). 
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). 

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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 
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.  

of 

on 

for 

the 

the 

Part 

Call 

First 

Advice 

8 
In  line  with  the  second  set  of  advice  from  EBA  of  October  2016  (Opinion  of  the  European  Banking 
Investment 
Authority 
Firmshttps://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  2016,  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. 

on 

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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. 

Finally,  MiFID  II  and  MiFIR  were  adopted  in  the  wake  of  the  financial  crisis  to  cover 
securities  markets,  investment  intermediaries  and  trading  venues.  The  new  framework 
reinforces and replaces the current MiFID I framework. In the context of the revision of the 
prudential  framework  for  EU  investment  firms,  the  absence  of  a  mandatory  reporting 
requirement  for  third-country  firms  active  in  Member  States  through  branches  has  been 
identified  as  a  weakness.  National  competent  authorities  are  unable  to  assess  on  a  regular 
basis  the  volume  of  financial  services  activities  carried  out  by  branches  of  third-country 
firms  on  their  territories.  This  proposal  would  therefore  give  competent  authorities  the 
appropriate tools to monitor these activities.  

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. 

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 

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• 

Consistency with existing policy provisions in the policy area 

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.   

• 

Consistency with other EU 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 
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 

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 
16 

COM(2017) 592 final. 

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The Treaty on the Functioning of the European Union confers on the European institutions the 
competence  to  lay  down  appropriate  provisions  by  way  of  Directives  to  make  it  easier  for 
persons  to  take  up  and pursue  commercial  activities  across  the  EU (Article 53  TFEU).  This 
extends  to  legislation  dealing  with  the  prudential  supervision  of  providers  of  financial 
services, in this case investment firms. The provisions of this proposed Directive replace those 
in CRD IV, which are also based on Article 53 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 
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 instrument 

A  Directive  is  chosen  since  its  provisions  replace  those  in  CRD  IV  relating  to  investment 
firms.  This  ensures  that  its  provisions  can  be  transposed  by  Member  States  in  accordance 

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with relevant national administrative arrangements consistent with existing practice.  

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 
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: 

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 

 
                                                 
 

 

 

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 

The review was carried out based on comprehensive advice provided by EBA in consultation 
with ESMA, as required by the relevant Articles in CRR, 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.   

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 

 
                                                 
• 

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 
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. 

20 
from 

EN 

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

(EBA/Op/2017/12) 

12 October 

European 

Union 

the 

of 

9 

  EN 

 
                                                 
• 

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 
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 participants in financial 
markets.  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 

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. 

EN 

10 

  EN 

 
                                                                                                                                                         
• 

Implementation plans and monitoring, evaluation and reporting arrangements 

The envisaged changes 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 

Subject matter and scope 

The proposal sets out requirements for the appointment of prudential supervisory authorities, 
the  initial  capital  of  investment  firms,  the  supervisory  powers  and  tools  for  the  prudential 
supervision  of  investment  firms  by  the  competent  authorities,  and  the  publication 
requirements for competent authorities in the field of prudential regulation and supervision. 
The Directive applies to all investment firms covered by MIFID II, which is set to apply as of 
January 2018. 

Appointment and powers of supervisory authorities 

The  proposal  requires  Member  States  to  appoint  an  authority  to  exercise  the  powers  for 
prudential supervision under this Directive, transferring the applicable provisions from CRD 
IV to this Directive. Member States can either bestow these onto an existing authority in the 
shape of the function and powers granted under CRD IV or vest them in a new authority.   

Initial capital 

Levels  of  initial  capital,  based  on  the  services  and  activities  that  investment  firms  are 
authorised to provide in accordance with MIFID, are revised and harmonised across the EU 
from  the  levels  stipulated  in  CRD  IV  to  take into  account  inflation since  these levels  were 
set. Transitional arrangements are provided to allow smaller firms in particular to attain the 
new amounts of initial capital where necessary. 

EN 

11 

  EN 

 
Home/host powers 

Competences in accordance with CRD IV are conferred upon home and host authorities for 
the prudential supervision of investment firms. Relevant cooperation arrangements between 
authorities should be established. 

Exchange of information and professional secrecy 

Provisions  for  the  exchange  of  information  between  competent  authorities  on  prudential 
supervision  and  professional  secrecy  are  introduced  based  on  CRD  IV  and  complementing 
MiFID II. 

Penalties 

In  line  with  CRD  IV,  Member  States  are  required  to  establish  administrative  penalties  and 
other  administrative  measures  which  are  effective,  proportionate  and  dissuasive  in  order  to 
sanction violations under the provisions of this Directive and [Regulation (EU) No ----/--]. 

Internal capital adequacy and supervisory review and evaluation 

Simplified requirements based on those in CRD IV are introduced for investment firms and 
competent  authorities  to  assess  the  adequacy  of  arrangements  and  procedures  in  order  to 
ensure that firms comply with the provisions of this Directive and [Regulation (EU) No ----/-
-]. 

Competent authorities should have powers to review and evaluate the prudential situation of 
investment firms and, where necessary, to exercise powers to require changes in areas such 
as internal governance and controls, risk management processes and procedures and, where 
necessary,  set  additional  requirements,  including  in  particular  capital  and  liquidity 
requirements. 

Governance and remuneration 

In  line  with  the  assessment  by  the  EBA  in  its  Advice22  and  the  evaluation  of  this  EBA 
assessment  carried  out  by  the  Commission  services  in  the  accompanying  staff  working 
document, the rules on corporate governance and remuneration are revised in order to ensure 
the  orderly  functioning  of  investment  firms  and  to  prevent  excessive  risk-taking  by  their 
staff.  

At  the  same  time,  these  rules  aim  to  reflect  the  differences  in  risks  posed  by  credit 
institutions and investment firms. It is not considered proportionate to apply the requirements 
of  this  Directive  to  governance  arrangements,  remuneration  policies  and  practices  of  small 
and  non-interconnected  investment  firms.  The  proposal  aims  to  ensure  the  consistency  of 
remuneration and governance rules across the different pieces of legislation, including CRD 
IV, Directive 2009/65/EC (UCITS) and 2011/61/EU (AIFMD). 

While  the  proposal  does  not  set  a  specific  limit  on  the  ratio  between  variable  and  fixed 
components of variable remuneration, it requires that investment firms set appropriate ratios 
themselves. This takes into account the potential impact that setting a single ratio could have 
on the cost flexibility and profitability of some investment firms. 

22

http://www.eba.europa.eu/documents/10180/1976637/EBA+Advice+on+New+Prudential+Framework+

on+Investment+Firms+%28EBA-Op-2017-11 %29.pdf 

EN 

12 

  EN 

 
                                                 
 
The findings of Commission Report COM(2016) 510 revealed that the deferral and pay-out 
in instruments requirements are generally not efficient in the case of small and non-complex 
investment  firms  and  for  staff  with  low  levels  of  variable  remuneration.  The  Commission 
therefore proposes to set a threshold at firm and staff levels  below which investment firms 
and/or staff members will benefit from the derogations from the application of the rules on 
the deferral and pay-out in instruments. 

Third countries 

Agreements  with  third  countries  may  be  concluded  by  the  Union  regarding  the  means  of 
supervising compliance with the group capital test. Administrative cooperation arrangements 
with  third  countries  supervisory  authorities  may  be  concluded  by  the  Member  States  and  
EBA to facilitate the exchange of information.  

Systemic investment firms 

The  proposal  for  a  Regulation  accompanying  this  proposal  for  a  Directive  contains  a 
provision  that  would  change  the  definition  of  credit  institutions  to  include  undertakings 
whose  business  includes  dealing  on  own  account  or  underwriting  or  placing  financial 
instruments  on  a  firm  commitment  basis,  where  the  total  value  of  the  assets  of  the 
undertaking is EUR 30 billion or more. This proposal for a directive contains complementary 
provisions on the process for seeking authorisation as a credit institution.  

EN 

13 

  EN 

 
2017/0358 (COD) 

Proposal for a 

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

on the prudential supervision of investment firms and amending Directives 2013/36/EU 
and 2014/65/EU 

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, 

(Text with EEA relevance) 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 53(1) thereof, 

Having regard to the proposal from the European Commission,  
Having regard to the opinion of the European Central Bank,23 
Having regard to the opinion of the European Economic and Social Committee,24 

After transmission of the draft legislative act to the national parliaments, 

Acting in accordance with the ordinary legislative procedure, 

Whereas: 

(1) 

(2) 

Robust  prudential  supervision  is  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/EU  of  the 
European  Parliament  and  of  the  Council25  and  to  Regulation  (EU)  No  575/2013  of 
the  European  Parliament  and  of  the  Council26  as  regards  their  prudential  treatment 
and  supervision,  while  their  authorisation  and  other  organisational  and  conduct 
requirements are set out in Directive 2004/39/EC of the European Parliament and of 
the Council27. 

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 
activities  of  investment  firms.  The  specific  vulnerabilities  and  risks  inherent  to 

23 
OJ C […], […], p. […]. 
24 
OJ C […], […], p. […]. 
25 
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). 
26 
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). 
27 
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). 

EN 

14 

  EN 

 
 
                                                 
(3) 

(4) 

(5) 

(6) 

investment firms should therefore be further addressed by means of appropriate and 
proportionate prudential arrangements at Union level. 

Sound prudential supervision 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  supervision  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. 

Differences in the application of the existing framework in different Member States 
threaten  the  level  playing-field  for  investment  firms  within  the  Union.  Those 
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 
framework  laid  down  in  Directive  2013/36/EU  and  Regulation  (EU)  No 575/2013 
currently applies and which do not benefit from dedicated exemptions from any of its 
principle  requirements.  The  largest  and  most  interconnected  firms  have  business 
model and risk profiles that are similar to those of significant credit institutions. They 
provide  “bank-like”  services  and  underwrite  risks  at  significant  scale.  Furthermore, 
systemic investment firms are large enough  to, 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.  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. 

(7) 

There may  be Member  States  in  which the authorities  competent for the prudential 
supervision of investment firms are different from the authorities that are competent 
for the supervision of market conduct. It is therefore necessary to create a mechanism 
of cooperation and exchange of information between those authorities. 

EN 

15 

  EN 

 
(8) 

(9) 

To foster the harmonisation of supervisory standards and practices within the Union, 
the  European  Banking  Authority  (EBA)  should,  in  close  cooperation  with  the 
European Securities and Markets Authority (ESMA), retain primary competence for 
the  coordination  and  convergence  of  supervisory  practices  in  the area  of  prudential 
supervision  over  investment  firms  within  the  European  System  for  Financial 
Supervision (ESFS). 

The  required  level  of  initial  capital  of  an  investment  firm  should  be  based  on  the 
services  and  activities  which  that  investment  firm  is  authorised  to  provide,  and 
respectively  perform,  according  to  Directive  2004/39/EC.  The  possibility  for 
Member States to lower the required level of initial capital in specific situations, as 
provided for in Directive 2013/36/EU, on the one hand, and the situation of uneven 
implementation of that Directive, on the other hand, have led to a situation where the 
required level of initial capital diverges across the Union. To end that fragmentation, 
the required level of initial capital should be harmonised. 

(10)  While  investment  firms  are  removed  from  the  scope  of  Directive  2013/36/EU  and 
Regulation  (EU)  No 575/2013,  certain  concepts  used  in  the  context  of  Directive 
2013/36/EU  and  respectively,  Regulation  (EU)  No 575/2013,  shall  maintain  their 
well-established meaning. To enable and ease a consistent reading of such concepts  
when used, in acts of Union law, in relation to investment firms, references in such 
Union  acts  to  the  initial  capital  of  investment  firms,  to  the  supervisory  powers  of 
competent  authorities  for  investment  firms,  to  the  internal  capital  adequacy 
assessment process of the investment firms, to the supervisory review and evaluation 
to  governance  and 
process  of  competent  authorities  for 
remuneration  provisions  applicable  to  investment  firms  shall  be  construed  as 
referring to the corresponding provisions in this Directive.  

investment  firms, 

As  far  as  references  to  the  amount  of  initial  capital  are  concerned,  the  following 
correlation  shall  apply.  Levels  of  initial  capital  set  by  Article  8  of  this  Directive 
should,  as  of  the  date  of  application  of  this  Directive,  be  construed  to  replace 
references  to  levels  of  initial  capital  set  by  Directive  2013/36/EU  as  follows:  the 
initial capital of investment firms referred to in Article 28 of Directive 2013/36/EU 
should  be  construed  to  refer  to  Article  8(1);  the  initial  capital  of  investment  firms 
referred to in Articles 29 or 31 of Directive 2013/36/EU should be construed to refer 
to Article 8(2) or (3), depending on the type of investment services and activities of 
an  investment  firm;  the  initial  capital  referred  to  in  Article  30  of  Directive 
2013/36/EU should be construed to refer to Article 8(1).  

The  proper  functioning  of  the  internal  market  requires  that  the  responsibility  for 
supervising  the  financial  soundness  of  an  investment  firm,  and  in  particular  its 
solvency, lies with the competent authority of its home Member State. To achieve an 
effective  supervision  of  investment  firms  also  in  other  Member  States  where  they 
provide services or have a branch, close cooperation with the competent authorities 
of these Member States should be ensured. 

For informational and supervisory purposes, and in particular to ensure the stability 
of the financial system, competent authorities of host Member States should be able 
to  carry  out,  on  a  case-by-case  basis,  on-the-spot  checks,  inspect  the  activities  of 
branches  of  investment  firms  on  their  territory  and  require  information  about  the 
activities  of  those  branches.  Supervisory  measures  for  those  branches  should 
however remain the responsibility of the home Member State. 

(11) 

(12) 

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(13) 

(14) 

(15) 

(16) 

(17) 

(18) 

(19) 

(20) 

28 

29 

To  protect  commercially  sensitive  information,  competent  authorities  should  be 
bound by rules of professional secrecy when conducting their supervisory tasks and 
when exchanging confidential information. 

To  strengthen  the  prudential  supervision  of  investment  firms  and  the  protection  of 
clients  of  investment  firms,  auditors  should  report  promptly  to  the  competent 
authorities those facts which can have a serious effect on the financial situation of an 
investment firm or its administrative and accounting organisation. 

The processing of personal data for the purposes of this Directive should be carried 
out  in  accordance  with  Regulation  (EU)  No  2016/679  of  the  European  Parliament 
and  of  the  Council28,  and  with  Regulation  (EU)  No  45/2001  of  the  European 
Parliament  and  of  the  Council29.  In  particular,  where  this  Directive  allows  for 
exchanges of personal data with third countries, the relevant provisions of Chapter V 
of  Regulation  (EU)  No  2016/679  and  Article  9  of  Regulation  (EU)  No  45/2001 
should apply.  

To  safeguard  compliance  with  the  obligations  laid  down  in  this  Directive  and 
[Regulation  (EU)  ---/----[IFR],  Member  States  should  provide  for  administrative 
penalties  and  other  administrative  measures  which  are  effective,  proportionate  and 
dissuasive.  In  order  to  ensure  that  administrative  penalties  have  a  dissuasive  effect 
they  should  be  published  except  in  certain  well-defined  circumstances.  To  enable 
clients  and  investors  to  make  an  informed  decision  about  their  investment  options, 
those  clients  and  investors  should  have  access  to  information  on  administrative 
penalties and measures imposed on investment firms.  

To detect breaches of national provisions transposing this Directive and breaches of 
[Regulation 
the  necessary 
investigatory powers and should establish effective mechanisms to report potential or 
actual breaches. 

(EU)---/----[IFR],  Member  States  should  have 

Investment firms should have internal capital which is adequate in quantity, quality 
and  distribution  to  cover  the  specific  risks  to  which  they  are  or  may  be  exposed. 
Competent  authorities  should  ensure  that  investment  firms  have  the  adequate 
strategies and processes in place to asses and maintain the adequacy of their internal 
capital. 

Supervisory  review  and  evaluation  powers  should  continue  to  remain  an  important 
regulatory  tool  allowing  competent  authorities  to  assess  qualitative  elements, 
including  internal  governance  and  controls,  risk  management  processes  and 
procedures and, where needed, to set additional requirements, including in particular 
in relation to capital and liquidity requirements. 

To  align  remuneration  with  the  risk  profile  of  investment  firms  and  to  guarantee  a 
level-playing  field,  investment  firms  should  be  subject  to  clear  principles  on 
corporate governance arrangements and rules on remuneration that take into account 
the  differences  between  credit  institutions  and  investment  firms.  Small  and  non-
interconnected  investment  firms  should  however  be  exempted  from  those  rules 

Regulation  (EU)  2016/679  of  the  European  Parliament  and  of  the  Council  of  27  April  2016  on  the 
protection of natural persons with regard to the processing of personal data and on the free movement of 
such data, and repealing Directive 95/46/EC (OJ L 119, 4.5.2016, p. 1). 
Regulation (EC) No 45/2001 of the European Parliament and of the Council of 18 December 2000 on 
the  protection  of  individuals  with  regard  to  the  processing  of  personal  data  by  the  Community 
institutions and bodies and on the free movement of such data (OJ L 8, 12.1.2001, p. 1). 

EN 

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(22) 

(23) 

(24) 

(25) 

(26) 

because  the  provisions  on  remuneration  and  corporate  governance  under  Directive 
2014/65/EU are sufficiently comprehensive for those types of firms. 
Similarly, Commission report COM(2016) 51030 demonstrated that the requirements 
on  deferral  and  pay-out  in  instruments  laid  down  in  Directive  2013/36/EU  are  not 
appropriate for small and non-complex investment firms or for staff with low levels 
of  variable  remuneration.  Clear,  consistent  and  harmonised  criteria  for  identifying 
investment firms and individuals exempted from those requirements are necessary to 
ensure supervisory convergence, and to guarantee a level-playing field. At the same 
time,  it  is  however  appropriate  to  offer  some  flexibility  to  competent  authorities  to 
adopt a stricter approach where they consider that necessary. 

It is also appropriate to offer some flexibility to investment firms in the way they use 
non-cash  instruments  when  paying  variable  remuneration,  as  long  as  such 
instruments  are  effective  in  achieving  the  objective  of  aligning  the  interest  of  staff 
with  the  interest  of  various  stakeholders,  such  as  shareholders  and  creditors,  and 
contribute  to  the  alignment  of  variable  remuneration  with  the  risk  profile  of  the 
investment firm. 

The  revenues  of  investment  firms  in  the  form  of  fees,  commissions  and  other 
revenues  in  relation  to  the  provision  of  different  investment  services  are  highly 
volatile.  Limiting  the  variable  component  of  remuneration  to  a  portion  of  the  fixed 
component of remuneration would affect the firm’s ability to reduce remuneration at 
times of reduced revenues and could lead to an increase of the firm's fixed cost base, 
leading  in  turn  to  risks  for  the  firm’s  ability  to  withstand  times  of  economic 
downturn  or  reduced  revenues.  To  avoid  those  risks,  a  single  maximum  ratio 
between the variable and the fixed elements of remuneration should not be imposed 
on  non-systemic  investment  firms.  Instead,  those  investment  firms  should  set 
appropriate ratios themselves. 

In  response  to  the  growing  public  demand  for  tax  transparency  and  to  promote 
investment firms' corporate responsibility, it is appropriate to require that investment 
firms disclose certain information, including information on profits made, taxes paid 
and any public subsidies received. 

To  address  risks  at  investment  firm  only  group  level,  the  prudential  consolidation 
method  required  by  the  Regulation  (EU)  No  575/2013  should  in  the  case  of 
investment firm only groups be replaced by a group capital test. The determination of 
the group supervisor, however, should be based on the same principles that apply in 
the case of supervision on a consolidated basis. To ensure proper cooperation, core 
elements  of  coordination  measures,  and  in  particular  information  requirements  in 
emergency  situations  or  cooperation  and  coordination  arrangements  should  be 
similar  to  the  core  elements  of  coordination  applicable  in  the  context  of  the  single 
rulebook for credit institutions. 

On the one hand, the Commission should be able to submit recommendations to the 
Council for the negotiation of agreements between the Union and third countries for 
the  practical  exercise  of  supervision  of  compliance  with  the  group  capital  test  for 
investment firms, the parent undertakings of which are established in third countries, 
and  for  investment  firms  operating  in  third  countries  the  parent  undertakings  of 
which  are  established  in  the  Union.  On  the  other  hand,  Member  States  and  EBA 

30 
remuneration rules under Directive 2013/36/EU and Regulation (EU) No 575/2013 (COM(2016) 510 final). 

Report  from  the  Commission  to  the  European  Parliament  and  the  Council,  Assessment  of  the 

EN 

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(27) 

(28) 

(29) 

(30) 

(31) 

should  also  be  able  to  set-up  administrative  arrangements  with  third  countries  to 
perform their supervisory tasks. 

To  ensure  legal  certainty  and  avoid  overlaps  between  the  current  prudential 
framework  applicable  to  both  credit  institutions  and  investment  firms  and  this 
Directive, 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.  

It is necessary to specify the steps that undertakings need to take to verify whether 
they fall under the definition of a credit institution as set out in Article 4(1)(1)(b) of 
Regulation (EU) No 575/2013 and therefore need to obtain authorisation as a credit 
institution. Because certain investment firms already carry out the activities referred 
to in points (3) and (6) of Section A of Annex I to Directive 2014/65/EU, it is also 
necessary to ensure clarity about the continuity of any authorisation granted for those 
activities. 

To  ensure  effective  supervision,  it  is  important  that  undertakings  meeting  the 
conditions set out in Article 4(1)(1)(b) of Regulation (EU) No 575/2013 apply for an 
authorisation as a credit institution. Competent authorities should therefore have the 
possibility to apply sanctions to undertakings that do not apply for that authorisation. 

The  amendment  to  the  definition  of  ‘credit  institution’  in  Regulation  (EU)  No 
575/2013 by Regulation [Regulation (EU)---/----[IFR]] may as of its entry into force 
capture investment firms that are already operating on the basis of an authorisation 
issued  in  accordance  with  Directive  2014/65/EU.  Those  undertakings  should  be 
allowed to continue operating under their authorisation as investment firms until the 
authorisation of a credit institution is granted. Those investment firms should submit 
an application for authorisation as a credit institution at the latest when the average 
of their monthly total assets exceed any of the thresholds set out in Article 4(1)(1)(b) 
of Regulation (EU) No 575/2013 over a period of twelve consecutive months. Where 
an  investment  firm  exceeds  any  of  the  thresholds  set  out  in  Article  4(1)(1)(b)  of 
Regulation (EU) No 575/2013 as of the date of entry into force of this Directive, the 
average  of  their  monthly  total  assets  should  be  calculated  taking  into  account  the 
twelve consecutive months preceding that date. Those investment firms should apply 
for  authorisation  as  a  credit  institution  within  one  year  and  one  day  after  the  entry 
into force of this Directive.  

The  amendment  to  the  definition  of  ‘credit  institution’  in  Regulation  (EU)  No 
575/2013  Regulation  [Regulation  (EU)---/----[IFR]]  may  also  affect  undertakings 
which  have  already  applied  for  authorisation  as  investment  firms  under  Directive 
2014/65/EU and for which the application is still pending. Such applications should 
be  transferred  to  the  competent  authorities  under  Directive  2013/36/EU  and  be 
treated in accordance with the authorisation provisions set out in that Directive if the 
envisaged total assets of the undertaking meet any of the thresholds set out in Article 
4(1)(1)(b) of Regulation (EU) No 575/2013. 

(32) 

Undertakings  referred  to  in  Article  4(1)(1)(b)  of  Regulation  (EU)  No  575/2013 
should  also  be  subject  to  all  the  requirements  for  access  to  the  activity  of  credit 

EN 

19 

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(33) 

(34) 

(35) 

(36) 

institutions laid down in Title III of Directive 2013/36/EU, including the provisions 
on  the  withdrawal  of  authorisation  in  accordance  with  Article  18  of  that  Directive. 
Article 18  of  that  Directive  should  however  be  amended  to  ensure  that  competent 
authorities may also withdraw the authorisation granted to a credit institution where 
that  credit  institution  uses  its  authorisation  exclusively  to  engage  in  the  activities 
referred  to  in  Article  4(1)(1)(b)  of  Regulation    (EU)  No  575/2013  and  has  for  a 
period of 5 consecutive years average total assets below the thresholds set out in that 
Article 4(1)(1)(b).  

Pursuant  to  Article  39  of  Directive  2014/65/EU,  third-country  firms  providing 
financial  services  in  the  EU  are  subject  to  national  regimes  which  may  require  the 
establishment of a branch in a Member State. To facilitate the regular monitoring and 
assessment  of  activities  carried  out  by  third-country  firms  through  branches  in  the 
Union,  competent  authorities  should  be  informed  about  the  scale  and  scope  of  the 
services and activities carried out through branches on their territory.   

EBA, in cooperation with ESMA, has issued a report based on thorough background 
analysis, data collection and consultation for a bespoke prudential regime for all non-
systemic  investment  firms  which  serves  as  the  basis  for  the  revised  prudential 
framework for investment firms.  

To ensure the harmonised application of this Directive, EBA should be charged with 
drafting  technical  standards  to  specify  the  information  which  home  and  host 
authorities should exchange in the context of supervision, to set out how investment 
firms should assess the size of their activities for the purposes of internal governance 
requirements  and  notably  to  assess  whether  they  constitute  a  small  and  non-
interconnected  firm.  Technical  standards  should  also  specify  which  staff  members 
have a material impact for the risk-profile of firms for the purposes of remuneration 
provisions, and specify the additional Tier 1 and Tier 2 instruments which qualify as 
variable  remuneration.  Finally,  technical  standards  should  specify  the  elements  for 
the  assessment  of  the  scope  of  application  of  requirements  on  internal  governance, 
transparency,  treatment  of  risks  and  remuneration,  the  application  of  additional 
capital  requirements  by  competent  authorities,  and  the  functioning  of  supervisory 
colleges.   

To  ensure  the  uniform  application  of  this  Directive  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 Directive, of the internal capital and risk assessments of investment firms, and 
of  the  supervisory  review  and  evaluation  powers  of  competent  authorities.  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. 

(37) 

To  ensure  uniform  conditions  for  the  implementation  of  this  Directive,  and  in 
particular with regard to the adoption of the draft implementing technical standards 
drafted  by  EBA  regarding  information  exchange  requirements  between  competent 

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(38) 

(39) 

authorities,  and  in  order  to  take  account  of  developments  in  the  economic  and 
monetary  field  with  regard  to  levels  of  initial  capital  requirements  for  investment 
firms, implementing powers should be conferred on the Commission. Those powers 
should  be  exercised  in  accordance  with  Regulation  (EU)  No 182/2011  of  the 
European Parliament and of the Council31. 

Since the objectives of this Directive, namely to set up an effective and proportionate 
prudential framework to ensure that investment firms authorised to operate within the 
Union  operate  on  a  sound  financial  basis  and  are  managed  in  an  orderly  way 
including 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 Directive does not 
go beyond what is necessary in order to achieve those objectives.  

In accordance with the Joint Political Declaration of 28 September 2011 of Member 
States  and  the  Commission  on  explanatory  documents32,  Member  States  have 
undertaken  to  accompany,  in  justified  cases,  the  notification  of  their  transposition 
measures  with  one  or  more  documents  explaining  the  relationship  between  the 
components  of  a  directive  and  the  corresponding  parts  of  national  transposition 
instruments. With regard to this Directive, the legislator considers the transmission of 
such documents to be justified. 

HAVE ADOPTED THIS DIRECTIVE: 

SUBJECT MATTER, SCOPE AND DEFINITIONS 

TITLE I 

Article 1 

Subject matter 

This Directive lays down rules concerning: 

(a) 

(b) 

(c) 

(d) 

31 

32 

the initial capital of investment firms;  

supervisory  powers  and  tools  for  the  prudential  supervision  of  investment  firms  by 
competent authorities; 

the prudential supervision of investment firms by competent authorities in a manner 
that is consistent with the rules set out in [Regulation (EU) ---/----[IFR]; 

publication  requirements  for  competent  authorities  in  the  field  of  prudential 
supervision of investment firms. 

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). 

OJ C 369, 17.12.2011, p. 14. 

EN 

21 

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Article 2 

Scope 

1. 

This  Directive  shall  apply  to  investment  firms  authorised  and  supervised  under 
Directive 2014/65/EU of the European Parliament and of the Council33. 

Article 3 

Definitions 

1. 

For the purposes of this Directive, the following definitions shall apply: 

(1) 

(2) 

(3) 

(4) 

(5) 

(6) 

(7) 

(8) 

(9) 

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

‘authorisation’ means authorisation of an investment firm in accordance with Title II 
of Directive 2014/65/EU; 

‘branch’ means branch as defined in Article 4(1)(30) of Directive 2014/65/EU;  

‘close  links’  means  close  links  as  defined  in  Article 4(1)(35)  of  Directive 
2014/65/EU; 

‘competent  authority’  means  a  public  authority  or  body  of  a  Member  State  that  is 
officially recognised and empowered by national law to supervise investment firms 
in  accordance  with  this Directive, as  part  of the supervisory system in  operation in 
that Member State; 

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

‘control’  means  the  relationship  between  a  parent  undertaking  and  a  subsidiary,  as 
described in Article 22 of Directive 2013/34/EU of the European Parliament and of 
the Council34, or in the accounting standards to which an investment firm is subject 
under Regulation (EC) No 1606/200235, or a similar relationship between any natural 
or legal person and an undertaking;  

‘compliance with the group capital test’ means compliance with the requirements of 
Article 7  of  [Regulation  (EU)  No  ---/----[IFR]  by  the  parent  undertaking  in  an 
investment firm group; 

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

33 

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). 
34 
Directive  2013/34/EU  of  the  European  Parliament  and  of  the  Council  of  26  June  2013  on  the  annual 
financial  statements,  consolidated  financial  statements  and  related  reports  of  certain  types  of  undertakings, 
amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 
78/660/EEC and 83/349/EEC (OJ L 182, 29.6.2013, p. 19). 
35 
application of international accounting standards (OJ L 243, 11.9.2002, p. 1). 

Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the 

EN 

22 

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(10) 

(11) 

(12) 

(13) 

(14) 

(15) 

(16) 

(17) 

(18) 

(19) 

(20) 

(21) 

(22) 

(23) 

(24) 

(25) 

36 

‘derivatives’  means  derivatives  as  defined  in  Article 2(1)(29)  of  Regulation  (EU) 
No 600/201436; 

‘financial  institution’  means  a  financial  institution  as  defined  in  Article  4(1)(13)  of 
[Regulation (EU) No ---/----[IFR];  

‘group’ means group as defined in Article 2(11) of Directive 2013/34/EU;  

‘group  supervisor’  means  a  competent  authority  responsible  for  the  supervision  of 
compliance  with  the  group  capital  test  of  Union  parent  investment  firms  and 
investment firms controlled by Union parent investment holding companies or Union 
parent mixed financial holding companies; 

‘home Member State’ means home Member State as defined in Article 4(1)(55)(a) of 
Directive 2014/65/EU; 

‘host  Member  State’  means  host  Member  State  as  defined  in  Article 4(1)(56)  of 
Directive 2014/65/EU; 

‘initial capital’ means the capital which is required for the purposes of authorisation 
as an investment firm; 

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

‘investment firm group’ means investment firm group as defined in Article 4(1)(23) 
of [Regulation (EU) ---/----[IFR];  

‘investment  holding  company’  means  investment  holding  company  as  defined  in 
Article 4(1)(21) of [Regulation (EU) ---/----[IFR]; 

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

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

‘management body in its supervisory function’ means the management body acting 
in its role of overseeing and monitoring management decision-making; 

‘mixed  financial  holding  company’  means  mixed  financial  holding  company  as 
defined in Article 2(15) of Directive 2002/87/EC of the European Parliament and of 
the Council37; 

‘senior  management’  means  senior  management  as  defined  in  Article 4(1)(37) 
Directive 2014/65/EU; 

‘parent  undertaking’  means  a  parent  undertaking  as  defined  in  Article  4(1)(32)  of 
Directive 2014/65/EU;  

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). 

37 
Directive  2002/87/EC  of  the  European  Parliament  and  of  the  Council  of  16  December  2002  on  the 
supplementary  supervision  of  credit  institutions,  insurance  undertakings  and  investment  firms  in  a  financial 
conglomerate  and  amending  Council  Directives  73/239/EEC,  79/267/EEC,  92/49/EEC,  92/96/EEC,  93/6/EEC 
and 93/22/EEC, and Directives 98/78/EC and 2000/12/EC of the European Parliament and of the Council (OJ L 
035, 11.2.2003, p. 1). 

EN 

23 

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(26) 

(27) 

(28) 

(29) 

(30) 

‘subsidiary’  means  subsidiary  as  defined 
2014/65/EU; 

in  Article 4(1)(33)  of  Directive 

‘systemic  risk’  means  systemic  risk  as  defined  in  Article 3(1)(10)  of  Directive 
2013/36/EU; 

‘Union parent investment firm’ means a Union parent investment firm as defined in 
Article 4(1)(49) of [Regulation (EU) No ---/----[IFR];  

‘Union  parent  investment  holding  company’  means  a  Union  parent  investment 
holding company as defined in Article 4(1)(50) of [Regulation (EU) No ---/----[IFR];  

‘Union  parent  mixed  financial  holding  company’  means  a  Union  parent  mixed 
financial holding company as defined in Article 4(1)(51) of [Regulation (EU) No ---
/----[IFR];  

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 
Directive; 

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

TITLE II 

COMPETENT AUTHORITIES 

Article 4 

Designation and powers of the competent authorities 

1. 

2. 

3. 

4. 

Member States shall designate one or more competent authorities that carry out the 
functions and duties provided for in this Directive. The Member States shall inform 
the  Commission  and  EBA  of  that  designation,  and  where  there  is  more  than  one 
competent authority, of the functions and duties of each competent authority. 

Member States shall ensure that the competent authorities supervise the activities of 
investment firms, and, where applicable, of investment holding companies and mixed 
financial  holding  companies,  to  assess  compliance  with  the  requirements  of  this 
Directive and of [Regulation (EU) ---/----[IFR].   

Member  States  shall  ensure  that  the  competent  authorities  have  the  necessary 
powers,  including  the  power  to  conduct  on-the-spot  checks  in  accordance  with 
Article 12, to obtain the information needed to assess the compliance of investment 
firms  and,  where  applicable,  of  investment  holding  companies  and  mixed  financial 
holding companies, with the requirements of this Directive and of [Regulation (EU)  
---/----[IFR], and to investigate possible breaches of those requirements. 

Member  States  shall  ensure  that  the  competent  authorities  have  the  expertise, 
resources, operational capacity, powers and independence necessary to carry out the 
functions relating to the prudential supervision, investigations and penalties set out in 
this Directive. 

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5. 

6. 

1. 

2. 

Member States shall require investment firms to provide their competent authorities 
with  all  the  information  necessary  for  the  assessment  of  the  compliance  of 
investment  firms  with  the  national  rules  transposing  this  Directive  and  compliance 
with [Regulation (EU) ---/----[IFR]. Internal control mechanisms and administrative 
and  accounting  procedures  of  the  investment  firms  shall  enable  the  competent 
authorities to check their compliance with those rules at all times. 

Member  States  shall  ensure  that  investment  firms  register  all  their  transactions  and 
document systems and processes which are subject to this Directive and [Regulation 
(EU) ---/----[IFR]  in such a manner that the competent authorities are able to assess 
compliance  with  the  national  rules  transposing  this  Directive  and  compliance  with 
[Regulation (EU)  ---/----[IFR] at all times.  

Article 5 
Cooperation within a Member State 

Competent  authorities  shall  cooperate  closely  with  the  public  authorities  or  bodies 
responsible  in  their  Member  State  for  the  supervision  of  credit  institutions  and 
financial  institutions.  Member  States  shall  require  that  those  competent  authorities 
and those public authorities or bodies exchange any information which is essential or 
relevant to the exercise of their functions and duties. 

Competent  authorities  that  are  different  from  those  designated  in  accordance  with 
Article 67 of Directive 2014/65/EU shall establish a mechanism for cooperation with 
those  authorities  and  for  the  exchange  of  all  information  that  is  relevant  for  the 
exercise of their respective functions and duties. 

Cooperation within the European System of Financial Supervision  

Article 6 

In the exercise of their duties, competent authorities shall take into account the convergence 
of  supervisory  tools  and  supervisory  practices  in  the  application  of  the  legal  provisions 
adopted pursuant to this Directive and to [Regulation (EU) ---/----[IFR].  

Member States shall ensure that: 

(a) 

(b) 

(c) 

competent  authorities,  as  parties  to  the  ESFS,  cooperate  with  trust  and  full 
mutual respect, in particular when ensuring the flow of appropriate and reliable 
information between them and other parties to the ESFS; 

competent  authorities  participate  in  the  activities  of  EBA,  and,  where 
appropriate,  in  the  colleges  of  supervisors  referred  to  in  Article  44  and  in 
Article 116 of Directive 2013/36/EU;  

competent  authorities  make  every  effort  to  comply  with  the  guidelines  and 
recommendations issued by EBA pursuant to Article 16 of Regulation (EU) No 
1093/2010 of the European Parliament and of the Council38 and to respond to 
the  warnings  and  recommendations  issued  by  the  European  Systemic  Risk 

38 
Regulation (EU) No 1093/2010 of the European Parliament and of the Council of 24 November 2010 
establishing  a  European  Supervisory  Authority  (European  Banking  Authority),  amending  Decision 
No 716/2009/EC and repealing Commission Decision 2009/78/EC (OJ L 331, 15.12.2010, p. 12). 

EN 

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Board (ESRB) pursuant to Article 16 of Regulation (EU) No 1092/2010 of the 
European Parliament and of the Council39; 

(d) 

(e) 

competent authorities cooperate closely with the ESRB; 

tasks  and  powers  conferred  on  the  competent  authorities  do  not  inhibit  the 
performance of the duties of those competent authorities as members of EBA 
or  of  the  ESRB,  or  under  this  Directive  and  under  [Regulation  (EU)  ---/----
[IFR]. 

Article 7 
Union dimension of supervision 

Competent authorities in each Member State shall, in the exercise of their general duties, duly 
consider the potential impact of their decisions on the stability of the financial system in the 
other  Member  States  concerned  and,  in  particular,  in  emergency  situations,  based  on  the 
information available at the relevant time.  

39 
Regulation (EU) No 1092/2010 of the European Parliament and of the Council of 24 November 2010 
on  European  Union  macro-prudential  oversight  of  the  financial  system  and  establishing  a  European  Systemic 
Risk Board (OJ L 331, 15.12.2010, p. 1). 

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TITLE III 
INITIAL CAPITAL 

Article 8 
Initial capital 

1. 

2. 

3. 

4. 

The initial capital of an investment firm required pursuant to Article 15 of Directive 
2014/65/EU for the authorisation to provide the investment services  or perform the 
investment  activities  listed  in  points  (3),  (6),  (8)  or  (9)  of  Section  A  of  Annex  I  to 
Directive 2014/65/EU shall be EUR 750 000. 

The initial capital of an investment firm required pursuant to Article 15 of Directive 
2014/65/EU for the authorisation to provide the investment services  or perform the 
investment activities listed in points (1), (2), (4), (5) or (7) of Section A of Annex I to 
Directive 2014/65/EU and which is not permitted to hold client money or securities 
belonging to its clients shall be EUR 75 000. 

The initial capital of an investment firm required pursuant to Article 15 of Directive 
2014/65/EU for investment firms other than those referred to in paragraphs 1 and 2 
shall be EUR 150 000. 

The Commission shall update, by means of implementing acts, the amount of initial 
capital  referred  to  in  paragraphs  1  to  3  of  this  Article  to  take  account  of 
developments in the economic and monetary field. Those implementing acts shall be 
adopted in accordance with the examination procedure referred to in Article 56(2). 

Article 9 
Composition of initial capital 

The initial capital of an investment firm shall consist of one or more of the items referred to in 
Article 9 of [Regulation (EU) ---/----[IFR]. 

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TITLE IV 
PRUDENTIAL SUPERVISION  

CHAPTER 1 
Principles of prudential supervision 

SECTION 1 
COMPETENCES AND DUTIES OF HOME AND HOST MEMBER STATES 

Article 10 
Competences of the competent authorities of the home Member State 

The prudential supervision of an investment firm shall be the responsibility of the competent 
authorities of the home Member State, without prejudice to those provisions of this Directive 
which give responsibility to the competent authorities of the host Member State.  

Article 11 
Cooperation between competent authorities of different Member States 

1. 

Competent  authorities  of  different  Member  States  shall  cooperate  closely  for  the 
purposes of their duties pursuant to this Directive and [Regulation (EU) ---/----[IFR], 
in  particular  by  exchanging  information  about  investment  firms  without  delay, 
including on the following: 

(a) 

(b) 

(c) 

(d) 

(e) 

information about the management and ownership structure of the investment 
firm; 

information  about  compliance  with  capital  requirements  by  the  investment 
firm; 

information about concentration risk and liquidity of the investment firm; 

information  about  the  administrative  and  accounting  procedures  and  internal 
control mechanisms of the investment firm; 

 any other relevant factors that may influence the risk posed by the investment 
firm. 

The competent authorities of the home Member State shall immediately provide the 
competent  authorities  of  the  host  Member  State  with  any  information  and  findings 
about any potential problems and risks posed by an investment firm to the protection 
of clients or the stability of the financial system in the host Member State which they 
have identified when supervising the activities of an investment firm.   

The  competent  authorities  of  the  home  Member  State  shall  act  upon  information 
provided  by  the  competent  authorities  of  the  host  Member  State  by  taking  all 
measures necessary to avert or remedy potential problems and risks as referred to in 
paragraph 2.  Upon  request,  the  competent  authorities  of  the  home  Member  State 
shall  explain  to  the  competent  authorities  of  the  host  Member  State how  they  have 
taken  into  account  the  information  and  findings  provided  by  the  competent 
authorities of the host Member State. 

2. 

3. 

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28 

  EN 

 
 
4. 

5. 

6. 

7. 

Where, following the communication of the information and findings referred to in 
paragraph 2,  the  competent  authorities  of  the  host  Member  State  consider  that  the 
competent  authorities  of  the  home  Member  State  have  not  taken  the  necessary 
measures  referred  to  in  paragraph 3,  the  competent  authorities  of  the  host  Member 
State  may,  after  having  informed  the  competent  authorities  of  the  home  Member 
State  and  EBA,  take  appropriate  measures  to  protect  clients  to  whom  services  are 
provided and to protect the stability of the financial system.  

Competent authorities of the home Member State that disagree with the measures of 
the  competent  authorities  of  the  host  Member  State  may  refer  the  matter  to  EBA, 
which  shall  act  in  accordance  with  the  procedure  laid  down  in  Article  19  of 
Regulation (EU) No 1093/2010. Where EBA acts in accordance with that Article, it 
shall adopt its decision within one month. 

EBA, in consultation with ESMA, shall develop draft regulatory technical standards 
to  specify  requirements  for  the  type  and  nature  of  the  information  referred  to  in 
paragraphs 1 and 2 of this Article. 

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.  

EBA,  in  consultation  with  ESMA,  shall  develop  draft  implementing  technical 
standards to establish standard forms, templates and procedures for the information 
sharing  requirements  which  are  likely  to  facilitate  the  supervision  of  investment 
firms. 

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.  

8. 

EBA shall submit the draft technical standards referred to in paragraphs 6 and 7 to 
the Commission by [nine months from the date of entry into force of this Directive].  

Article 12 
On-the-spot checking and inspection of branches established in another Member State  

1. 

2. 

Host  Member  States  shall  provide  that,  where  an  investment  firm  authorised  in 
another  Member  State  carries  out  its  activities  through  a  branch,  the  competent 
authorities  of  the  home  Member  State  may,  after  having  informed  the  competent 
authorities of the host Member State, carry out on-the-spot checks of the information 
referred to in Article 11(1) and inspect that branch. 

The competent authorities of the host Member State shall, for supervisory purposes 
and where they consider it relevant for reasons of stability of the financial system in 
the host Member State, have the power to carry out, on a case-by-case basis, on-the-
spot  checks  and  inspections  of  the  activities  carried  out  by  branches  of  investment 
firms on their territory and require information from a branch about its activities.  

Before  carrying  out  those  checks  and  inspections,  the  competent  authorities  of  the 
host  Member  State  shall  consult  the  competent  authorities  of  the  home  Member 
State.  

EN 

29 

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After  the  completion  of  those  checks  and  inspections,  the  competent  authorities  of 
the host Member State shall communicate to the competent authorities of the home 
Member  State  the  information  that  is  relevant  for  the  risk  assessment  of  the 
investment firm concerned.  

EN 

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SECTION 2 

PROFESSIONAL SECRECY AND DUTY TO REPORT  

Article 13 
Professional secrecy and exchange of confidential information 

1. 

2. 

3. 

4. 

5. 

6. 

Member  States  shall  ensure  that  competent  authorities  and  all  persons  associated 
with those authorities, including the persons referred to in Article 76(1) of Directive 
2014/65/EU, are bound by the obligation of professional secrecy for the purposes of 
this Directive and [Regulation (EU) ---/----[IFR]. 

Confidential information which such authorities and persons receive in the course of 
their  duties  may  be  disclosed  only  in  summary  or  aggregate  form  provided  that 
individual  investment  firms  or  persons  cannot  be  identified,  without  prejudice  to 
cases covered by criminal law. 

Where  the  investment  firm  has  been  declared  bankrupt  or  is  being  compulsorily 
wound  up,  confidential  information  which  does  not  concern  third  parties  may  be 
disclosed  in  civil  or  commercial  proceedings  if  necessary  for  carrying  out  those 
proceedings.  

Competent  authorities  shall  only  use  the  confidential  information  collected, 
exchanged  or  transmitted  pursuant  to  this  Directive  and  [Regulation  (EU)  ---/----
[IFR] for the purpose of carrying out their duties, and in particular for the following 
purposes: 

(a) 

(b) 

(c) 

(d) 

the  monitoring  of  the  prudential  rules  set  out  in  this  Directive  and  in 
[Regulation (EU) ---/----[IFR]; 

to impose sanctions; 

in administrative appeals against decisions of the competent authorities; 

in court proceedings initiated under Article 21. 

Natural  and  legal  persons  or  bodies,  other  than  competent  authorities,  receiving 
confidential information pursuant to this Directive and [Regulation (EU) ---/----[IFR] 
shall  only  use  that  information  for  the  purposes  for  which  the  competent  authority 
expressly provides or in accordance with national law. 

Competent  authorities  may  exchange  confidential  information  for  the  purposes  of 
paragraph 2,  may  expressly  state  how  that  information  is  to  be  treated  and  may 
expressly restrict any further transmission of that information. 

The  obligation  referred  to  in  paragraph 1  shall  not  prevent  competent  authorities 
from  transmitting  confidential  information  to  the  European  Commission  when  that 
information is necessary for the exercise of the powers of the Commission. 

Competent  authorities  may  provide  EBA,  ESMA,  the  ESRB,  central  banks  of  the 
Member  States,  the  ESCB  and  the  ECB  in  their  capacity  as  monetary  authorities, 
and,  where  appropriate,  public  authorities  responsible  for  overseeing  payment  and 
settlement systems, confidential information where that information is necessary for 
the performance of their tasks. 

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Article 14 
Administrative arrangements with third countries for the exchange of information 

Member  States,  and  EBA  in  accordance  with  Article  33  of  Regulation  (EU)  No 1093/2010,  
may,    for  the  purposes  of  performing  their  supervisory  tasks  pursuant  to  this  Directive  or 
[Regulation  (EU)  ---/----[IFR],  conclude  administrative  arrangements  with  the  supervisory 
authorities of third countries to exchange information, including in relation to the following: 

(a) 

(b) 

the supervision of financial institutions and financial markets; 

the liquidation and bankruptcy of investment firms and similar procedures; 

(c)  oversight of the bodies involved in the liquidation and bankruptcy of investment firms 

and similar procedures; 

(d) 

the  carrying  out  of  statutory  audits  of  financial  institutions  or  institutions  which 
administer compensation schemes; 

(e)  oversight  of  persons  charged  with  carrying  out  statutory  audits  of  the  accounts  of 

financial institutions ; 

(f) 

oversight of persons active on emission allowance markets for the purpose of ensuring a 
consolidated overview of financial and spot markets; 

(g)  oversight  of  persons  active  on  agricultural  commodity  derivatives  markets  for  the 

purpose of ensuring a consolidated overview of financial and spot markets. 

Those arrangements shall contain professional secrecy provisions that are equivalent to those 
laid down in Article 13 of this Directive. 

Article 15 
Duties of persons responsible for the control of annual and consolidated accounts 

Member  States  shall  provide  that  any  person  authorised  in  accordance  with  Directive 
2006/43/EC40  and  performing  in  an  investment  firm  the  tasks  described  in  Article  73  of 
Directive 2009/65/EC41 or Article 34 of Directive 2013/34/EU or any other statutory task, has 
a  duty  to  report  promptly  to  the  competent  authorities  any  fact  or  decision  concerning  that 
investment firm, or concerning an undertaking that has close links with that investment firm 
which: 

(a) 

constitutes  a  material  breach  of  the  laws,  regulations  or  administrative 
provisions laid down pursuant to this Directive; 

(b)  may affect the continuous functioning of the investment firm; or  

(c)  may  lead  to  a  refusal  to  certify  the  accounts  or  can  lead  to  the  expression  of 

reservations. 

40 
Directive  2006/43/EC  of  the  European  Parliament  and  of  the  Council  of  17  May  2006  on  statutory 
audits of annual accounts and consolidated accounts, amending Council Directives 78/660/EEC and 83/349/EEC 
and repealing Council Directive 84/253/EEC (OJ L 157, 9.6.2006, p. 87). 
41 
Directive  2009/65/EC  of  the  European  Parliament  and  of  the  Council  of  13  July  2009  on  the 
coordination of laws, regulations and administrative provisions relating to undertakings for collective investment 
in transferable securities (UCITS) (OJ L 302 17.11.2009, p. 32). 

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SECTION 3 
PENALTIES, INVESTIGATORY POWERS AND RIGHT OF APPEAL   

Article 16 
Administrative penalties and other administrative measures 

1. 

Member  States  shall  lay  down  rules  on  administrative  penalties  and  other 
administrative measures in respect of breaches of national provisions transposing this 
Directive  and  of  [Regulation  (EU)---/----[IFR],  including  where  the  following 
occurs: 

(a) 

(b) 

(c) 

(d) 

(e) 

(f) 

(g) 

(h) 

(i) 

an investment firm fails to have in place internal governance arrangements as 
set out in Article 24; 

an  investment  firm  fails  to  report  to  the  competent  authorities,  in  breach  of 
Article  52(1)(b)  of  [Regulation  (EU)  ---/----IFR],  information  on  compliance 
with the obligation to meet capital requirements as set out in Article 11 of that 
Regulation, or provides incomplete or inaccurate information; 

an  investment  firm  fails  to  report  to  the  competent  authorities,  in  breach  of 
Article 34 of [Regulation (EU) ---/----], information about concentration risk or 
provides incomplete or inaccurate information;  

an investment firm incurs a concentration risk in excess of the limits set out in 
Article 36  of  [Regulation  (EU)  ---/----[IFR],  without  prejudice  to  Articles  37 
and 38 of that Regulation; 

an  investment  firm  repeatedly  or  persistently  fails  to  hold  liquid  assets  in 
breach  of  Article 42  of  [Regulation  (EU)  ---/----[IFR],  without  prejudice  to 
Article 43 of that Regulation; 

an  investment  firm  fails  to  disclose  information,  or  provides  incomplete  or 
inaccurate  information,  in  breach  of  the  provisions  set  out  in  Part  Six  of 
[Regulation (EU) ---/----[IFR]; 

an investment firm makes payments to holders of instruments included in the 
own  funds  of  the  investment  firm  where  Articles 28,  52  or  63  of  Regulation 
(EU) No 575/2013 prohibit such payments to holders of instruments included 
in own funds; 

an  investment  firm  is  found  liable  for  a  serious  breach  of  national  provisions 
adopted pursuant to Directive (EU) 2015/84942; 

an investment firm allows one or more persons not complying with Article 91 
of  Directive  2013/36/EU  to  become  or  remain  a  member  of  the  management 
body. 

42 
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). 

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Member States that do not lay down rules on administrative penalties for breaches which are 
subject to national criminal law shall communicate to the Commission the relevant criminal 
law provisions. 

The  administrative  penalties  and  other  administrative  measures  shall  be  effective, 
proportionate and dissuasive. 

The  administrative  penalties  and  other  administrative  measures  referred  to  in  the  first 

2. 
subparagraph of paragraph 1 shall include the following: 

(a) 

(b) 

(c) 

(d) 

(e) 

(f) 

a public statement which identifies the natural or legal person, investment firm, 
investment holding company or mixed financial holding company responsible 
and the nature of the breach; 

an order requiring the natural or legal person responsible to cease the conduct 
and to desist from repeating that conduct; 

a temporary ban for members of the investment firm's management body or for 
any other natural persons to exercise functions in investment firms; 

in case of a legal person, administrative pecuniary penalties of up to 10% of the 
total  annual  net  turnover,  including  the  gross  income  consisting  of  interest 
receivable and similar income, income from shares and other variable or fixed-
yield  securities,  and  commissions  or  fees  of  the  undertaking  in  the  preceding 
business year; 

in the case of a legal person, administrative pecuniary penalties of up to twice 
the  amount  of  the  profits  gained  or  losses  avoided  due  to  the  breach  where 
those profits or losses can be determined;  

in  case  of  a  natural  person,  administrative  pecuniary  penalties  of  up  to 
EUR 5 000 000,  or  in  the  Member  States  whose  currency  is  not  the  euro,  the 
corresponding value in the national currency on [date of entry into force of this 
Directive]. 

Where an undertaking referred to in point (d) is a subsidiary, the relevant gross income shall 
be  the  gross  income  resulting  from  the  consolidated  account  of  the  ultimate  parent 
undertaking in the preceding business year. 

Member States shall ensure that where an investment firm is in breach of national provisions 
transposing  this  Directive  or  in  breach  of  [Regulation  (EU)  ---/----[IFR],  penalties  may  be 
applied  to  the  members  of  the  management  body  and  to  other  natural  persons  who  under 
national law are responsible for the breach. 

3. 

Member  States  shall  ensure  that  when  determining  the  type  of  administrative 
penalties  or  administrative  measures  referred  to  in  paragraph 1  and  the  level  of 
administrative  pecuniary  penalties, competent  authorities  shall  take into  account  all 
relevant circumstances, including, where appropriate: 

(a) 

(b) 

(c) 

the gravity and the duration of the breach; 

the degree of responsibility of the natural or legal persons responsible for the 
breach; 

the financial strength of the natural or legal persons responsible for the breach, 
including  the  total  turnover  of  legal  persons  or  the  annual  income  of  natural 
persons; 

EN 

34 

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(d) 

(e) 

(f) 

the  importance  of  profits  gained  or  losses  avoided  by  the  legal  persons 
responsible for the breach; 

any losses incurred by third parties as a result of the breach; 

the level of cooperation with the relevant competent authorities; 

(g)  previous breaches by the natural or legal persons responsible for the breach; 

(h) 

any potential systemic consequences of the breach. 

Article 17 
Investigatory powers 

Member  States  shall  ensure  that  competent  authorities  have  all  information  gathering  and 
investigatory powers that are necessary for the exercise of their functions, including: 

(a) 

the  power  to  require  information  from  the  following  natural  or  legal 
persons: 

(i) 

investment firms established in the Member State concerned; 

(ii) 

investment  holding  companies  established  in  the  Member  State 
concerned; 

(iii)  mixed financial holding companies established in the Member State 

concerned; 

(iv)  mixed--activity holding companies established in the Member State 

concerned; 

(v)  persons belonging to the entities referred to in points (i) to (iv); 

(vi) 

third  parties  to  whom  the  entities  referred  to  in  points  (i)  to  (iv) 
have outsourced operational functions or activities.  

(b) 

the power to conduct all necessary investigations on any person referred 
to  in  point  (a)  that  is  established  or  located  in  the  Member  State 
concerned,  including the right:   

(i) 

(ii) 

(iii) 

(iv) 

to require the submission of documents by the persons referred to 
in point (a); 

to examine the books and records of the persons referred to in point 
(a) and to make copies or extracts from those books and records; 

to obtain written or oral explanations from the persons referred to 
in point (a) or from their representatives or staff; 

to  interview  any  other  person  who  consents  to  be  interviewed  for 
the purposes of collecting information  on the subject matter of an 
investigation;  

(c) 

the power to conduct all necessary inspections at the business premises of  
the  legal  persons  referred  to  in  point  (a)  and  any  other  undertakings 
included  in  the  supervision  of  compliance  with  the  group  capital  test, 
where  the  competent  authority  is  the  group  supervisor,  subject  to  the 
prior notification of other competent authorities concerned.  

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Article 18 
Publication of administrative penalties and measures 

1. 

2. 

3. 

4. 

Member  States  shall  ensure  that  competent  authorities  publish  on  their  official 
website  any  administrative  penalties  and  measures  imposed  in  accordance  with 
Article 16  and  which  has  not  been  appealed  or  can  no  longer  be  appealed,  without 
undue delay. That publication shall include information on the type and nature of the 
breach and the identity of the natural or legal person on whom the penalty is imposed 
or against whom the measure is taken. The information shall only be published after 
that  person  has  been  informed  of  those  penalties  or  measures  and  to  the  extent  the 
publication is necessary and proportionate.  

Where Member States permit the publication of administrative penalties or measures 
imposed  in  accordance  with  Article 16  against  which  there  has  been  an  appeal, 
competent authorities shall also publish on their official website information on the 
appeal status and on the outcome of the appeal. 

Competent authorities shall publish the administrative penalties or measures imposed 
in accordance with Article 16 on an anonymous basis in any of the following cases: 

(a) 

(b) 

(c) 

the penalty has been imposed on a natural person and publication of that 
person’s personal data is found to be disproportionate; 

the publication would jeopardise an ongoing criminal investigation or the 
stability of financial markets; 

the  publication  would  cause  disproportionate  damage  to  the  investment 
firms or natural persons involved. 

Competent authorities shall ensure that information published pursuant to this Article 
remains  on  their  official  website  for  at  least  five  years.  Personal  data  may  only  be 
retained  on  the  official  website  of  the  competent  authority  where  permitted  by  the 
applicable data protection rules. 

Article 19 
Reporting penalties to EBA 

Competent  authorities  shall  inform  EBA  of  administrative  penalties  and  measures  imposed 
pursuant to Article 16, of any appeal against those penalties and measures and of the outcome 
thereof.  EBA  shall  maintain  a  central  database  of  administrative  penalties  and  measures 
communicated  to  it  solely  for  the  purpose  of  exchanging  information  between  competent 
authorities.  That  database  shall  be  accessible  to  competent  authorities  only  and  it  shall  be 
updated regularly. 

EBA  shall  maintain  a  website  with  links  to  each  competent  authority's  publication  of 
administrative penalties and measures in accordance with Article 16 and shall state the period 
for which each Member State publishes administrative penalties and measures. 

Article 20 
Reporting of breaches 

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1. 

Member States shall ensure that competent authorities establish effective and reliable 
mechanisms to report potential or actual breaches of national provisions transposing 
this Directive and of [Regulation (EU) ---/----[IFR], including the following: 

(a) 

(b) 

specific procedures for the treatment of reports on breaches; 

appropriate protection against retaliation, discrimination or other types of 
unfair  treatment  by  the  investment  firm  for  employees  of  investment 
firms who report breaches committed within the investment firm; 

(c)  protection  of  personal  data  concerning  both  the  person  who  reports  the 
breach  and  the  natural  person  who  is  allegedly  responsible  for  that 
breach, in accordance with Regulation (EU) No 2016/679; 

(d) 

clear  rules  that  ensure  that  confidentiality  is  guaranteed  in  all  cases  in 
relation  to  the  person  who  reports  the  breaches  committed  within  the 
investment  firm,  unless  disclosure  is  required  by  national  law  in  the 
context of further investigations or subsequent judicial proceedings. 

2. 

Member States shall require investment firms to have in place appropriate procedures 
for their employees to report breaches internally through a specific and independent 
channel.  Those  procedures  may  be  provided  for  by  social  partners  provided  that 
those procedures offer the same protection as the protection referred to in points (b), 
(c) and (d) of paragraph 1. 

Article 21 
Right of appeal 

Member States shall ensure that decisions and measures taken pursuant to [Regulation (EU) --
-/----[IFR]  or  pursuant  to  laws,  regulations  and  administrative  provisions  adopted  in 
accordance with this Directive are subject to a right of appeal. 

CHAPTER 2 
Review process  

SECTION 1 
INTERNAL CAPITAL ADEQUACY ASSESSMENT PROCESS 

Article 22 
Internal Capital 

1. 

2. 

Investment  firms  shall  have  in  place  sound,  effective  and  comprehensive  strategies 
and  processes  to  assess  and  maintain  on  an  ongoing  basis  the  amounts,  types  and 
distribution  of  internal  capital  that  they  consider  adequate  to  cover  the  nature  and 
level of risks to which they are or might be exposed. 

The  strategies  and  processes  referred  to  in  paragraph 1  shall  be  subject  to  regular 
internal  review  to  ensure  that  they  remain  comprehensive  and  proportionate  to  the 
nature, scale and complexity of the activities of the investment firm concerned. 

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SECTION 2 

INTERNAL GOVERNANCE, TRANSPARENCY, TREATMENT OF RISKS AND 
REMUNERATION 

Article 23 
Assessment for the purposes of the application of this Section 

1. 

For  the  purposes  of  this  Section,  Member  States  shall  ensure  that  investment  firms 
assess,  on an  annual  basis,  and in  accordance  with  points (a)  and  (b), whether  they 
meet the conditions set out in Article 12(1) of [Regulation (EU) ---/----[IFR]:  

(a) 

(b) 

an  investment  firm  shall  determine  whether,  based  on  the  figures  from 
the  two-year  period  immediately  preceding  a  given  financial  year,  it 
satisfies  the  conditions  set  out  in  points  (c)  to  (g)  of  Article  12(1)  of 
[Regulation (EU) ---/----[IFR]; 

an  investment  firm  shall  determine  whether,  based  on  the  figures  from 
that same period, it exceeds on average the limits laid down in points (a), 
(b), (h) and (i) of Article 12 (1) of [Regulation (EU) ---/----[IFR]. 

This  Section  shall  not  apply  where,  on  the  basis  of  the  assessment  referred  to  in 
paragraph 1, an investment firm determines that it meets all of the conditions set out 
in Article 12(1) of [Regulation (EU) ---/----[IFR].  

An  investment  firm  that,  on  the  basis  of  the  assessment  referred  to  in  paragraph  1, 
determines that it does not meet all of the conditions set out in that Article 12(1) of 
[Regulation  (EU)  ---/----[IFR],  it  shall  comply  with  this  Section  as  of  the  financial 
year following the financial year in which that assessment took place.   

Member  States  shall  ensure  that  this  Section  is  applied  to  investment  firms  on  an 
individual basis and at group level.  

Member States shall ensure that investment firms subject to this Section implement 
the requirements of this Section in their subsidiaries that are financial institutions as 
defined in Article 4(13) of [Regulation (EU) ---/----[IFR], including those established 
in third countries, unless the parent undertaking in the Union can demonstrate to the 
competent authorities that the application of this Section is unlawful under the laws 
of the third country where those subsidiaries are established.  

Competent  authorities  may  set  a  shorter  period  than  the  two  years  referred  in 
paragraph 1 of this Article where both of the following conditions are met: 

(a) 

(b) 

the business of the investment firm has been subject to a material change; and 

as  a  result  of  point  (a),  the  investment  firm  meets  the  conditions  set  out  in 
Article 12(1) of [Regulation (EU) ---/----[IFR]. 

EBA, in consultation with ESMA, shall develop draft regulatory technical standards 
to specify the method for calculating the average referred to in paragraph 1(b) of this 
Article.  EBA  shall  submit  those  draft  regulatory  technical  standards  to  the 
Commission by [date of entry into force of this Directive]. 

2. 

3. 

4. 

5. 

6. 

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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 24 
Internal governance 

1. 

Member  States  shall  ensure  that  investment  firms  have  robust  governance 
arrangements, including all of the following: 

2. 

3. 

4. 

1. 

(a) 

(b) 

(c) 

(d) 

a  clear  organisational  structure  with  well  defined,  transparent  and  consistent 
lines of responsibility; 

effective processes to identify, manage, monitor and report the risks investment 
firms are or might be exposed to; 

adequate  internal  control  mechanisms,  including  sound  administration  and 
accounting procedures; 

remuneration policies and practices that are consistent with and promote sound 
and effective risk management. 

When establishing the arrangements referred to in paragraph 1, the criteria set out in 
Articles 26 to 31 of this Directive, as well as in Article 9 of Directive 2014/65/EU, 
shall be taken into account. 

The  arrangements  referred  to  in  paragraph  1  shall  be  comprehensive  and 
proportionate to the nature, scale and complexity of the risks inherent in the business 
model and the activities of the investment firm. 

EBA,  in  consultation  with  ESMA,  shall  issue  guidelines  on  the  application  of  the 
governance arrangements referred to in paragraph 1. 

Article 25 
Country-by-country reporting 

Member  States  shall  require  investment  firms  to  disclose  by  Member  State  and  by 
third  country  in  which  the  investment  firm  has  a  branch  or  a  subsidiary  that  is  a 
financial institution as defined in Article 4(1)(26) of Regulation (EU) No 575/2013, 
the following information on an annual basis:  

(a) 

 the name, nature of activities and location of any subsidiaries and branches; 

(b) 

 the turnover; 

(c) 

(d) 

(e) 

(f) 

 the number of employees on a full time equivalent basis; 

 the profit or loss before tax; 

 the tax on profit or loss; 

 the public subsidies received. 

2. 

The  information  referred  to  in  paragraph  1  shall  be  audited  in  accordance  with 
Directive 2006/43/EC and, where possible, shall be annexed to the annual financial 

EN 

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statements  or,  where  applicable,  to  the  consolidated  financial  statements  of  that 
investment firm. 

Article 26 
Treatment of risks  

1. 

2. 

3. 

4. 

Member  States  shall  ensure  that  the  management  body  of  the  investment  firm 
approves and periodically reviews the strategies and policies on the risk appetite of 
the  investment  firm,  and  on  managing,  monitoring  and  mitigating  the  risks  the 
investment  firm  is  or  may  be  exposed  to,  taking  into  account  the  macroeconomic 
environment and the business cycle of the investment firm.  

Member  States  shall  ensure  that  the  management  body  devotes  sufficient  time  to 
ensure  proper  consideration  of  the  risks  referred  to  in  paragraph  1  and  that  it 
allocates  adequate  resources  to  the  management  of  all  material  risks  to  which  the 
investment firm is exposed. 

Member  States  shall  ensure  that  investment  firms  establish  reporting  lines  to  the 
management body for all material risks and for all risk management policies and any 
changes thereto.  

Member States shall determine which investment firms are considered significant in 
terms of their size, internal organisation and the nature, scope and complexity of their 
activities.  Member  States  shall  require  those  firms  to  establish  a  risk  committee 
composed of members of the management body who do not perform any executive 
function in the investment firm concerned.   

Members  of  the  risk  committee  referred  to  in  the  first  subparagraph  shall  have 
appropriate knowledge, skills and expertise to fully understand, manage and monitor 
the risk strategy and the risk appetite of the investment firm. They shall ensure that 
the  risk  committee  advises  the  management  body  on  the  investment  firm's  overall 
current  and  future  risk  appetite  and  strategy  and  assists  the  management  body  in 
overseeing  the  implementation  of  that  strategy  by  senior  management.  The 
management body shall retain overall responsibility for the firm´s risk strategies and 
policies. 

Competent authorities may allow an investment firm  which is  not  considered to  be 
significant  as  referred  to  in  the  first  subparagraph  to  allow  the  audit  committee  as 
referred to in Article 39 of Directive 2006/43/EC, where one has been established, to 
perform  the  function  of  the  risk  committee  referred  to  in  the  first  subparagraph. 
Members of that committee shall have the knowledge, skills and expertise referred to 
in the second subparagraph. 

5. 

Member  States  shall  ensure  that  the  management  body  in  its  supervisory  function 
and, where one has been established, the risk committee of that management body, 
has access to information on the risks to which the firm is or may be exposed.  

Article 27 
Risk-to-customers, risk-to-market, risk-to-firm 

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1. 

Competent  authorities  shall  ensure  that  investment  firms  have  robust  strategies, 
policies, processes and systems for the identification, measurement, management and 
monitoring of the following:  

2. 

3. 

1. 

(a)  material sources and effects of risk to customers;  

(b)  material sources and effects of risk to market;  

(c) 

risks  to  the  investment  firm,  in  particular  arising  from  its  trading  activities 
when  it  deals  on  its  own  account  and  in  relation  to  concentration  risk  arising 
from exposures to individual clients and groups of connected clients;  

(d) 

liquidity risk over an appropriate set of time horizons, including intra-day, so 
as to ensure that the investment firm maintains adequate levels of liquidity. 

The  strategies,  policies,  processes  and  systems  shall  be  proportionate  to  the 
complexity, risk profile, scope of operation of the investment firm and risk tolerance 
set  by  the  management  body,  and  shall  reflect  the  investment  firm's  importance  in 
each Member State in which it carries out business.  

By way of derogation from Article 23, points (a), (c) in relation to concentration risk 
and  (d)  of  paragraph  1  shall  apply to  investment  firms  that  meet  the  conditions  set 
out in Article 12(1) of [Regulation (EU) ---/----[IFR]. 

The  Commission  shall  be  empowered  to  adopt  delegated  acts  in  accordance  with 
Article 54 to further specify details to ensure that the strategies, policies, processes 
and systems of investment firms are robust. The Commission shall thereby take into 
account developments in financial markets, and in particular the emergence of new 
financial  products,  developments  in  accounting  standards  and  developments  that  
facilitate the convergence of supervisory practices. 

Article 28 
Remuneration policies  

Competent  authorities  shall  ensure  that  investment  firms,  when  establishing  and 
applying  their  remuneration  policies  for  senior  management,  risk  takers,  staff 
engaged  in  control  functions  and  for  any  employee  receiving  overall  remuneration 
equal  to  at  least  the  lowest  remuneration  received  by  senior  management  or  risk 
takers, and whose professional activities have a material impact on the risk profile of 
the investment firm, comply with the following principles: 

(a) 

(b) 

(c) 

(d) 

the remuneration policy is clear and documented; 

the  remuneration  policy  is  consistent  with  and  promotes  sound  and  effective 
risk management; 

the  remuneration  policy  contains  measures  to  avoid  conflicts  of  interest, 
encourages  responsible  business  conduct  and  promotes  risk  awareness  and 
prudent risk taking; 

the  management  body  in  its  supervisory  function  adopts  and  periodically 
reviews  the  remuneration  policy  and  has  the  overall  responsibility  for  its 
implementation; 

(e) 

the  implementation  of  the  remuneration  policy  is  subject  to  a  central  and 
independent internal review by control functions; 

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(f) 

(g) 

(h) 

staff engaged in control functions are independent from the business units they 
oversee,  have  appropriate  authority,  and  are  remunerated  in  accordance  with 
the  achievement  of  the  objectives  linked  to  their  functions,  regardless  of  the 
performance of the business areas they control; 

the  remuneration  of  senior  officers  in  the  risk  management  and  compliance 
functions  is  directly  overseen  by  the  remuneration  committee  referred  to  in 
Article  31  or,  where  such  a  committee  has  not  been  established,  by  the 
management body in its supervisory function; 

the  remuneration  policy,  taking  into  account  national  rules  on  wage  setting, 
makes  a  clear  distinction  between  the  criteria  applied  to  determine  the 
following: 

(i)   basic  fixed  remuneration,  which  primarily  reflects  relevant  professional 
experience  and  organisational  responsibility  as  set  out  in  an  employee's 
job description as part of his or her terms of employment; 

(ii)   variable  remuneration,  which  reflects  a  sustainable  and  risk  adjusted 
performance  of  the  employee,  as  well  as  performance  in  excess  of  the 
employee's job description. 

(i) 

the fixed component shall represent a sufficiently high proportion of the total 
remuneration so as to enable the operation of a fully flexible policy on variable 
remuneration  components,  including  the  possibility  to  pay  no  variable 
remuneration component. 

For  the  purposes  of  point  (i)  of  paragraph  1,  Member  States  shall  ensure  that 
investment  firms  set  the  appropriate  ratios  between  the  variable  and  the  fixed 
component  of  the  total  remuneration  in  their  remuneration  policies,  taking  into 
account the business activities of the investment firm and associated risks, as well as 
the impact that different categories of individuals referred to in paragraph 1 have on 
the risk profile of the investment firm. 

Member States shall ensure that investment firms apply the principles referred to in 
paragraph 1 in a manner that is appropriate to their size and internal organisation and 
to the nature, the scope and complexity of their activities. 

EBA, in consultation with ESMA, shall develop draft regulatory technical standards 
to  specify  appropriate  criteria  to  identify  the  categories  of  individuals  whose 
professional activities have a material impact on the investment firm's risk profile as 
referred to in paragraph 1. 

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

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

Article 29 

2. 

3. 

4. 

Investment firms that benefit from extraordinary public financial support  

Member States shall ensure that where an investment firm benefits from extraordinary public 
financial  support  as  defined  to  in  Article  2(1)(28)  of  Directive  2014/59/EU,  the  following 
requirements apply: 

EN 

42 

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(a)  where variable remuneration would be inconsistent with the maintenance of a 
sound capital base of an investment firm and its timely exit from extraordinary 
public financial support, variable remuneration of all staff shall be limited to a 
portion of net revenue; 

(b) 

(c) 

investment firms  shall  establish  limits  to  the remuneration of the members of 
the management body of the investment firm;  

the  investment  firm  shall  only  pay  variable  remuneration  to  members  of  the 
management  body  of  the  investment  firm  where  such  remuneration  has  been 
approved by the competent authority. 

For  the  purposes  of  point  (c),  competent authorities  shall  only  approve  payment  of  variable 
remuneration  to  members  of  the  management  body  of  the  investment  firm  in  exceptional 
circumstances.   

Article 30 
Variable remuneration  

1. 

Member States shall ensure that any variable remuneration awarded and paid by an 
investment firm complies with all of the following requirements:  

(a)  where  variable  remuneration  is  performance  related,  the  total  amount  of 
variable remuneration shall be based on a combination of the assessment of the 
performance of the individual, of the business unit concerned and of the overall 
results of the investment firm; 

(b)  when  assessing  the  performance  of  the  individual,  both  financial  and  non-

financial criteria shall be taken into account; 

(c) 

(d) 

(e) 

(f) 

(g) 

(h) 

the assessment of the performance referred to in point (a) shall be based on a 
multi-year period, taking into account the business cycle of the investment firm 
and its business risks; 

the variable remuneration shall not affect the investment firm's ability to ensure 
a sound capital base; 

there shall be no guaranteed variable remuneration other than for new staff and 
only for the first year of employment of new staff; 

payments  relating  to  the  early  termination  of  an  employment  contract  shall 
reflect performance achieved over time by the individual and shall not reward 
failure or misconduct; 

remuneration  packages  relating  to  compensation  or  buy  out  from  contracts  in 
previous  employment  shall  be  aligned  with  the  long-term  interests  of  the 
investment firm; 

the measurement of performance used as a basis to calculate pools of variable 
remuneration  shall  take  into  account  all  types  of  current  and  future  risks  and 
the  cost  of  the  capital  and  liquidity  required  in  accordance  with  Regulation 
(EU)  ---/----[IFR]; 

(i) 

the allocation of the variable remuneration components within  the investment 
firm shall take into account all types of current and future risks; 

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(j) 

at least 50% of the variable remuneration shall consist of any of the following 
instruments: 

(1) 

(2) 

(3) 

shares, or subject to the legal structure of the investment firm concerned, 
equivalent ownership interests; 

share-linked  instruments,  or  subject  to  the  legal  structure  of  the 
investment firm concerned, equivalent non-cash instruments; 

additional  Tier  1 instruments or  Tier 2 instruments or  other instruments 
which  can  be  fully  converted  to  Common  Equity  Tier  1  instruments  or 
written  down  and  that  adequately  reflect  the  credit  quality  of  the 
investment firm as a going concern; 

(k) 

(l) 

at least 40% of the variable remuneration shall be deferred over a three to five 
year period as appropriate, depending on the business cycle of the investment 
firm, the nature of its business, its risks and the activities of the individual in 
question,  except  in  the  case  of  a  variable  remuneration  of  a  particularly  high 
amount  where the proportion  of the variable remuneration deferred  is at least 
60%; 

up to 100% of the variable remuneration shall be contracted where the financial 
performance of the investment firm is subdued or negative, including through 
malus  or  clawback  arrangements  subject  to  criteria  set  by  investment  firms 
which in particular cover situations where the individual in question: 

(i)  participated  in  or  was  responsible  for  conduct  which  resulted  in 
significant losses for the investment firm; 

(ii) is no longer considered fit and proper; 

(m)  discretionary  pension  benefits  shall  be  in  line  with  the  business  strategy, 

objectives, values and long-term interests of the investment firm. 

2. 

For the purposes of paragraph 1, competent authorities shall ensure the following: 

3. 

(a) 

individuals referred to in Article 28(1) shall not use personal hedging strategies 
or  remuneration  and  liability-related  insurances  to  undermine  the  principles 
referred to in paragraph 1; 

(b)  variable remuneration shall not be paid through financial vehicles or methods 
that facilitate the non-compliance with this Directive or Regulation (EU) ---/---
-[IFR]. 

For the purposes of point (j) of paragraph 1, the instruments referred to therein shall 
be subject to an appropriate retention policy designed to align the incentives of the 
individual  with  the  longer-term  interests  of  the  investment  firm,  its  creditors  and 
clients.  Member  States  or  their  competent  authorities  may  place  restrictions  on  the 
types and designs of those instruments or prohibit the use of certain instruments for 
variable remuneration. 

For the purposes of point (k) of paragraph 1, the deferral of the variable remuneration 
shall vest no faster than on a pro-rata basis. 

For  the  purposes  of  point  (m)  of  paragraph  1,  where  an  employee  leaves  the 
investment firm before retirement age, discretionary pension benefits shall be held by 
the investment firm for a period of five years in the form of instruments referred to in 
point (j). Where an employee reaches retirement age, discretionary pension benefits 

EN 

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shall  be  paid  to  the  employee  in  the  form  of  instruments  referred  to  in  point  (j), 
subject to a five-year retention period by that employee. 

4. 

Points (j) and (k) of paragraph 1 and the third subparagraph of paragraph 3 shall not 
apply to:  

(a) 

(b) 

an investment firm, the asset value of which is on average equal to or less than 
EUR  100  million  over  the  four-year  period  immediately  preceding  the  given  
financial year; 

an  individual  whose  annual  variable  remuneration  does  not  exceed  EUR  50 
000  and  does  not  represent  more  than  one  fourth  of  this  individual's  total 
annual remuneration. 

By  way  of  derogation  from  point  (a),  competent  authorities  may  decide  that 
investment firms with asset values below the threshold referred to in point (a) are not 
subject  to  the  derogation  because  of  the  nature  and  scope  of  their  activities,  their 
internal organisation, or, where applicable, the characteristics of the group to which 
they belong. 

By  way  of  derogation  from  point  (b),  competent  authorities  may  decide  that 
individuals whose annual variable remuneration is below the thresholds referred to in 
point (b) are not subject to the derogation because of national market specificities in 
terms of  remuneration practices or because  of the nature of the responsibilities and 
job profile of those individuals. 

Member  States  shall  require  investment  firms  to  apply  the  provisions  laid  down  in 
this Article to remuneration awarded for services provided or performance following 
the financial year of the assessment referred to in Article 23(1). 

EBA, in consultation with ESMA, shall develop draft regulatory technical standards 
to specify the classes of instruments that satisfy the conditions set out in paragraph 
1(j)(3). 

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

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

5. 

6. 

7. 

in  consultation  with  ESMA,  shall  adopt  guidelines  facilitating 

EBA, 
implementation of paragraph 4 and ensuring its consistent application. 

the 

Article 31 
Remuneration committee 

1. 

2. 

Member States shall ensure that competent authorities have the necessary powers to 
guarantee  that  investment  firms  which  are  determined  as  significant  in  accordance 
with Article 26(4) establish a remuneration committee. That remuneration committee 
shall  exercise  competent  and  independent  judgment  on  remuneration  policies  and 
practices and the incentives created for managing risk, capital and liquidity. 

Member States shall ensure that competent authorities have the necessary powers to 
guarantee  that  the  remuneration  committee  is  responsible  for  the  preparation  of 
decisions  regarding  remuneration,  including  decisions  which  have  implications  for 

EN 

45 

  EN 

 
 
3. 

1. 

2. 

3. 

4. 

the risk and risk management of the investment firm concerned and which are to be 
taken  by  the  management  body.  The  Chair  and  the  members  of  the  remuneration 
committee  shall  be  members  of  the  management  body  who  do  not  perform  any 
executive function in the investment firm concerned. Where employee representation 
in the management body is provided for by national law, the remuneration committee 
shall include one or more employee representatives. 

When preparing the decisions referred to in paragraph 2, the remuneration committee 
shall take into account the public interest and the long-term interests of shareholders, 
investors and other stakeholders in the investment firm. 

Article 32 
Oversight of remuneration policies  

Member  States  shall  ensure  that  competent  authorities  collect  the  information 
disclosed in accordance with points (c), (d) and (f) of Article 51 of [Regulation (EU) 
---/----[IFR]  and  use  that  information  to  benchmark  remuneration  trends  and 
practices. Competent authorities shall provide that information to EBA. 

EBA shall use the information received from the competent authorities in accordance 
with paragraph 1 to benchmark remuneration trends and practices at Union level. 

EBA, in consultation with ESMA, shall issue guidelines on the application of sound 
remuneration  policies.  Those  guidelines  shall  take  into  account  at  least  the 
requirements  referred to  in  Articles 28  to  31  and  principles  on  sound  remuneration 
policies set out in Commission Recommendation 2009/384/EC43. 

Member  States  shall  ensure  that  investment  firms  provide  competent  authorities, 
where requested, with information on the number of natural persons per investment 
firm that are remunerated EUR 1 million or more per financial year, in pay brackets 
of  EUR  1  million,  including  information  on  their  job  responsibilities,  the  business 
area involved and the main elements of salary, bonus, long-term award and pension 
contribution.  Competent  authorities  shall  forward  that  information  to  EBA,  which 
shall  publish  it  on  an  aggregate  home  Member  State  basis  in  a  common  reporting 
format. EBA, in consultation with ESMA, may elaborate guidelines to facilitate the 
implementation  of  this  paragraph  and  to  ensure  the  consistency  of  the  information 
collected.  

SECTION 3 

SUPERVISORY REVIEW AND EVALUATION PROCESS 

Article 33  
Supervisory review and evaluation 

1. 

Competent  authorities  shall  review  the  arrangements,  strategies,  processes  and 
mechanisms  implemented  by  investment  firms  to  comply  with  this  Directive  and 
[Regulation  (EU)  ---/----[IFR]  and  evaluate  all  of  the  following  to  ensure  a  sound 
management and coverage of their risks: 

43 
services sector (OJ L 120, 15.5.2009, p. 22). 

Commission Recommendation 2009/384/EC of 30 April 2009 on remuneration policies in the financial 

EN 

46 

  EN 

 
 
                                                 
(a) 

(b) 

(c) 

(d) 

(e) 

(f) 

the risks referred to in Article 27; 

the geographical location of an investment firm's exposures; 

the business model of the investment firm;  

the  assessment  of  systemic  risk,  taking  into  account  the  identification  and 
measurement  of  systemic  risk  under  Article  23  of  Regulation  (EU)  No 
1093/2010 or recommendations of the ESRB; 

 the  exposure  of  investment  firms  to  the  interest  rate  risk  arising  from  non-
trading book activities; 

 governance  arrangements  of  investment  firms  and  the  ability  of  members  of 
the management body to perform their duties. 

Member  States  shall  ensure  that  competent  authorities    establish  the  frequency  and 
intensity of the review and evaluation referred to in paragraph 1 having regard to the 
size,  systemic  importance,  nature,  scale  and  complexity  of  the  activities  of  the 
investment firms concerned and taking into account the principle of proportionality.  

Member States shall ensure that, where a review shows that an investment firm may 
pose  systemic  risk  as  referred  to  in  Article  23  of  Regulation  (EU)  No 1093/2010, 
competent authorities inform EBA without delay about the results of that review. 

Competent authorities shall take appropriate action where the review and evaluation 
referred to in point (e) of paragraph 1 has shown that the economic value of equity of 
an investment firm has declined by more than 15 % of its Tier 1 capital as a result of 
a  sudden  and  unexpected  change  in  interest  rates  as  set  out  in  any  of  the  six 
supervisory shock scenarios applied to interest rates, as specified in the [Commission 
Delegated Regulation adopted pursuant to Article 98 (5) of Directive 2013/36/EU].  

When  conducting  the  review  and  evaluation  referred  to  in  point  (f)  of  paragraph 1, 
competent  authorities  shall  have  access  to  agendas,  minutes  and  supporting 
documents for meetings of the management body and its committees, and the results 
of the internal or external evaluation of performance of the management body. 

The  Commission  shall  be  empowered  to  adopt  delegated  acts  in  accordance  with 
Article  54  to  further  specify  details  to  ensure  that  the  arrangements,  strategies, 
processes  and  mechanisms  of  investment  firms  ensure  a  sound  management  and 
coverage  of  their  risks.  The  Commission  shall  thereby  take  into  account 
developments in financial markets, and in particular the emergence of new financial 
products, developments in accounting standards and developments that facilitate the 
convergence of supervisory practices. 

Article 34 
Ongoing review of the permission to use internal models  

Member States shall ensure that competent authorities  review on a regular basis, and 
at  least  every  3  years,  investment  firms'  compliance  with  the  requirements  for  the 
permission to use internal models as referred to in Article 22 of [Regulation (EU) ---
/----].  Competent  authorities  shall  in  particular  have  regard  to  changes  in  an 
investment  firm's  business  and  to  the  implementation  of  those  models  to  new 
products,  and  review  and  assess  whether  the  investment  firm  uses  well  developed 
and up-to-date techniques and practices for those models. Competent authorities shall 

2. 

3. 

4. 

5. 

6. 

1. 

EN 

47 

  EN 

 
 
2. 

3. 

ensure that material deficiencies identified in the coverage of risk by an investment 
firm's  internal  models  are  rectified,  or  take  steps  to  mitigate  their  consequences, 
including by imposing capital add-ons or higher multiplication factors.  

Where, for internal risk-to-market models, numerous overshootings as referred to in 
Article 366 of Regulation (EU) No 575/2013 indicate that the models are not or are 
no  longer  accurate,  competent  authorities  shall  revoke  the  permission  to  use  the 
internal  models  or  impose  appropriate  measures  to  ensure  that  the  models  are 
improved promptly. 

Where an investment firm that has been granted permission to use internal models no 
longer meets the requirements for applying those models, competent authorities shall 
require  either  demonstration  that  the  effect  of  non-compliance  is  immaterial  or 
presentation of a plan and a deadline to comply with those requirements. Competent 
authorities  shall  require  improvements  to  the  presented  plan  where  that  plan  is 
unlikely to result in full compliance or where the deadline is inappropriate.  

Where it is unlikely that the investment firm shall comply by the prescribed deadline 
or  has  not  satisfactorily  demonstrated  that  the  effect  of  non-compliance  is 
immaterial,  Member  States  shall  ensure  that  competent  authorities  revoke  the 
permission  to  use  internal  models  or  limit  it  to  compliant  areas  or  to  those  areas 
where compliance can be achieved by an appropriate deadline. 

4. 

EBA  shall  analyse  internal  models  across  investment  firms  and  shall  analyse  how 
investment firms using internal models treat similar risks or exposures. 

In  order  to  promote  consistent,  efficient  and  effective  supervisory  practices,  EBA 
shall, on the basis of that analysis and in accordance with Article  16 of Regulation 
(EU) No 1093/2010, develop guidelines with benchmarks on how investment firms 
should use internal models and how those internal models should treat similar risks 
or exposures.  

Member  States  shall  encourage  competent  authorities  to  take  into  account  that 
analysis and those guidelines for the review referred to in paragraph 1. 

SECTION 4 

SUPERVISORY MEASURES AND POWERS 

Article 35 
Supervisory measures 

Competent authorities shall require investment firms to take, at an early stage, the  measures 
necessary to address the following problems: 

(a) 

(b) 

the investment firm does not meet the requirements of this Directive or of 
[Regulation (EU) ---/----[IFR]; 

competent authorities have evidence that the investment firm is likely to 
breach  [Regulation  (EU)  ---/----[IFR]  or  the  provisions  transposing  this 
Directive within the next 12 months. 

EN 

48 

  EN 

 
 
 
Article 36 
Supervisory powers  

1. 

2. 

Member  States  shall  ensure  that  competent  authorities  have  the  necessary 
supervisory powers to intervene in the exercise of their functions into the activity of 
investment firms.  

For the purposes of Article 33, Article 34(3) and Article 35 and of the application of 
[Regulation (EU)---/----[IFR], competent authorities shall have the following powers: 

(a) 

(b) 

(c) 

(d) 

(e) 

(f) 

(g) 

(h) 

(i) 

(j) 

to  require  investment  firms  to  have  additional  capital  in  excess  of  the 
requirements set out in Article 11 of [Regulation (EU) ---/----[IFR], under the 
conditions  laid  down  in  Article 37  of  this  Directive,  or  to  adjust  the  capital 
required in case of material changes in the business of those investment firms; 

to  require  the  reinforcement  of  the  arrangements,  processes,  mechanisms  and 
strategies implemented in accordance with Articles 22 and 24; 

to  require  investment  firms  to  present  a  plan  to  comply  with  supervisory 
requirements  pursuant  to  this  Directive  and  to  [Regulation  (EU)  ---/----[IFR], 
to set a deadline for the implementation of that plan and require improvements 
to that plan regarding scope and deadline; 

to require investment firms to apply a specific provisioning policy or treatment 
of assets in terms of capital requirements; 

to restrict or limit the business, operations or network of investment firms or to 
request  the  divestment  of  activities  that  pose  excessive  risks  to  the  financial 
soundness of an investment firm; 

to  require  the  reduction  of  the  risk  inherent  in  the  activities,  products  and 
systems of investment firms, including outsourced activities; 

to  require  investment  firms  to  limit  variable  remuneration  as  a  percentage  of 
net revenues where that remuneration is inconsistent with the maintenance of a 
sound capital base; 

to require investment firms to use net profits to strengthen own funds; 

to restrict or prohibit distributions or interest payments by an investment firm 
to  shareholders,  members  or  holders  of  Additional  Tier  1  instruments  where 
that prohibition does not constitute an event of default of the investment firm; 

to impose additional or more frequent reporting requirements to those set out in 
this Directive and [Regulation (EU) ---/----[IFR], including reporting on capital 
and liquidity positions; 

(k) 

to impose specific liquidity requirements; 

(l) 

to require additional disclosures on an ad hoc basis. 

For  the  purposes  of  point  (j),  competent  authorities  may  only  impose  additional  or  more 
frequent reporting requirements on investment firms where the information to be reported is 
not duplicative and one of the following conditions is met: 

(a) 

(b) 

either of the conditions referred to in points (a) or (b) of Article 35 has been met; 

the  competent  authority  considers  it  necessary  to  gather  the  evidence  referred  to  in 
Article 35(b). 

EN 

49 

  EN 

 
 
Information  shall  be  deemed  as  duplicative  where  the  competent  authority  already  has  the 
same or substantially the same information, where that information may be produced by the 
competent authority or may be obtained by the same competent authority through other means 
than a requirement on the investment firm to report it. A competent authority shall not require 
additional  information  where  the  information  is  available  to  the  competent  authority  in  a 
different format or level of granularity than the additional information to be reported and that 
different  format  or  granularity  does  not  prevent  it  from  producing  substantially  similar 
information. 

Article 37 
Additional capital requirement 

1. 

Competent authorities shall impose the additional capital requirement referred to in 
Article  36(2)(a)  only  where,  on  the  basis  of  the  reviews  carried  out  in  accordance 
with  Articles  35  and  36,  they  conclude  that  an  investment  firm  is  in  one  of  the 
following situations: 

(a) 

(b) 

(c) 

(d) 

the investment firm is exposed to risks or elements of risks that are not 
covered or not sufficiently covered by the capital requirement set out in 
Part Three of [Regulation (EU) ---/----[IFR]; 

the investment firm does not meet the requirements set out in Articles 22 
and  24  and  other  administrative  measures  are  unlikely  to  sufficiently 
improve  the  arrangements,  processes,  mechanisms  and  strategies  within 
an appropriate timeframe; 

the prudential valuation of the trading book is insufficient to enable the 
investment  firm  to  sell  or  hedge  out  its  positions  within  a  short  period 
without incurring material losses under normal market conditions; 

the  evaluation  carried  out  in  accordance  with  Article  34  shows  that 
noncompliance with the requirements for the application of the permitted 
internal models will likely lead to inadequate levels of capital; 

(e) 

the investment firm repeatedly fails to establish or maintain an adequate 
level of additional capital as set out in Article 38(1). 

2. 

3. 

For the purpose of paragraph 1(a), risks or elements of risk shall only be considered 
as not covered or not sufficiently covered by the capital requirement set out in Part 
Three of [Regulation (EU) ---/----[IFR] where the amounts, types and distribution of 
capital  considered  adequate  by  the  competent  authority  following  the  supervisory 
review  of  the  assessment  carried  out  by  investment  firms  in  accordance  with 
Article 22(1) are higher than the investment firm's capital requirement set out in Part 
Three of [Regulation (EU) ---/---[IFR].  

For the purpose of the first subparagraph, the capital considered adequate covers all 
material  risks  or  elements  of  such  risks  that  are  not  subject  to  a  specific  capital 
requirement. This may include risks or elements of risks that are explicitly excluded 
from the capital requirement set out in Part Three of [Regulation (EU) ---/----[IFR].  

Competent  authorities  shall  determine  the  level  of  the  additional  capital  required 
pursuant to Article 36(2)(a) as the difference between the capital considered adequate 
pursuant  to  paragraph  2  of  this  Article  and  the  capital  requirement  set  out  in  Part 
Three of [Regulation (EU) ---/----[IFR]. 

EN 

50 

  EN 

 
 
4. 

Competent  authorities  shall  require  investment  firms  to  meet  the  additional  capital 
requirement  referred to in  Article 36(2)(a) with own  funds  subject to  the following 
conditions: 

(a) 

(b) 

(c) 

at least  three  quarters  of  the  additional  capital  requirement shall  be  met 
with Tier 1 capital; 

at least three quarters of the Tier 1 capital shall be composed of CET 1 
capital; 

those  own  funds  shall    not  be  used  to  meet  any  of  the  capital 
requirements set out in points (a), (b) and (c) of Article 11 of [Regulation 
(EU) ---/----[IFR].  

Competent  authorities  shall  substantiate  in  writing  their  decision  to  impose  an 
additional  capital  requirement  as  referred  to  in  Article  36(2)(a)  by  giving  a  clear 
account of the full assessment of the elements referred to in paragraphs 1 to 4 of this 
Article. That includes, in the case set out in paragraph 1(d) of this Article, a specific 
statement of why the level of capital established in accordance with Article 38(1) is 
no longer considered sufficient.  

EBA, in consultation with ESMA, shall develop draft regulatory technical standards 
to  specify  how  the  risks  and  elements  of  risks  referred  to  in  paragraph  2  shall  be 
measured.  EBA  shall  ensure  that  the  draft  regulatory  technical  standards  are 
proportionate in light of:  

(a) 

(b) 

implementation  burden  on 

the 
authorities; 

investment  firms  and  competent 

the  possibility  that  the  higher  level  of  capital  requirements  that  apply 
where  investment  firms  do  not  use  internal  models  may  justify  the 
imposition  of  lower  capital  requirements  when  assessing  risks  and 
elements of risks in accordance with paragraph 2. 

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

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

Article 38 
Guidance on capital adequacy 

Competent authorities shall ensure that investment firms have a level of capital that, 
based  on  Article  22,  is  sufficiently  above  the  requirements  set  out  in  Part  Three  of 
[Regulation  (EU)  --/----[IFR]  and  in  this  Directive,  including  the  additional  capital 
requirements referred to in Article 36(2)(a), to ensure that: 

(a) 

(b) 

cyclical economic fluctuations do not lead to a breach of those requirements; 

the investment firm's capital can absorb the potential losses and risks identified 
pursuant to supervisory review processes. 

Competent authorities shall regularly review the level of capital that has been set by 
each  investment  firm  in  accordance  with  paragraph  1  and,  where  relevant, 
communicate  the  conclusions  of  that  review  to  the  investment  firm  concerned, 

5. 

6. 

1. 

2. 

EN 

51 

  EN 

 
 
including  any  expectation  for  adjustments  to  the  level  of  capital  established  in 
accordance with paragraph 1.  

Article 39  
Cooperation with resolution authorities 

1. 

2. 

Competent  authorities  shall  consult  resolution  authorities  prior  to  determining  any 
additional capital required pursuant to Article 36(2)(a) and prior to communicating to 
investment firms any expectation for adjustments to the level of capital as referred to 
in  Article  38(2).  For  that  purpose,  competent  authorities  shall  provide  resolution 
authorities with all available information. 

Competent  authorities  shall  inform  the  relevant  resolution  authorities  about  the 
additional capital required pursuant to Article 36(2)(a) and about any expectation for 
adjustments as referred to in  Article 38(2). 

Article 40 
Publication requirements 

Member States shall empower the competent authorities to: 

(a) 

(b) 

(c) 

require investment firms to publish the information referred to in Article 
45 of [Regulation (EU)  ---/----[IFR] more than once per year and to set 
deadlines for that publication; 

require  investment  firms  to  use  specific  media  and  locations  for 
publications other than the financial statements; 

require parent undertakings to publish annually, either in full or by way 
of  references  to  equivalent  information,  a  description  of  their  legal 
structure  and  governance  and  organisational  structure  of  the  group  of 
investment  firms  in  accordance  with  Article  24(1)  of  this  Directive  and 
Article 10 of Directive 2014/65/EU. 

Article 41 
Obligation to inform EBA 

1. 

Competent authorities shall inform EBA of: 

(a) 

(b) 

their review and evaluation process referred to in Article 33; 

the methodology used for decisions referred to in Articles 36 to 38.  

2. 

EBA  shall  assess  the  information  provided  by  competent  authorities  to  develop 
consistency  in  the  supervisory  review  and  evaluation  process.  It  may  request 
additional  information  from  competent  authorities  to  complete  its  assessment,  on  a 
proportional  basis  and  in  accordance  with  Article  37  of  Regulation  (EU)  No 
1093/2010. 

EBA  shall  report  to  the  European  Parliament  and  the  Council  on  the  degree  of 
convergence  of  the  application  of  this  Chapter  among  Member  States.  EBA  shall 

EN 

52 

  EN 

 
 
 
 
conduct  peer  reviews  in  accordance  with  Article  30  of  Regulation  (EU)  No 
1093/2010 where necessary. 

EBA shall issue guidelines for the competent authorities in accordance with Article 
16  of  Regulation  (EU)  No  1093/2010  to  further  specify,  in  a  manner  that  is 
appropriate to the size, the structure and the internal organisation of investment firms 
and the nature, scope and complexity of their activities, the common procedures and 
methodologies  for  the  supervisory  review  and  evaluation  process  referred  to  in 
paragraph 1 and the assessment of the treatment of the risks referred to in Article 27. 

CHAPTER 3 

Supervision of compliance with the group capital test 

SECTION 1 
SUPERVISION OF COMPLIANCE WITH THE GROUP CAPITAL TEST  

Article 42 
Determination of the group supervisor 

Member  States  shall  ensure  that,  where  an  investment  firm  group  is  headed  by  a 
Union parent investment firm, supervision of compliance with the group capital test 
is exercised by the competent authority that authorised that Union parent investment 
firm.  

Member States shall ensure that, where the parent undertaking of an investment firm 
is  a  Union  parent  investment  holding  company  or  a  Union  parent  mixed  financial 
holding company, supervision of compliance with the group capital test is exercised 
by the competent authority that authorised that investment firm.  

Member States shall ensure that, where two or more investment firms authorised in 
two or more Member States have as their parent the same Union parent investment 
holding  company  or  the  same  Union  parent  mixed  financial  holding  company, 
supervision of compliance with the group capital test is exercised by the competent 
authority  of  the  investment  firm  authorised  in  the  Member  State  in  which  the 
investment holding company or mixed financial holding company was set up. 

Member  States  shall  ensure  that,  where  the  parent  undertakings  of  two  or  more 
investment firms authorised in two or more Member States comprise more than one 
investment holding company or mixed financial holding company with head offices 
in  different  Member  States  and  where  there  is  an  investment  firm  in  each  of  those 
Member  States,  supervision  of  compliance  with  the  group  capital  test  shall  be 
exercised by the competent authority of the investment firm with the largest balance 
sheet total.  

Member States shall ensure that, where two or more investment firms authorised in 
the Union have as their parent the same Union investment holding company or Union 
mixed  financial  holding  company  and  none  of  those  investment  firms  has  been 
authorised in the Member State in which the investment holding company or mixed 
financial  holding  company  was  set  up,  supervision  of  compliance  with  the  group 

1. 

2. 

3. 

4. 

5. 

EN 

53 

  EN 

 
 
 
6. 

capital  test  is  exercised  by  the  competent  authority  that  authorised  the  investment 
firm with the largest balance sheet total.  

Competent authorities may, by common agreement, waive the criteria referred to in 
paragraphs 3 to 5 where their application would not be appropriate for the effective 
supervision  of  compliance  with  the  group  capital  test,  taking  into  account  the 
investment  firms  concerned  and  the  importance  of  their  activities  in  the  relevant 
Member  States,  and  designate  a  different  competent  authority  to  supervise 
compliance  with  the  group  capital  test.  Competent  authorities  shall  in  those  cases, 
before  adopting  any  such  decision,  give  the  Union  parent  investment  holding 
company or Union parent mixed financial holding company or investment firm with 
the largest balance sheet total, as appropriate, an opportunity to state its opinion on 
that intended decision. Competent authorities shall notify the Commission and EBA 
of any decision thereof.  

Article 43 
Information requirements in emergency situations 

Where an emergency situation arises, including a situation as described in Article 18 
of  Regulation  (EU)  No  1093/2010  or  adverse  developments  in  markets,  which 
potentially jeopardises the market liquidity and the stability of the financial system in 
any  of  the  Member  States  where  entities  of  an  investment  firm  group  have  been 
authorised  the  group  supervisor  determined  pursuant  to  Article  42  shall,  subject  to 
Section 2, Chapter 1 of this Title, alert as soon as practicable, EBA, ESRB and any 
relevant  competent  authorities  and  shall  communicate  all  information  essential  for 
the pursuance of their tasks.  

Article 44 
Colleges of supervisors  

1. 

2. 

Member States shall ensure that the group supervisor determined pursuant to Article 
42  shall  establish  colleges  of  supervisors  to  facilitate  the  exercise  of  the  tasks 
referred to  in  this  Article  and  to  ensure  coordination  and  cooperation  with  relevant 
third-country supervisory authorities. 

Colleges of supervisors shall provide a framework for the group supervisor and for 
EBA and the other competent authorities to carry out the following tasks: 

(a) 

(b) 

(c) 

the tasks referred to in Article 43; 

the exchange of information between all competent authorities and 
with  EBA  in  accordance  with  Article  21  of  Regulation  (EU)  No 
1093/2010  and  with  ESMA  in  accordance  with  Article  21  of 
Regulation (EU) No 1095/2010; 

reaching  an  agreement  on  the  voluntary  delegation  between 
competent  authorities  of 
responsibilities,  where 
appropriate;  

tasks  and 

EN 

54 

  EN 

 
 
 
 
3. 

4. 

5. 

6. 

7. 

8. 

(d) 

increasing  the  efficiency  of  supervision  by  seeking  to  avoid  the 
unnecessary duplication of supervisory requirements. 

Colleges  of  supervisors  shall  also  be  established  where  all  subsidiaries  of  an 
investment firm group headed by an Union investment firm, Union parent investment 
holding company or Union parent mixed financial holding company are located in a 
third country. 

EBA  shall,  in  accordance  with  Article  21  of  Regulation  (EU)  No  1093/2010 
participate in the meetings of the colleges of supervisors.  

The following authorities shall be members in the college of supervisors: 

(a) 

 the competent authorities responsible for the supervision of subsidiaries of an 
investment  firm  group  headed  by  an  Union  investment  firm,  Union  parent 
investment  holding  company  or  Union  parent  mixed  financial  holding 
company;  

(b)  where  appropriate, 

to 
confidentiality requirements that are equivalent in the opinion of all competent 
authorities to the requirements laid down in  Section 2, Chapter I of this Title. 

third  countries'  supervisory  authorities,  subject 

The group supervisor determined pursuant to Article 42 shall chair the meetings of 
the college and adopt decisions. That group supervisor shall keep all members of the 
college fully informed in advance of the organisation of those meetings, of the main 
issues  to  be  discussed  and  of  the  activities  to  be  considered.  The  group  supervisor 
shall also keep all the members of the college fully informed, in a timely manner, of 
the decisions adopted in those meetings or the measures carried out.   

The group supervisor shall take account of the relevance of the supervisory activity 
to  be  planned  or  coordinated  by  the  authorities  referred  to  in  paragraph 5  when 
adopting decisions. 

The  establishment  and  functioning  of  the  colleges  shall  be  formalised  by  written 
arrangements.  

In the event of disagreement with a decision adopted by the group supervisor on the 
functioning of supervisory colleges, any of the competent authorities concerned may 
refer the matter to EBA and request EBA's assistance in accordance with Article 19 
of Regulation (EU) No 1093/2010.  

EBA  may  also  assist  the  competent  authorities  in  the  event  of  a  disagreement 
concerning  the  functioning  of  supervisory  colleges  under  this  Article  on  its  own 
initiative  in  accordance  with  the  second  subparagraph  of  Article  19(1)  of  that 
Regulation.  

EBA shall, in consultation with ESMA, develop draft regulatory technical standards 
to  further  specify  the  conditions  under  which  the  colleges  of  supervisors  exercise 
their tasks referred to in paragraph 1.  

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

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.  

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Article 45 
Cooperation requirements  

1. 

Member States shall ensure that the group supervisor and the competent authorities 
referred to in Article 44(5) shall provide each other with all relevant information as 
required, including the following:  

(a) 

identification  of  the  investment  firm  group's  legal  and  governance  structure, 
including its organisational structure, covering all regulated and non-regulated 
entities,  non-regulated  subsidiaries  and  the  parent  undertakings,  and  of  the 
competent authorities of the regulated entities in the investment firm group;  

(b)  procedures  for  the  collection  of  information  from  the  investment  firms  in  an 
investment  firm  group,  and  the  procedures  for  the  verification  of  that 
information; 

(c) 

(d) 

(e) 

any  adverse  developments  in  investment  firms  or  in  other  entities  of  an 
investment firm group, which could seriously affect those investment firms;  

any  significant  penalties  and  exceptional  measures  taken  by  competent 
authorities in accordance with national provisions transposing this Directive; 

the  imposition  of  a  specific  capital  requirement  under  Article  36  of  this 
Directive. 

Competent  authorities  and  the  group  supervisor  may  refer  to  EBA,  in  accordance 
with Article 19(1) of Regulation (EU) No 1093/2010, where relevant information has 
not  been  communicated  pursuant  to  paragraph  1  without  undue  delay  or  where  a 
request  for  cooperation,  in  particular  to  exchange  relevant  information,  has  been 
rejected or has not been acted upon within a reasonable period of time.  

EBA  may,  in  accordance  with  the  second  subparagraph  of  Article  19(1)  of 
Regulation (EU) No 1093/2010 and on its own initiative assist competent authorities 
in developing consistent cooperation practices. 

Member  States  shall  ensure  that  competent  authorities,  before  adopting  a  decision 
that may be important for other competent authorities' supervisory tasks, consult each 
other on the following: 

(a) 

changes  in  the  shareholder,  organisational  or  management  structure  of 
investment  firms  in  the  investment  firm  group,  which  require the  approval  or 
authorisation of competent authorities;  

(b) 

significant penalties imposed on investment firms by competent authorities or 
any other exceptional measures taken by those authorities; 

(c) 

specific capital requirements imposed in accordance with Article 36. 

The  group  supervisor  shall  be  consulted  where  significant  penalties  are  to  be 
imposed or any other exceptional measures are to be taken by competent authorities 
as referred to in point (b) of paragraph 3. 

By  way  of  derogation  from  paragraph  3,  a  competent  authority  is  not  obliged  to 
consult  other  competent  authorities  in  cases  of  urgency  or  where  such  consultation 
could  jeopardise  the  effectiveness  of  its  decision,  in  which  case  the  competent 
authority shall inform the other competent authorities concerned of that decision not 
to consult without delay.  

2. 

3. 

4. 

5. 

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Article 46 
Verification of information concerning entities located in other Member States 

1. 

Member  States  shall  ensure  that  where  competent  authorities  in  one  Member  State 
need  to  verify  information  about  investment  firms,  investment  holding  companies, 
mixed  financial  holding  companies,  financial 
institutions,  ancillary  services 
undertakings,  mixed-activity  holding  companies  or  subsidiaries  that  are  located  in 
another  Member  State,  including  subsidiaries  which  are  insurance  companies,  the 
competent  authorities  of  that  other  Member  State  carry  out  that  verification  in 
accordance with paragraph 2. 

2. 

Competent authorities that have received a request pursuant to paragraph 1 shall do 
any of the following: 

(a) 

(b) 

 carry  out 
competence; 

the  verification 

themselves  within 

the  framework  of 

their 

 allow  the  competent  authorities  who  made  that  request  to  carry  out  the 
verification;   

(c) 

request an auditor or expert to carry out the verification.  

For the purposes of points (a) and (c), the competent authorities that made the request 
shall be allowed to participate in the verification. 

SECTION 2 
INVESTMENT HOLDING COMPANIES, MIXED FINANCIAL HOLDING COMPANIES 
AND MIXED-ACTIVITY HOLDING COMPANIES 

Article 47 
Inclusion of holding companies in supervision of compliance with the group capital test 

Member States shall ensure that investment holding companies and mixed financial holding 
companies are included in the supervision of compliance with the group capital test. 

Article 48 
Qualifications of directors 

Member  States  shall  require  that  the  members  of  the  management  body  of  an  investment 
holding  company  or  mixed  financial  holding  company  are  of  sufficiently  good  repute  and 
possess sufficient knowledge, skills and experience to effectively perform their duties.   

Article 49 
Mixed activity holding companies 

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1. 

Member  States  shall  provide  that,  where  an  investment  firm  group  is  headed  by  a 
mixed-activity  holding  company,  the  competent  authorities  responsible  for  the 
supervision of the investment firm may: 

(a) 

(b) 

 require  that  the  mixed-activity  holding  company  supply  them  with  any 
information that may be relevant for the supervision of that investment firm; 

 supervise  transactions  between  the  investment  firm  and  the  mixed-activity 
holding company and its subsidiaries, and require the investment firm to have 
in place adequate risk management processes and internal control mechanisms, 
including  sound  reporting  and  accounting  procedures  to  identify,  measure, 
monitor and control those transactions. 

2. 

Member States shall provide that their competent authorities may carry out, or have 
carried out by external  inspectors, on-the-spot inspections to  verify the information 
received from mixed-activity holding companies and their subsidiaries.  

Article 50 
Penalties  

In  accordance  with  Section  3,  Chapter  2  of  this  Title,  Member  States  shall  ensure  that 
administrative  penalties  or  other  administrative  measures  aimed  at  ending  or  mitigating 
breaches  or  to  address  the  causes  of  such  breaches  may  be  imposed  on  investment  holding 
companies,  mixed  financial  holding  companies  and  mixed-activity  holding  companies,  or 
their  effective  managers,  that  breach  laws,  regulations  or  administrative  provisions 
transposing this Chapter.  

Article 51 
Assessment of third countries’ supervision and other supervisory techniques 

1. 

2. 

Member States shall ensure that where an investment firm, the parent undertaking of 
which has its head office in a third country, is not subject to effective supervision at 
group level, the competent authorities assesses whether the investment firm is subject 
to  supervision by the third-country supervisory authority  which is  equivalent to the 
supervision  set  out  in  this  Directive  and  in  Part  One  of  [Regulation  (EU)  ---/----
[IFR].  

Where  the assessment referred to  in paragraph 1 concludes that  no such equivalent 
supervision  applies,  Member  States  shall  apply  the  provisions  set  out  in  this 
Directive and [Regulation (EU)  ---/----[IFR] to the investment firm or shall allow for 
appropriate  supervisory  techniques  which  achieve  the  objectives  of  supervision 
regarding compliance with the group capital test set out in [Regulation (EU)  ---/----
[IFR].  Those  supervisory  techniques  shall  be  decided  by  the  competent  authority 
which would be the group supervisor had the parent undertaking been established in 
the  Union,  after  consultation  with  the  other  competent  authorities  involved.  Any 
measures  taken  pursuant  to  this  paragraph  shall  be  notified  to  the  other  competent 
authorities involved, to EBA and to the Commission. 

3. 

The  competent  authority  which  would  be  the  group  supervisor  had  the  parent 
undertaking  been  established  in  the  Union  may,  in  particular,  require  the 
establishment  of  an  investment  holding  company  or  mixed  financial  holding 

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company in the Union and apply Article 7 of [Regulation (EU)  ---/----[IFR] to that 
investment holding company or that mixed financial holding company. 

Article 52 
Cooperation with supervisory authorities of third countries  

The  Commission  may  submit  recommendations  to  the  Council  for  the  negotiation  of 
agreements with one or more third countries regarding the means of supervising compliance 
with the group capital test by the following investment firms: 

(a) 

(b) 

investment firms the parent undertaking of which has its head office in a 
third country; 

investment  firms  located  in  third  countries,  the  parent  undertaking  of 
which has its head office in the Union.  

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TITLE V 
PUBLICATION BY COMPETENT AUTHORITIES  

Article 53  
Publication requirements  

1. 

Competent authorities shall make public all of the following information:  

(a) 

(b) 

(c) 

(d) 

the texts  of laws, regulations, administrative rules and general  guidance 
adopted in their Member State pursuant to this Directive;  

the manner of exercise of the options and discretions available pursuant 
to this Directive and [Regulation (EU) ---/----[IFR];  

the general criteria and methodologies they use in the supervisory review 
and evaluation referred to in Article 33;  

aggregate  statistical  data  on  key  aspects  of  the  implementation  of  this 
Directive  and  [Regulation  (EU)  ---/----[IFR]  in  their  Member  State, 
including  the  number  and  nature  of  supervisory  measures  taken  in 
accordance with Article 36(2)(a) and of administrative penalties imposed 
in accordance with Article 16.  

2. 

3. 

The  information  published  in  accordance  with  paragraph  1  shall  be  sufficiently 
comprehensive and accurate to enable a meaningful comparison of the application of 
points  (b),  (c)  and  (d)  of  paragraph  1  by  the  competent  authorities  of  the  different 
Member States.  

The publications shall follow a common format and be updated regularly. They shall 
be accessible at a single electronic location. 

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1. 

2. 

3. 

4. 

5. 

6. 

TITLE VI 
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 3(2), 27(3) and 33(6) shall 
be  conferred  on  the  Commission  for  an  indeterminate  period  of  time  from  [date  of 
entry into force of this Directive]. 

The delegation of power referred to in Articles 3(2), 27(3) and 33(6) 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  3(2),  27(3)  and  33(6)  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  alteration  of  the  amount  of  initial  capital  prescribed  in  Articles  8  and  11(7)  to  take 
account  of  developments  in  the  economic  and  monetary  field  shall  be  adopted  as 
implementing acts in accordance with the examination procedure referred to in Article 56(2). 

Article 56 
Committee procedure 

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1. 

2. 

The Commission shall be assisted by the European Banking Committee established 
by Commission Decision 2004/10/EC44. That Committee shall be a committee within 
the meaning of Regulation (EU) No 182/2011. 

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

44 
(OJ L 3, 7.1.2004, p. 36). 

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

EN 

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TITLE VII 
AMENDMENTS TO OTHER DIRECTIVES 

Article 57 
Amendments to Directive 2013/36/EU  

Directive 2013/36/EU is amended as follows: 

(1) 

(2) 

in the title, the words ‘and investment firms’ are deleted; 

Article 1 is replaced by the following: 

‘‘Article 1 
Subject matter 

This Directive lays down rules concerning: 

(a) 

(b) 

(c) 

access to the activity of credit institutions; 

supervisory  powers  and  tools  for  the  prudential  supervision  of  credit 
institutions by competent authorities; 

the prudential supervision of credit institutions by competent authorities 
in  a  manner  that  is  consistent  with  the  rules  set  out  in  Regulation  (EU) 
No 575/2013; 

(d)  publication  requirements  for  competent  authorities  in  the  field  of 

prudential regulation and supervision of credit institutions.’’; 

(3)  

Article 2 is amended as follows: 

(a)  paragraph 1 is replaced by the following: 

“1.  This Directive shall apply to credit institutions.”; 

(b)  paragraphs 2 and 3 are deleted; 

(c) 

in paragraph 5, point (1) is deleted; 

(d)  paragraph 6 is replaced by the following: 

‘‘6. 
The entities referred to in points (3) to (24) of paragraph 5 and 
in the delegated acts adopted in accordance with paragraphs 5a and 5b of 
this  Article  shall  be  treated  as  financial  institutions  for  the  purposes  of 
Article 34 and Title VII, Chapter 3.’’; 

(4) 

Article 3(1) is amended as follows: 

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

“(3) 
Regulation (EU) ---/----*[IFR].’’; 

‘institution’ means institution as referred to in Article 4(1)(3) of 

(b)  point (4) is deleted; 

(5) 

Article 5 is replaced by the following:  

“Article 5 
Coordination within Member States 

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Member States that have more than one competent authority for the prudential 
supervision  of  credit  institutions  and  financial  institutions  shall  take  the 
requisite measures to organise coordination between those authorities.’’; 

(6)  

the following Article 8a is inserted: 

‘‘Article 8a 

Specific requirements for authorisation of credit institutions referred to in 
Article 4(1)(1)(b) of Regulation (EU) No 575/2013 

1.  Member  States  shall  require  the  undertakings  referred  to  in  Article 
4(1)(1)(b)  of  Regulation  (EU)  No  575/2013  which  have  already  obtained  an 
authorisation  pursuant  to  Title  II  of  Directive  2014/65/EU  to  submit  an 
application  for  authorisation  in  accordance  with  Article  8,  at  the  latest  on  the 
following dates:  

(a)  when the average of monthly total assets, calculated over a period of twelve 

consecutive months, exceeds EUR 30 billion; or 

(b)  when the average of monthly total assets calculated over a period of twelve 
consecutive months is below EUR 30 billion, and the undertaking is part of 
a group in which the combined value of the total 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,  calculated  as  an  average  over  a  period  of  twelve 
consecutive months, exceeds EUR 30 billion. 

2. 
The undertakings referred to in paragraph 1 may continue carrying out the 
activities  referred  to  in  Article  4(1)(1)(b)  of  Regulation  (EU)  No  575/2013  until 
they obtain the authorisation referred to in that paragraph. 

3.   By way of derogation from paragraph 1, undertakings referred to in Article 
4(1)(1)(b)  of  Regulation  (EU)  No  575/2013  that  on  [date  of  entry  into  force  of 
Directive  (EU)  ---/----[IFD]  -  1  day]  are  carrying  out  activities  as  investment 
firms  authorised  under  Directive  2014/65/EU,  shall  apply  for  authorisation  in 
accordance  with  Article  8  within  [1  year  +  1  day  after  entry  into  force  of 
Directive (EU) ---/----[IFD].  

 Where  the  competent  authority,  after  receiving  the  information  in 
4. 
accordance  with  Article  [95a]  of  Directive  2014/65/EU,  determines  that  an 
undertaking is to be authorised as a credit institution in accordance with Article 8 
of  this  Directive,  it  shall  notify  the  undertaking  and  the  competent  authority  as 
defined  in  Article  4(1)(26)  of  Directive  2014/65/EU  and  shall  take  over  the 
authorisation procedure from the date of that notification. 

5. 

(a) 

EBA shall develop draft regulatory technical standards to specify:  

the  information  to  be  provided  by  the  undertaking  to  the  competent 
authorities in the application for the authorisation, including the programme 
of operations provided for in Article 10; 

(b) 

the methodology for calculating the thresholds referred to in paragraph 1.   

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

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EBA  shall  submit  those  draft  technical  standards  to  the  Commission  by  [1st 
January 2019]. 

(7) 

in Article 18 the following point (aa) is inserted: 

"(aa)  uses  its  authorisation  exclusively  to  engage  in  the  activities  referred  to  in 
Article  4(1)(1)(b)  of  Regulation  (EU)  No  575/2013  and  has  for  a  period  of  5 
consecutive  years  average  total  assets  below  the  thresholds  set  out  in  that 
Article;”; 

(8) 

(9) 

Title IV is deleted; 

in Article 51(1), the first subparagraph is replaced by the following: 

“The  competent  authorities  of  a  host  Member  State  may  request  the  consolidating 
supervisor,  where  Article  112(1)  applies,  or  the  competent  authorities  of  the  home 
Member  State,  that  a  branch  of  a  credit  institution  shall  be  considered  as 
significant.’’; 

(10) 

in Article 53, paragraph 2 is replaced by the following: 

“2.  Paragraph  1  shall  not  prevent  the  competent  authorities  from  exchanging 
information with each other or transmitting information to the ESRB, EBA, or the 
European  Supervisory  Authority  (European  Securities  and  Markets  Authority) 
("ESMA")  established  by  Regulation  (EU)  No  1095/2010  of  the  European 
Parliament and of the Council* in accordance with this Directive, with Regulation 
(EU)  No  575/2013,  with  [Directive  (EU)  ---/----[IFD]  on  the  prudential 
supervision  of  investment  firms],  with  other  Directives  applicable  to  credit 
institutions, with Article 15 of Regulation (EU) No 1092/2010, with Articles 31, 
35  and  36  of  Regulation  (EU)  No  1093/2010  and  with  Articles  31  and  36  of 
Regulation  (EU)  No  1095/2010.  That  information  shall  be  subject  to  paragraph 
1.”; 

______________________________________________________________ 

*   Regulation  (EU)  No  1095/2010  of  the  European  Parliament  and  of  the  Council  of  24 
November  2010  establishing  a  European  Supervisory  Authority  (European  Securities  and 
Markets Authority), amending Decision No 716/2009/EC and repealing Commission Decision 
2009/77/EC (OJ L 331, 15.12.2010, p. 84). 

(11) in Article 66(1), the following point (aa) is inserted: 

“(aa)  carrying  out  at  least  one  of  the  activities  referred  to  in  Article  4(1)(1)(b)  of 
Regulation (EU) No 575/2013 and exceeding the threshold indicated in that Article 
without being authorised as a credit institution.”; 

(12) in Article 76(5), the last sentence is deleted.  

(13) in Article 86, paragraph 11 is replaced by the following: 

“11.  Competent  authorities  shall  ensure  that  institutions  have  in  place  liquidity 
recovery  plans  setting  out  adequate  strategies  and  proper  implementation 
measures to address possible liquidity shortfalls, including in relation to branches 
established  in  another  Member  State.  Competent  authorities  shall  ensure  that 
those plans are tested by the institutions at least annually, updated on the basis of 
the  outcome  of  the  alternative  scenarios  set  out  in  paragraph  8,  reported  to  and 
approved  by  senior  management,  so  that  internal  policies  and  processes  can  be 
adjusted  accordingly.  Institutions  shall  take  the  necessary  operational  steps  in 
advance to ensure that liquidity recovery plans can be implemented immediately. 

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Those operational steps shall include holding collateral immediately available for 
central bank funding. This  includes holding collateral in the currency of another 
Member  State  where  necessary,  or  the  currency  of  a  third  country  to  which  the 
credit  institution  has  exposures,  and  where  operationally  necessary  within  the 
territory  of  a  host  Member  State  or  of  a  third  country  to  whose  currency  it  is 
exposed.’’; 

(14) 

(15) 

in Article 110, paragraph 2 is deleted; 

in Article 114, paragraph 1 is replaced by the following: 

“1.  Where  an  emergency  situation arises, including a situation as described 
in  Article  18  of  Regulation  (EU)  No  1093/2010  or  a  situation  of  adverse 
developments  in  markets,  which  potentially  jeopardises  the  market  liquidity 
and  the  stability  of  the  financial  system  in  any  of  the  Member  States  where 
entities  of  a  group  have  been  authorised  or  where  significant  branches  as 
referred  to  in  Article  51  are  established,  the  consolidating  supervisor  shall, 
subject to Chapter 1, Section 2, and where applicable Section 2 of Chapter I of 
Title IV of [Directive (EU) ---/----[IFD] of the European Parliament and of the 
Council]*, alert as soon as is practicable, EBA and the authorities referred to in 
Article  58(4)  and  Article  59  and  shall  communicate  all  information  essential 
for the pursuance of their tasks. Those obligations shall apply to all competent 
authorities. 

__________________________________________________________________ 

* 

[Directive  (EU)  ---/----  of  the  European  Parliament  and  of  the  Council  of 
…… on ……..];” 

(16) 

Article 116 is amended as follows: 

(a) 

paragraph 2 is replaced by the following: 

2. 
The competent authorities participating in the colleges of supervisors 
and  EBA  shall  cooperate  closely.  The  confidentiality  requirements  under 
Title  VII,  Chapter  1,  Section  II  of  this  Directive,  and,  where  applicable, 
Section 2 of Chapter I of Title IV of [Directive (EU) ---/----[IFD] shall not 
prevent the competent authorities from exchanging confidential information 
within  colleges  of  supervisors.  The  establishment  and  functioning  of 
colleges of supervisors shall not affect the rights and responsibilities of the 
competent  authorities  under  this  Directive  and  under  Regulation  (EU)  No 
575/2013.”; 

(b)  paragraph 6 is replaced by the following: 

“6.  The  competent  authorities  responsible  for 
the  supervision  of 
subsidiaries  of  an  EU  parent  institution  or  an  EU  parent  financial  holding 
company or EU parent mixed financial holding company and the competent 
authorities of a host Member State where significant branches as referred to 
in Article 51 are established, ESCB central banks as appropriate, and third 
to 
countries'  supervisory  authorities  where  appropriate  and  subject 
confidentiality  requirements  that  are  equivalent,  in  the  opinion  of  all 
competent  authorities,  to  the  requirements  under  Title  VII,  Chapter  1, 
Section  II  of  this  Directive  and,  where  applicable,  under  Section  2  of 
Chapter I of Title IV of [Directive (EU) ---/---[IFD] Directive 20xx/xx/EU 
may participate in colleges of supervisors.”; 

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(c) 

paragraph 9 is replaced by the following: 

subject 

supervisor, 

the  confidentiality 
“9.  The  consolidating 
requirements  under  Title  VII,  Chapter  1,  Section  II,  of  this  Directive,  and 
where  applicable,  under  Section  2  of  Chapter  I  of  Title  IV  of  [Directive 
(EU)  ---/---[IFD],  shall  inform  EBA  of  the  activities  of  the  college  of 
supervisors, including in emergency situations, and communicate to EBA all 
information  that  is  of  particular  relevance  for  the  purposes  of  supervisory 
convergence.”; 

to 

(17) 

in Article 125, paragraph 2 is replaced by the following: 

“2. 
Information  received,  within  the  framework  of  supervision  on  a 
consolidated  basis,  and  in  particular  any  exchange  of  information  between 
competent authorities which is provided for in this Directive, shall be subject to 
professional  secrecy  requirements  at  least  equivalent  to  those  referred  to  in 
Article  53(1)  of  this  Directive  for  credit  institutions  or  under  Article  13  of 
[Directive (EU) ---/----[IFD].”; 

(18) 

(19) 

(20) 

(21) 

in Article 128, the second subparagraph is deleted; 

in Article 129, paragraphs 2, 3 and 4 are deleted; 

in Article 130, paragraphs 2, 3 and 4 are deleted; 

in Article 143(1), point (d) is replaced by the following: 

“(d)  without  prejudice  to  the  provisions  set  out  in  Title  VII,  Chapter  1, 
Section II of this Directive and where applicable, the provisions set out in Title 
IV, Chapter 1, Section 2 of [Directive (EU) ---/----[IFD], aggregate statistical 
data on key aspects of the implementation of the prudential framework in each 
Member State, including the number and nature of supervisory measures taken 
in accordance with Article 102(1)(a) and of administrative penalties imposed in 
accordance with Article 65.”; 

Article 58 
Amendments to Directive 2014/65/EU  

Directive 2014/65/EU is amended as follows: 

(1) 

in Article 8, point (a) is replaced by the following:  

“(a) 
no longer meets the conditions under which authorisation was granted, 
such  as  compliance  with  the  conditions  set  out  in  [Regulation  (EU)  ---/----
[IFR];”;  

(2)   Article 15 is replaced by the following: 

“Article 15 

Initial capital endowment  

“Member States shall ensure that the competent authorities do not grant authorisation 
unless  the  investment  firm  has  sufficient  initial  capital  in  accordance  with  the 
requirements  of  Article  8  of  [Directive  (EU)  ---/----[IFD],  having  regard  to  the 
nature of the investment service or activity in question.”; 

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(3) 

Article 41 is replaced by the following:  

Article 41  

Granting of the authorisation 

“1.  The competent authority of the Member State where the third-country firm has 
established or intends to establish its branch shall only grant authorisation where the 
competent authority is satisfied that: 

(a) 

(b) 

the conditions under Article 39 are fulfilled; and 

the branch of the third-country firm will be able to comply with the provisions 
referred to in paragraphs 2 and 3. 

The  competent  authority  shall  inform  the  third-country  firm,  within  six  months  of 
submission  of  a  complete  application,  whether  or  not  the  authorisation  has  been 
granted. 

2.  The branch of the third-country firm authorised in accordance with paragraph 1, 
shall comply with the obligations laid down in Articles 16 to 20, 23, 24, 25 and 27, 
Article 28(1), and Articles 30, 31 and 32 of this Directive and in Articles 3 to 26 of 
Regulation (EU) No 600/2014 and the measures adopted pursuant thereto and shall 
be subject to the supervision of the competent authority in the Member State where 
the authorisation was granted. 

Member States shall not impose any additional requirements on the organisation and 
operation of the branch in respect of the matters covered by this Directive and shall 
not treat any branch of third-country firms more favourably than Union firms. 

Member  States  shall  ensure  that  competent  authorities  notify  ESMA  on  an  annual 
basis of the number of branches of third-country firms active on their territory.  

3.  The  branch  of  the  third-country  firm  that  is  authorised  in  accordance  with 
paragraph  1  shall  report  to  the  competent  authority  referred  to  in  paragraph  2  the 
following information on an annual basis: 

(a) 

(b) 

the scale and scope of the services and activities of carried out by the branch in 
that Member State; 

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

(c)  a detailed description of the investor protection arrangements available to the 
clients  of  the  branch,  including  the  rights  of  those  clients  resulting  from  the 
investor-compensation scheme referred to in Article 39(2)(f);  

(d) 

their risk management policy and arrangements applied by the branch for the 
services and activities referred to in point (a). 

4. The competent authorities referred to in paragraph 2, the competent authorities of 
entities  that  are  part  of  the  same  group  to  which  branches  of  third-country  firms 
authorised  in  accordance  with  paragraph  1  belong,  and  ESMA  and  EBA  shall 
cooperate closely to ensure that all activities of that group in the Union are subject to 
comprehensive,  consistent  and  effective  supervision  in  accordance  with  this 
Directive,  Regulation  600/2014,  Directive  2013/36/EU,  Regulation  (EU)  No 

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575/2013,  Directive  [Directive  (EU)  ---/----*  [IFD],  and  Regulation  [Regulation 
(EU) ---/----* [IFR].  

5.  ESMA  shall  develop  draft  regulatory  technical  standards  to  further  specify  the 
information referred to in paragraph 3.  

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 Article 15 of Regulation (EU) 
No 1095/2010’. 

6. ESMA shall develop draft implementing technical standards to specify the format 
in which the information referred to in paragraph 3 is to be reported to the national 
competent authorities.  

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.”. 

(4) 

in Article 81(3), point (a) is replaced by the following: 

“(a) 
to  check  that  the  conditions  governing  the  taking-up  of  the 
business of investment firms are met and to facilitate the monitoring of the 
conduct  of  that  business,  administrative  and  accounting  procedures  and 
internal-control mechanisms;”; 

(5) 

  the following Article 95a is inserted: 

‘‘Article 95a 

Transitional provision on the authorisation of credit institution referred to in 
Article 4(1)(1)(b) of Regulation (EU) No 575/2013 

Competent  authorities  shall  inform  the  competent  authority  referred  to  in 
Article  8  of  Directive  2013/36/EU  where  the  envisaged  total  assets  of  an 
undertaking  which  has  applied  for  authorisation  pursuant  to  Title  II  of  this 
Directive  before  [date  of  entry  into  force  of  Directive  (EU)  ---/---  [IFD]  in 
order to carry out the activities referred to in points (3) and (6) of Section A of 
Annex I exceeds EUR 30 billion, and notify the applicant thereof.”. 

TITLE VIII 
TRANSITIONAL AND FINAL PROVISIONS 

Article 59 
Transitional provisions  

1. 

Members States shall ensure that investment firms, other than the ones referred to in 
paragraph 2, which were in existence on or before 1 January 20xx [date of entry into 
force  of  this  Directive]  and  the  initial  capital  of  which  does  not  attain  the  levels 
referred to in Article 8, shall comply with that Article at the latest by [five years from 
the date of entry into force of this Directive] by an annual increase of EUR 5 000.  

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Where the annual increase specified in the first subparagraph is not sufficient for an 
investment firm to reach the required level of initial capital at the end of the five-year 
period, Member States shall allow for an additional transitional period of maximum 
five years. The competent authorities shall set the annual amounts applicable during 
that additional transitional period. 

2. 

Members States shall ensure that commodity dealers comply with the provisions of 
Article  8  at  the  latest  by  [five  years  after  the  date  of  entry  into  force  of  this 
Directive]. 

Article 60 
Review  

By [three years after the date of application of this Directive and Regulation (EU)  --
-/----[IFR]]  the  Commission,  in  close  cooperation  with  EBA  and  ESMA,  shall 
submit a report, together with a legislative proposal if appropriate, to the European 
Parliament and to the Council, on the following: 

(a) 

(b) 

(c) 

(d) 

the provisions on remuneration in this Directive and in Regulation (EU) ---/---- 
[IFR];  

the effectiveness of information-sharing arrangements under this Directive; 

the  cooperation  of  the  Union  and  Member  States  with  third  countries  in  the 
application of this Directive and of Regulation (EU) ---/---- [IFR];  

the  implementation  of  this  Directive  and  Regulation  (EU)  ---/----[IFR]  to 
investment firms on the basis of their legal structure or ownership model. 

Article 61 
Transposition 

1. 

2. 

3. 

By  [18  months  after  the  date  of  entry  into  force  of  this  Directive],  Member  States 
shall adopt and publish the laws, regulations and administrative provisions necessary 
to comply with this Directive. 

Member States shall apply those provisions from [date of application of Regulation 
(EU) No ---/----[IFR]. 

Member  States  shall  communicate  to  the  Commission  and  to  EBA  the  text  of  the 
provisions of national law which they adopt in the field covered by this Directive. 

Where the documents accompanying notification of transposition measures provided 
by Member States are not sufficient to fully assess the compliance of the transposing 
provisions  with  certain  provisions  of  this  Directive,  the  Commission  may,  upon 
EBA's  request,  with  a  view  to  carrying  out  its  tasks  under  Regulation  (EU) 
No 1093/2010,  or  on  its  own  initiative,  require  Member  States  to  provide  more 
detailed  information  regarding  the  transposition  and  implementation  of  those 
provisions and this Directive. 

4. 

Provisions referred to in paragraph 1 shall refer to this Directive or be accompanied 
by such a reference on the occasion of their official publication.  

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Article 62 
Entry into force 

This Directive shall enter into force on the twentieth day following that of its publication in 
the Official Journal of the European Union. 

For  the  purposes  of  supervision  and  resolution  of  investment  firms,  references  to  Directive 
2013/36/EU in other Union acts shall be construed as references to this Directive. 

Article 63 
Addressees 

This Directive is addressed to the Member States. 

Done at Brussels, 

For the European Parliament 
The President 

For the Council 
The President 

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