Review of the EU prudential framework for investment firms

The following Financial Services practice note provides comprehensive and up to date legal information covering:

  • Review of the EU prudential framework for investment firms
  • Background to the review
  • Three classes of investment firm
  • How are systemic firms treated under the new regime?
  • Corporate governance and remuneration
  • New tick-size regime for SIs
  • Third country equivalence
  • When did the new measures come into force?
  • Transitional provisions
  • Previous regulation of investment firms
  • More...

Review of the EU prudential framework for investment firms

On 20 December 2017, the European Commission proposed an overhaul of the prudential regime for investment firms in the European Union, with the intention of creating a framework that is more proportionate and risk-sensitive. Under the new measures, which are now set out in the Investment Firms Regulation (EU) 2019/2033 (EU IFR) and the Investment Firms Directive (EU) 2019/2034 (EU IFD), most EU investment firms are subject to new, simpler prudential rules, while large, systemic firms that carry out bank-like activities and pose similar risks as banks are regulated and supervised like banks.

Background to the review

There are several thousand investment firms in all Member States in the European Economic Area (EEA). The bulk of these firms are small to medium-sized and focus on offering investment advice, receiving, transmitting and executing orders, and managing portfolios. 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.

The review of the prudential framework for investment firms was carried out as part of the Commission's Regulatory Fitness and Performance (REFIT) programme to ensure that EU legislation delivers results for citizens and businesses effectively, efficiently and at minimum cost. It was also in line with a mandate in

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