Guide on the implementation of the new prudential framework of Investment Firms (IFD/IFR), publication and testing submission of the new reporting forms under IFD/IFR
Background
The EU has adopted a new harmonised prudential regime that has been applied to all investment firms authorised in the EU since June 2021. The new Investment Firm Regulation and Directive (IFR/IFD) will treat some firms as (or as if they were) credit institutions and subject them to the same prudential rules as deposit-taking banks, while imposing entirely new and potentially challenging capital, consolidation, reporting, governance and remuneration requirements on other investment firms.
On 16 April 2019, the European Parliament approved the texts of IFR and IFD agreed with the Council of the EU in trilogue, and, on 5 December 2019, the final texts were published in the Official Journal. IFR entered into force on the twentieth day after publication and applied from 26 June 2021 (18 months after entry into force), although it has also made some changes to the Markets in Financial Instruments Regulation (MiFIR) which applied sooner.
The new regime will have significant impacts on the prudential requirements that apply to many investment firms and will have direct and indirect impacts on groups that include such firms. By now, all affected firms implemented systems and controls in order to assess their status under the new regime and to comply with wholly new capital, consolidation, reporting, governance and remuneration requirements. In this stage, it should be noted that there are only limited transitional provisions.
New classification of Investment Firms
IFR and IFD will introduce a new classification system for investment firms, based on their activities, systemic importance, size and interconnectedness. Each class of firms will be subject to a different set of prudential requirements, with some systematically important and larger firms remaining under the current Basel-derived CRR/CRD regime. The table below shows more information:
Class |
Covered Firms |
1 |
Own account dealer/underwriter firms* if: |
1a |
Authorised investment firms that are own account dealer/underwriter firms* if: |
1b |
Authorised investment firms that are own account dealer/underwriter firms if: |
2 |
Other authorised investment firms meeting any of the following tests: |
3 |
Other authorised investment firms |
Initial Capital Requirements
- IFD sets new initial capital requirements for Class 1a, 1b, 2 and 3 investment firms according to their authorised activities:
- €750,000: dealing on own account or underwriting or placing on a firm commitment basis (including for operators of organised trading facilities authorised to deal on own account);
- €75,000: reception and transmission of orders, execution of orders on behalf of clients, portfolio management, investment advice, placing not on a firm commitment basis;
- €150,000: operation of a multilateral or organised trading facility.
Distinction between Classes
|
Class 1 |
Class 1a and 1b |
Class 2 |
Class 3 |
Category |
CRR credit institution |
CRR institution |
IFR investment firm |
IFR investment firm |
Initial Capital |
€5m |
€750k |
€750k, 150k, 75k |
€750k, 150k,75k |
Risk-based capital |
CRR capital rules |
CRR capital rules |
Higher of ∑K-factors and fixed overhead requirement |
Fixed overhead Requirement |
Leverage |
CRR Leverage rules |
CRR Leverage rules |
None |
None |
Large exposures or concentration risk |
CRR large exposure rules |
CRR large exposure rules |
Part Four IFR concentration risk requirements (and K-CON capital charge) |
Part Four IFR concentration risk requirements |
Liquidity |
CRR LCR and NSFR |
CRR LCR and NSFR |
Part Five IFR (1/3 fixed overhead requirement) |
Part Five IFR (but national supervisory discretion to waive) |
Consolidated requirements |
CRR rules |
CRR rules |
Yes – Art 7 IFR (but possibly simplified approach under Art 8 IFR) |
Yes – Art 7 IFR (but Possibly simplified approach under Art 8 IFR) |
Pillar 3 disclosures |
CRR |
CRR |
Part Six IFR |
No (Art 46(1) IFR), except for AT1 issuers |
Reporting |
CRR |
CRR* |
Part Seven IFR |
Part Seven IFR (with exceptions) |
Reporting Dates
CIFs shall submit their reporting requirements to CySEC on the following reference dates:
(a) Quarterly reporting (for Class 2 CIFs): 31 March, 30 June, 30 September and 31 December.
(b) Annual reporting (for Class 3 CIFs): 31 December.
The first official reporting reference date for Class 2 CIFs, under IFR/IFD, shall be for 30th September 2021, due to be submitted to CySEC by 11th November 2021.
The first official reporting reference date for Class 3 CIFs, under IFR/IFD, shall be for 31st December 2021, due to be submitted to CySEC on 11th February 2022.
CIFs that are under consolidated supervision by CySEC should submit both solo and consolidated information, within the deadlines mentioned above and using the same set of reporting templates.
How can we help?
Our experienced Risk Management Team can help you to prepare for the submission of reporting forms related to IFR/IFD. Do not hesitate to contact us for more information at: [email protected]