EBA欧洲银行-EBA-RTS-2014-01-28Own-Funds-Fixed-Overheads29_23页_741kb

EBA Final Draft Regulatory Technical Standards on Own Funds Requirements for Investment Firms Based on Fixed Overheads

Executive Summary

The European Banking Authority (EBA) has developed final draft Regulatory Technical Standards (RTS) under Article 97(4) of Regulation (EU) No 575/2013 (CRR), aimed at harmonising the calculation of own funds requirements for investment firms based on fixed overheads. These standards are applicable to investment firms with limited authorisation, as well as management companies and Alternative Investment Fund Managers (AIFMs), both internal and external.

The main objectives of the RTS are to:

• Harmonise the calculation of capital requirements across the EU.
• Provide a clear definition of fixed overheads.
• Allow competent authorities to adjust capital requirements in case of material changes in business activities.

The EBA has opted for a subtractive approach to calculating fixed overheads, which involves deducting variable cost items from total expenses. This ensures that changes in accounting frameworks are automatically considered and prevents regulatory arbitrage. The approach is particularly suitable for smaller or non-IFRS firms.

Core Content and Key Points

1. Fixed Overhead Calculation

• Subtractive Approach: Variable costs are subtracted from total expenses to determine fixed overheads.

• Applicable Accounting Framework: The calculation is based on the most recent audited annual financial statements, or validated statements if not available.

• Excluded Items:

  • Fully discretionary staff bonuses
  • Employees', directors', and partners' shares in profits (if fully discretionary)
  • Other variable remuneration
  • Shared commission and fees contingent on revenue
  • Fees to clearing houses, exchanges, and brokers
  • Interest paid to customers on client money
  • Non-recurring expenses from non-ordinary activities

• Tied Agents: A fixed percentage (35%) of all fees related to tied agents is included in the calculation, as their activities expose the firm to similar risks as direct business operations.

• Adjustment for Non-Annual Financial Statements: If the financial statements do not cover a full twelve months, the result is adjusted to an annual equivalent by multiplying by 12 and dividing by the number of months covered.

2. Material Change in Business Activities

• A material change is defined as:

  • A 20% change in fixed overheads.
  • An absolute change of EUR 2 million in the capital requirement.
  • For smaller firms, a 100% change in projected fixed overheads.

• These thresholds ensure that only significant changes trigger capital requirement adjustments, avoiding unnecessary regulatory burden on smaller or start-up firms.

3. Projected Fixed Overheads for New Firms

• For investment firms that have not completed one year of business, the projected fixed overheads from their first twelve months of trading are used in the calculation.
• These projections are based on the firm’s budget for the first year of operations.

4. Legal and Regulatory Framework

• The RTS are based on the CRR and are to be submitted to the European Commission by 1 March 2014.
• They aim to ensure a consistent and harmonised framework across the EU to facilitate cross-border operations.
• The EBA has consulted with ESMA and conducted a public consultation to refine the standards and ensure they meet the needs of market participants.

Main Viewpoints and Key Information

• The subtractive approach is considered more prudent and less susceptible to manipulation compared to the additive approach used in some Member States.
• The EBA favours the subtractive method because it:
  • Reflects actual business risks more accurately.
  • Automatically incorporates changes in accounting standards.
  • Simplifies compliance for smaller firms that may not use IFRS.
• The inclusion of tied agents in fixed overheads is necessary to reflect the associated risks, but only a fixed percentage of their fees is included to avoid overburdening firms.
• Thresholds are introduced to limit the frequency of capital requirement adjustments, ensuring that only material changes trigger such adjustments.
• The RTS aim to achieve the following objectives:
  • Enhance legal clarity
  • Ensure a level playing field
  • Promote supervisory convergence and cooperation

Accompanying Documents

4.1 Cost-Benefit Analysis / Impact Assessment

• The EBA conducted a cost-benefit analysis to assess the impact of the proposed RTS.
• Costs:
  • Direct compliance costs for investment firms, which are expected to be manageable.
  • Additional resource implications for national competent authorities (NCAs), though not significant.
• Benefits:
  • Harmonisation of capital calculation methods across the EU.
  • Legal clarity and consistency.
  • Facilitation of cross-border operations.

4.2 Feedback on Public Consultation

• The EBA received feedback from market participants and stakeholders.
• The subtractive approach was widely supported as it is considered more appropriate and less prone to regulatory arbitrage.
• Concerns were raised about the inclusion of tied agents, but the EBA’s proposed method of applying a fixed percentage was seen as a reasonable compromise.
• The thresholds for material changes were considered necessary to prevent excessive regulatory burden on smaller firms.

Conclusion

The EBA's final draft RTS provide a clear, harmonised, and prudent method for calculating own funds requirements for investment firms based on fixed overheads. The subtractive approach ensures consistency and reduces the potential for manipulation. The inclusion of tied agents and the establishment of material change thresholds aim to reflect real business risks while protecting smaller firms from unnecessary regulatory burdens. These standards are expected to enhance legal clarity, supervisory cooperation, and the level playing field for investment firms across the EU.