EBA欧洲银行-Presentation-Investment-Firms-Public-hearing-3-July-2017_39页_970kb

EBA Advice on the Design of a New Prudential Framework for MiFID Investment Firms

Core Content

The European Banking Authority (EBA) has issued a state of play on its advice regarding the design of a new prudential framework for MiFID investment firms. This advice is intended to be delivered to the European Commission by September 2017, following a Call for Advice issued in June 2016. The findings and conclusions are preliminary and may change upon finalisation.

Main Recommendations

1. Categorisation of MiFID Investment Firms

• Class 1: Large or systemic investment firms that must apply full CRD/CRR requirements.
• Class 2: Non-systemic investment firms that apply a tailored prudential regime based on K-factors.
• Class 3: Small and non-interconnected investment firms that apply a very simple regime.

K-factors are used to determine categorisation and include:

• Risk to Customer (RtC): K-AUM, K-CMH, K-ASA, K-GIA, K-COE
• Risk to Market (RtM): K-NPR, K-DTF
• Risk to Firm (RtF): K-TCD, K-CON

Thresholds for exclusion from Class 3 include:

• AUM (including assets under advice) > EUR 1.2 billion
• COE > 500 orders per day over a year
• ASA, CMH, NPR, DTF > 0
• Balance sheet total > EUR 100 million
• Total gross revenues > EUR 30 million

Excluded from Class 3:

• Holding MiFID passport
• Using tied agents
• Operating MTF or ETF
• Being part of a wider group

2. Consolidated Supervision

• Investment firm-only groups should be subject to consolidated supervision, including:

  • Group capital test based on Article 15 and 17 of the CRR
  • Concentration limits at solo level
  • Systems to monitor and control capital and liquidity of all regulated entities in the group
  • Liquidity requirements at consolidated or sub-consolidated level with centralised liquidity management

• Groups with credit institutions or Class 1 firms:

  • Investment firms subject to new prudential regime on a solo basis unless waived
  • Apply all CRR requirements on a consolidated basis

3. Capital Definition and Composition

• A single regulatory capital composition applies to all investment firms
• Eligible instruments:
  • CET1, Additional Tier 1, and Tier 2 instruments
  • Additional Tier 1 up to 1/3 of CET1
  • Tier 2 up to 1/3 of Tier 1
• Deductions:
  • Intangible assets and deferred tax assets must always be deducted
• Capital requirements:
  • Class 3: Minimum of Initial Capital (IC) or Fixed Overheads Requirement (FOR)
  • Class 2: Minimum of IC, FOR, or capital requirements determined by the K-factor formula

4. Capital Requirements: K-Factor Formula

$$
\text{Capital} = aK-AUM + bK-CMH + cK-ASA + dK-GIA + eK-COE + \max(K-NPR, fK-DTF) + K-TCD + K-CON
$$

• Coefficients are calibrated based on data collection
• K-NPR and K-TCD are calculated using CRR2 and simplified methodologies, respectively
• K-CON is based on large exposures regime for trading book

5. Liquidity Requirements

• Class 1 firms: Apply LCR requirements
• Class 2 and 3 firms: Must hold liquid assets equal to one third of FOR requirements
• Eligible assets: Aligned with HQLA list and supplemented with unencumbered own cash
• Exceptional circumstances: Firms may monetarise liquid assets but must notify competent authorities and have a plan to rebuild buffers

6. Pillar 2: Individual Firm Requirements

• Class 2 and 3 firms must assess the adequacy of prudential requirements based on their risk profile
• Competent authorities must have supervisory powers to:
  • Increase capital and liquidity requirements
  • Limit concentration risk

7. Reporting Requirements

• Class 1 firms: Apply CRD/CRR reporting requirements
• Class 2 firms: Simplified reporting framework with more granular reporting on concentration risk
• Class 3 firms: No concentration risk reporting
• Pillar III:
  • Class 3 firms: No disclosure requirements
  • Class 2 firms: Limited disclosure on capital requirements and solvency ratio

8. Commodity Derivative Firms

• All commodity derivative firms under MiFID 2 must be included in the new prudential framework
• Exemptions may be allowed for positions that reduce commercial-related risks
• Tailoring of the framework is recommended for specific markets and accounting practices

9. Remuneration and Governance

• Class 1 firms: Apply full CRD/CRR governance requirements
• Class 2 and 3 firms: Simplified governance requirements, with MiFID II applying to all
• Key recommendations:
  • Article 88 CRD applies to Class 2 and 3 firms
  • Variable remuneration elements are partially applicable to Class 2 firms
  • No remuneration committee required for Class 3 firms
  • Public disclosure of return on assets is not required for Class 3 firms

10. Additional Recommendations

• Transition period for firms to adjust to new capital requirements
• Calibration of K-factors based on further data collection
• Alignment of capital definitions between initial authorization and ongoing prudential requirements
• Recognition of alternative legal forms (e.g., LLPs, partnerships, sole-traders) in the framework
• Review of FOR methodology in light of the new regime

Key Information

• The EBA aims to develop a consolidated single rulebook for investment firms not in Class 1
• The K-factor approach is central to the new prudential regime
• Pillar 2 allows for individual firm-specific assessments
• Impact assessment and calibration are ongoing processes
• A phase-in period is recommended for the new regime, particularly for commodity derivative firms
• Governance and remuneration requirements vary by class
• Data collection is open to all investment firms and includes templates and instructions on the EBA website

Conclusion

The EBA's advice outlines a structured, risk-based prudential framework for MiFID investment firms, with three categories based on size, complexity, and risk profile. It includes detailed capital and liquidity requirements, reporting obligations, and governance structures tailored to each class. The framework is expected to be implemented with a transition period and further calibration based on data analysis.