On 4 June 2020 the European Banking Authority (EBA) published a number of documents in relation to the Investment Firm Regulation (IFR) and Investment Firm Directive (IFD).  The consultation runs until 4 September. In addition, on the 23 June 2020 HM Treasury and the Financial Conduct Authority have published documents in relation to the UK implementation of IFR / IFD.

The package includes a roadmap on investment firms (EBA mandates arising from IFR/IFD) and a number of draft regulatory technical standards (RTS) in relation to the IFR/IFD mandates (links at the end of this blog).  

This blog focusses on a couple of areas that are likely to be most relevant to the large broker dealer investment firms over the next couple of years (link for relevant consultation: CP on draft RTS prudential requirements for investment firms / Regulatory Technical Standards on prudential requirements for investment firms).

1. Draft RTS on the information to be provided for the Authorisation of investment firms as credit institutions (CI):

The EBA has already published a regulatory text in relation to the information requirement for authorisation under Article 8(2) of the Capital Requirements Directive (CRD) (Draft EBA/RTS/2017/08).  Under the IFR the EBA is required to develop a regulatory text specifically focussed on investment firms that meet the conditions to register as a CI (as defined in CRR Article 4(1)(b)). The draft RTS uses the existing text as a starting point but leaves an amount of discretion to the Competent Authority (CA) to determine what information is required. The information to be provided includes:

  • Presentation of the applicant CI, head office and history, programme of activities (regulated activities including activities included in Annex I of CRD), financial information (excluding deposit policy and credit and lending policy), programme of operations, internal control systems and auditors, initial capital, effective direction (Management body), shareholders with qualifying holdings and largest 20 shareholders.
  • The above information may not be required when already held by the CA (or can be obtained from another CA).  As such firms with a recent Brexit authorisation may be able to certify that the existing information submitted remains true
  • As expected the CA retains the ability to request additional information as part of the authorisation process


  • Although there are possible exemptions, any investment firm that has to become a CI under the requirements must in effect submit a banking licence application in accordance with the EBA’s 2017 paper.  The focal point of this is the Programme of Operations/Regulatory Business Plan that must be submitted with the application. For CIs, as defined under CRR Article 4(1)(b) we expect this will require an AQR to be completed.
  • Note: in well-defined cases, this regulation allows CAs to waive some information requirements taking into consideration the business model, the activities of the applicant CI concerned and any prior licences the applicant CI might possess which would require early engagement with the regulator. However, we would note that some of the EBA requirements are typically in excess of what national regulators require for investment firm licences (e.g. shareholder information). In addition certain elements of the any previous RBP will require updating (e.g. financial forecasts will need to be refreshed) and depending on the document submitted for the application, material gaps may exist to meet the standard of a CI Programme of Operations.

2. Draft RTS on the methodology for calculating the €30bn threshold:

The EBA RTS sets out methods in relation to both solo and consolidated assessments. The draft calculation does NOT consider off-balance sheet items as part of the calculation of the total value of assets – for a number of investment firms this could be an important consideration in relation to the threshold. It is also important to remember that firms which exceeded the thresholds, as set out below, on 24 December 2019 are expected to submit an application for CI authorisation at the end of this year. The UK was still a member of the EU at that date and, in the absence of any indication to the contrary, UK assets still seem to count towards application of these thresholds.

Solo Assets:

A firm is required to submit the application (see above) at the latest on the day that the average monthly total assets – calculated over 12 consecutive months – is equal to or exceeds €30bn. The proposed EBA methodology does not require monthly data points for the monthly average but uses quarterly data points and applies a linear interpolation to estimate the monthly data points.

The EBA proposes a hierarchy of approaches to be applied:

  • Value of total assets as determined on the basis of prudential individual reporting in accordance with applicable law;
  • Total value of assets of the most recent audited annual accounts prepared under IFRS;
  • If IFRS accounts are not available those annual accounts prepared in accordance with national accounting laws.

Group Assets:

A group is required to submit the application (see above) at the latest on the day that the group average monthly total assets – calculated over 12 consecutive months – is equal to or exceeds €30bn. This test requires that the relevant firm total assets (using above hierarchy) are below the solo asset threshold but the value of consolidated assets of all relevant undertakings in the group, that carry out relevant activities (MiFID services 3 and/or 6), is equal to or above the threshold. Firms calculate the value of total assets after subtracting intragroup exposures (to other union undertakings included in the threshold calculation).

For the purpose of this test relevant institutions include EU CIs and investment firms that undertake the relevant activities (individual total assets <€30bn), subsidiaries in third countries (individual total assets <€30bn), and including third country branches authorised in the EU. Branch assets are to be calculated using the provisions for statistical data reporting (EU 1071/2013) or similar provisions that apply for non-Euro area branches.

The EBA has also set out further details on the draft reporting requirements that are used to monitor the €30bn threshold. Firms that are below €5bn are exempt from this reporting obligation but will be required to internally monitor on a solo and group basis if they exceed this threshold and become subject to the reporting requirement.


  • Relatively small investment firms may find themselves having to apply for a CI licence due to the presence in the EU of a large branch of the parent bank
  • The aggregate test will be particularly complex for firms to review and monitoring will need to be put in place.
  • In addition, the UK implementation will be interesting to view, given that the PRA already captures those investment firms that it deems systemically important through the Designated Investment Firm regime.

3. Draft RTS on the criteria for subjecting certain investment firms to the CRR (€5bn threshold): 

NCAs may subject investment firms to the CRR capital requirements where i. the investment firm undertakes the activities listed in points 3 and/or 6 of Annex I to MiFID, ii. the value of consolidated assets is equal to or exceeds 5bn and iii. one or more of the following apply a. scale of activities could lead to systemic risk, b. investment firm is a clearing member, c. NCA considers it justified in light of the size, nature, scale and complexity of the firm’s activities. The EBA RTS sets out further details when assessing the discretion under IFD Article 5(a) [scale of activities] and (b) [clearing member].

Scale of Activities: The EBA has proposed four thresholds and if a firm exceed any threshold it may be considered of such scale that it could lead to systemic risk

  • Gross notional value on non-centrally cleared OTC derivatives of €50bn
  • Total value of financial instruments underwritten and/or placing of financial instruments on a firm commitment basis of €5bn
  • Total value of credits or loans granted to investors to allow them to undertake transactions of €5bn
  • Total value of debt securities outstanding €5bn

Clearing member: The EBA has proposed that this applies when a firm is a clearing member and offers clearing services to other financial institutions that are not clearing members themselves. It has not at this time set any quantitative thresholds to this criteria.

Again the NCA retains discretion to make a determination outside of these thresholds.


  • Whilst the draft RTS continues to allow NCAs to designate firms under Article 5(c), the current draft provides further guidance on metrics that firms should be considering now to determine if early engagement with the NCA is required on potential future classification.
  • Firms that estimate total size to be between €5bn and €15bn should now be estimating the above metrics in relation to scale and also considering if offering clearing services to financial institutions is a business line that is continued (depending upon the capital and liquidity impact of a potential designation as a CRR Investment Firm). For some firms there will be an incentive to fall outside CRR so that requirements such as SA-CCR are not followed.
  • Investment firms that are part of banking groups will in some cases wish to test the possible discretion to stay within CRR as this may be operationally easier to implement, even if they fall below the thresholds.