2017-02-02

EBA

Discussion Paper on a new prudential regime for investment firms (EBA/DP/2016/02)

Question 1. What are your views on the application of the same criteria, as provided for G-SIIs and O-SIIs, for the identification of ‘systemic and bank-like’ investment firms? What are your views on both qualitative and quantitative indicators or thresholds for ‘bank-like’ activities, being underwriting on a firm commitment basis and proprietary trading at a very large scale? What aspects in the identification of ‘systemic and banklike’ investment firms could be improved?

In our view it might be simpler to describe the applicable capital requirements in relation to the different types of activities that investment firms may have authorization to perform under MiFID instead of class 1-3.

Question 2. What are your views on the principles for the proposed prudential regime for investment firms?

SIFA is positive to introducing a more appropriate prudential regime and a new categorisation of investment firms. SIFA would like to encourage the EBA initiative to revise and simplify the regulations regarding capital requirements for investment firms. The proposed regime is definitely a step in the right direction and it is our view that the requirements will be easier to apply.

However, we question the applicability of the regulation for fund managers. Fund managers are already subject to the capital requirements of the UCITS Directive and the AIFMD.

On page 5 f. of the Discussion Paper it says that “the DP will also be relevant for UCITS management companies or AIF managers authorized to conduct certain MiFID investment services or activities”. Considering that CRD IV and CRR are not applicable to neither UCITS nor AIF managers, SIFA seeks clarification on how the DP is relevant for those companies.

Fund managers are subject to appropriate capital requirements of the UCITS Directive or the AIFMD based on assets under management, but at least 25 % of the fixed overhead. Those requirements are easy to apply and cover operational risk. SIFA would urge EBA to consider those requirements as a model for investment firms performing portfolio management, thus creating a level-playing-field between investment firms and fund managers. It should be noted that a fund manager may manage fund assets both under its authorisation as fund manager (UCITS Directive or AIMFD) and under a separate authorisation to perform portfolio management why it makes sense that the capital requirements are the same for both activities.

Question 3. What are your views on the identification and prudential treatment of very small and noninterconnected investment firms (‘Class 3’)? If, for example, such class was subject to fixed overheadsrequirements only, what advantages and drawbacks would have introducing such a Class 3? Conversely, what advantages and drawbacks could merging Class 3 with other investment firms under one single prudential regime with ‘built-in’ proportionality have?

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Question 4. What are your views on the criteria discussed above for identifying ‘Class 3’ investment firms?

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Question 5. Do you have any comments on the approach focusing on risk to customers (RtC), risk to markets (RtM) and risk to firm (RtF)?

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Question 6. What are your views on the initial K-factors identified? For example, should there be separate K-factors for client money and financial instruments belonging to clients? And should there be an RtM for securitisation risk-retentions? Do you have any suggestions for additional K-factors that can be both easily observable and risk senstive?

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Question 7. Is the proposed risk to firm ‘up-lift’ measure an appropriate way to address the indirect impact of the exposure risk a firm poses to customers and markets? If not, what alternative approach to addressing risk to firm (RtF) would you suggest?

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Question 8. What are your views on the ‘built-in’ approach to delivering simpler, proportionate capital requirements for Class 3 investment firms, (compared to having a separate regime for such firms)?

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Question 9. Should a fixed overhead requirement (FOR) remain part of the capital regime? If so, how could it be improved?

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Question 10. What are your views on the appropriate capital requirements required for larger firms that trade financial instruments (including derivatives)?

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Question 11. Do you think the K-factor approach is appropriate for any investment firms that may be systemic but are not ‘bank-like’?

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Question 12. Does the definition of capital in the CRR appropriately cater for all the cases of investment firms that are not joint stock companies (such as partnerships, LLPs and sole--traders)?

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Question 13. Are the cases described above a real concern for the investment firms? How can those aspects be addressed while properly safeguarding applicable objectives of the permanence principle?

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Question 14. What are your views on whether or not simplification in the range of items that qualify as regulatory capital and how the different ‘tiers’ of capital operate for investment firms would be appropriate? If so, how could this be achieved?

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Question 15. In the context of deductions and prudential filters, in which areas is it possible to simplify the current CRR approach, whilst maintaining the same level of quality in the capital definition?

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Question 16. What are your views overall on the options for the best way forward for the definition and quality of capital for investment firms?

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Question 17. What are your views on the definition of initial capital and the potential for simplification? To what extent should the definition of initial capital be aligned with that of regulatory capital used formeeting capital requirements?

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Question 18. What aspects should be taken into account when requiring different levels of initial capital for different firms? Is there any undesirable consequence or incentive that should be considered?

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Question 19. What are your views on whether there is a need to have a separate concept of eligible capital, or whether there is potential for simplification through aligning this concept with the definition of regulatory capital used for meeting capital requirements?

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Question 20. Do you see any common stress scenario for liquidity as necessary for investment firms? If so, how could that stress be defined?

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Question 21. What is your view on whether holding an amount of liquid assets set by reference to a percentage of the amount of obligations reflected in regulatory capital requirements such as the FOR would provide an appropriate basis and floor for liquidity requirements for ‘non-systemic’ investment firms? More specifically, could you provide any evidence or counter-examples where holding an amount of liquid assets equivalent to a percentage of the FOR may not provide an appropriate basis for a liquidity regime for very small and ‘non-interconnected’ investment firms?

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Question 22. What types of items do you think should count as liquid assets to meet any regulatory liquidity requirements, and why? (Please refer to Annex 4 for some considerations in determining what may be a liquid asset).

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Question 23. Could you provide your views on the need to support a minimum liquidity standard for investment firms with the ability for competent authorities to apply “supplementary” qualitative requirements to individual firms, where justified by the risk of the firm’s business?

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Question 24. Do you have any comment on the need for additional operational requirements for liquidity risk management, which would be applied according to the individual nature, scale and complexity of the investment firm’s business?

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Question 25. What are your views on the relevance of large exposures risk to investment firms? Do you consider that a basic reporting scheme for identifying concentration risk would be appropriate for some investment firms, including Class 3 firms?

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Question 26. What are your views on the proposed approach to addressing group risk within investment firm-only groups? Do you have any other suggested treatments that could be applied, and if so, why?

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Question 27. In the case of an investment firm which is a subsidiary of a banking consolidation group, do you see any difficulty in the implementation of the proposed capital requirements on an individual firm basis? If so, do you have any suggestion on how to address any such difficulties?

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Question 28. What other aspects should the competent authorities take into account when addressing the additional prudential measures on an individual firm basis under the prudential regime for investment firms?

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Question 29. What examples do you have of any excessive burden for investment firms arising from the current regulatory reporting regime?

We would like to provide one example regarding fund managers. Swedish fund managers that perform discretionary portfolio management are today required to apply CRD and CRR on that part of their business. This has over the years become an increasingly disproportionate administrative burden. Moreover, it is very difficult to apply two different set of capital requirements on one and the same company with the same balance sheet; one set for the fund management and another for the portfolio management. A recent legislative proposal has therefore suggested the disapplication of the CRD/CRR rules for fund managers.

Question 30. What are your views on the need for any other prudential tools as part of the new prudential regime for investment firms? And if required, how could they be made more appropriate? In particular, is there a need for requirements on public disclosure of prudential information? And what about recovery and resolution?

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Question 31. What are your views on the relevance of CRD governance requirements to investment firms, and what evidence do you have to support this?

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Question 32. As regards ‘systemic and bank-like’ investment firms, do you envisage any challenges arising from the full application of the CRD/CRR remuneration requirements, and if so, what evidence do you have to support this? For all other investment firms, what are your views on the type of remuneration requirements that should be applied to them, given their risk profiles, business models and pay structures?

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Question 33. What is your view on a prudential remuneration framework for other than ‘systemic and bank-like’ investment firms that should mainly aim to counteract against conduct related operational risks and would aim at the protection of consumers?

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Question 34. What are your views on having a separate prudential regime for investment firms? Alternatively, should the CRR be amended instead to take into account a higher degree of proportionality? Which type of investment firms, if any, apart from systemic and bank-like investment firms, would be better suited under a simplified CRR regime?

We strongly support a separate regime for investment firms. This would serve as a good example of “better regulation”.

Question 35. What are the main problems from an investment firm perspective with the current regime? Please list the main problems with the current regime.

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Fondbolagens förening

 

Sigrid Hultman, jurist

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