BETA


2017/0358(COD) Prudential supervision of investment firms

Progress: Provisional agreement between Parliament and Council on final act

RoleCommitteeRapporteurShadows
Lead ECON FERBER Markus (icon: PPE PPE) DELVAUX Mady (icon: S&D S&D), LUCKE Bernd (icon: ECR ECR), TORVALDS Nils (icon: ALDE ALDE), VIEGAS Miguel (icon: GUE/NGL GUE/NGL), GIEGOLD Sven (icon: Verts/ALE Verts/ALE), KAPPEL Barbara (icon: ENF ENF)
Committee Opinion DEVE
Committee Opinion ITRE
Committee Opinion JURI CHRYSOGONOS Kostas (icon: GUE/NGL GUE/NGL)
Lead committee dossier:
Legal Basis:
TFEU 053-p1

Events

2019/04/16
   EP - Decision by Parliament, 1st reading/single reading
Details

The European Parliament adopted by 534 votes to 63, with 55 abstentions, a legislative resolution on the proposal for a directive of the European Parliament and of the Council on the prudential supervision of investment firms and amending Directives 2013/36/EU and 2014/65/EU.

The European Parliament's position adopted at first reading under the ordinary legislative procedure amend the Commission's proposal as follows.

Objective

The proposed proposal for a Directive establishes effective, appropriate and proportionate prudential arrangements at Union level that help to ensure that investment firms authorised to operate within the Union operate on a sound financial basis and are managed in an orderly way including in the best interests of their clients.

To this end, it shall establish rules concerning:

- the initial capital of investment firms;

- supervisory powers and tools for the prudential supervision of investment firms by competent authorities;

- publication requirements for competent authorities in the field of prudential supervision of investment firms.

Discretion of competent authorities to subject certain investment firms to the requirements of Regulation (EU) 575/2013 (the Own Funds Regulation, or CRR)

Competent authorities may decide to apply the requirements of the Regulation and the Capital Requirements Directive (CRR/CRD IV) to an investment firm that carries out any of the activities where the total value of the consolidated assets of the investment firm exceeds EUR 5 billion, in particular where the firm carries out these activities on such a scale that the failure or distress of the investment firm could lead to systemic risk.

Investment firms which are not considered small and non-interconnected should have internal capital available which is adequate in quantity, quality and distribution to cover the specific risks to which they are or may be exposed. Competent authorities should ensure that investment firms have the adequate strategies and processes in place to assess and maintain the adequacy of their internal capital. Competent authorities should be able to request also small and non-interconnected firms to apply similar requirements where appropriate.

Competent authorities could define additional requirements, in particular with regard to capital and liquidity requirements, in particular for investment firms that are not considered to be small non-interconnected investment firms and, where the competent authority considers it justified and appropriate, for small non-interconnected investment firms.

Remuneration policy

The remuneration policy shall: (i) be clearly documented and proportionate to the size, internal organisation, nature, scope and complexity of the investment firm's activities; (ii) be a gender neutral remuneration policy; (iii) be in line with the business strategy and objectives of the investment firm, and also takes into account long term effects of the investment decisions taken; (iv) be subject, at least once a year, to a central and independent internal review on control functions.

Member States shall ensure that investment firms provide the competent authorities, on request, with the total amounts of remuneration for each member of the management body or general management.

EBA report on environmental, social or governance (ESG) related risks

EBA shall prepare a report on the introduction of technical criteria related to exposures to activities associated substantially with environmental, social, and governance (ESG) objectives for the supervisory review and evaluation process of risks, with a view to assessing the possible sources and effects of such risks on investment firms.

The EBA shall submit a report on its conclusions to the European Parliament, the Council and the Commission no later than two years after the date of entry into force of this Directive.

Cooperation between the competent authorities of different Member States

The competent authorities of different Member States should cooperate closely in carrying out their tasks under the Directive, in particular by exchanging information on investment firms without delay.

Any investment firm may trade through a clearing member in another Member State. The amended text provides that the competent authority of an investment firm’s home Member State may request to the competent authority of a clearing member’s home Member State information relating to the margin model and parameters used for the calculation of the margin requirement of the relevant investment firm.

Sanctions

To safeguard compliance with the obligations laid down in this Directive, Member States should provide for administrative sanctions and other administrative measures which are effective, proportionate and dissuasive. In order to ensure that administrative sanctions have a dissuasive effect they should be published except in certain well-defined circumstances. To enable clients and investors to make an informed decision about their investment options, those clients and investors should have access to information on administrative sanctions and measures imposed on investment firms.

Documents
2019/04/15
   EP - Debate in Parliament
2019/04/01
   EP - Approval in committee of the text agreed at 1st reading interinstitutional negotiations
2019/03/20
   CSL - Coreper letter confirming interinstitutional agreement
2018/09/27
   EP - Committee report tabled for plenary, 1st reading/single reading
Details

The Committee on Economic and Monetary Affairs adopted the report by Markus FERBER (EPP, DE) on the proposal for a directive of the European Parliament and of the Council on the prudential supervision of investment firms and amending Directives 2013/36/EU and 2014/65/EU.

The committee recommended that the European Parliament's position adopted at first reading under the ordinary legislative procedure should amend the Commission's proposal as follows.

Objective : the proposed proposal for a Directive establishes effective, appropriate and proportionate prudential arrangements at Union level that help to ensure that investment firms authorised to operate within the Union operate on a sound financial basis and are managed in an orderly way including in the best interests of their clients. To this end, it shall establish rules concerning:

the initial capital of investment firms; supervisory powers and tools for the prudential supervision of investment firms by competent authorities; publication requirements for competent authorities in the field of prudential supervision of investment firms.

These measures shall help to:

provide a level playing field across the EU and guaranteeing effective prudential supervision, while keeping compliance costs in check and ensuring sufficient capital for the risks of most investment firms; strike a balance between ensuring the safety and soundness of different investment companies and avoiding excessive costs that might undermine the viability of their business activity; ensure harmonised prudential supervision of investment firms across the Union functioning promptly and efficiently.

Competent authorities : Member States shall designate one or more competent authorities to carry out the functions and duties provided for in the Directive and inform the Commission, the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) of this designation.

Competent authorities may apply the requirements of Regulation (EU) No 575/2013 (the Own Funds Regulation, or CRR) on an undertaking other than a credit institution provided that certain conditions are met, for example (i) the undertaking is not a commodity dealer or an emission allowances dealer, or a collective investment undertaking, or an insurance undertaking or (ii) it carries out activities similar to those of undertakings which accept deposits or other repayable funds from the public and grant credits on their own accounts.

Any investment firm providing services covered by this Directive shall be required to take out professional liability insurance .

Competent authorities shall ensure that the transition from the current framework to the new one offers sufficient regulatory certainty for investment firms and does not deprive them of substantive rights from which they had benefitted under the current framework.

Capital requirements : prudential supervision and assessment powers shall allow competent authorities to assess qualitative elements, including governance and internal controls and risk management processes and procedures, and, where appropriate, to define additional requirements, in particular with regard to capital and liquidity requirements.

Competent authorities shall only set additional capital requirements for risks not yet covered or insufficiently covered by the K factors defined in the draft regulation accompanying the proposed directive.

Remuneration policy : investment firms shall be subject to clear principles of corporate governance arrangements and rules on remuneration that are gender neutral and that take into account the differences between credit institutions and investment firms.

The remuneration policy shall: (i) be clearly documented and proportionate to the size, internal organisation, nature, scope and complexity of the investment firm's activities; (ii) be non-discriminatory, meaning that identical or similar jobs are remunerated in the same way, regardless of the gender of the person holding the position; (iii) take into account not only the short-term profitability but also the long-term effects of investment decisions.

At least 40% of the variable compensation shall consist of shares or equity instruments. At least 50% of the variable remuneration shall be deferred for a period of five years, depending on the length of the investment firm's business cycle, the nature of its activity, its risks and the activities of the individual in question. If the variable remuneration is particularly high, the proportion of the variable remuneration shall be at least 60%.

Environmental, social and governance objectives (ESG) : the EBA shall prepare a report on the introduction of technical criteria related to exposures to activities associated substantially with environmental, social, and governance (ESG) objectives for the supervisory review and evaluation process of risks, with a view to assessing the possible sources and effects of such risks on investment firms.

It shall submit a report on its conclusions to the European Parliament, the Council and the Commission no later than two years after the date of entry into force of this Directive.

Documents
2018/09/24
   EP - Vote in committee, 1st reading/single reading
2018/09/24
   EP - Committee decision to open interinstitutional negotiations with report adopted in committee
2018/08/22
   ECB - European Central Bank: opinion, guideline, report
Details

Opinion of the European Central Bank of 22 August 2018 on the review of prudential treatment of investment firms.

The ECB supports the objective of the proposed regulation and the proposed directive in setting out a prudential framework that is better adapted to the risks and business models of different types of investment firms.

Whilst the ECB generally supports the purpose of subjecting systemically important investment firms to the same prudential rules as credit institutions, the proposed acts should be carefully assessed in order to avoid unintended consequences for other Union legal acts due to the change in the definition of credit institutions.

In particular, the ECB wishes to assess the possible consequences of including Class 1 companies (those whose business consists of own account dealing, underwriting of financial instruments, or placing of financial instruments on a firm commitment basis and whose total assets exceed EUR 30 billion) in the definition of ‘credit institution’.

Classification of investment firms as credit institutions

Under the proposed regulation the criteria according to which an investment firm is to be considered a credit institution within the meaning of Regulation (EU) No 575/2013 (Regulation on prudential requirements for credit institutions and investment firms, Capital Requirement Regulation – CRR) aim to capture systemic investment firms with total assets above certain thresholds.

The ECB welcomes this proposal given that firms which meet these criteria can pose increased financial stability risks. It considers that the proposed regulation should provide clarification as to how the assets are to be calculated, i.e. including the assets of Union branches of third country groups and third country subsidiaries of undertakings in the Union arising from their consolidated balance sheet.

It also suggests that the total asset threshold could be complemented with other criteria including for example a revenue criterion, significance of cross-jurisdictional activity or interconnectedness.

Statistical implications

The ECB notes the importance of ensuring a high degree of consistency and harmonised methodologies for statistical concepts and definitions in Union legislation and between Union statistical legislation and international statistical standards, in particular the System of National Accounts adopted by the United Nations Statistical Commission.

If Class 1 firms are classified as credit institutions, there would be inconsistencies in the common standards, definitions and classifications of relevance for the statistical treatment of financial corporations set out in Union legislation that would need to be remedied.

Macro-prudential perspective on investment firms

The proposed acts do not take on board the EBA recommendations on the need for a macro-prudential perspective on investment firms. A possible future review of the criteria for determining systemic investment firms may also consider whether certain macro-prudential tools could be developed to address specific risks that smaller investment firms could pose to financial stability.

Provision of services by third-country firms

Regarding the Commission’s proposal to strengthen and further harmonise the Unionlegislation applicable to branches of third country investment firms, the ECB considers that the Union legislator might wish to give further consideration to the possibility of applying the harmonised rules to all branches, even those that provide services to professional clients and eligible counterparties, in order to ensure that material risks are addressed consistently across the Union and to avoid regulatory arbitrage.

The proposed regulation strengthens the regime outlined in Regulation (EU) No 600/2014 with regard to the provision of services and performance of activities by third country investment firms after an equivalence decision has been taken. The equivalence of third-country regulatory regimes is used in different areas of relevant Union law and consistency and additional enhancements to those approaches could be further considered.

Furthermore, in order to ensure a level playing field, the ECB suggests ensuring that such non-equivalent third-country firms are required over time to establish a branch (or a subsidiary) in the Union in order to provide any investment services in the Union.

Alignment

The ECB recommends that the interplay between the proposed acts and Directive 2013/36/EU and Regulation (EU) No 575/2013 should be carefully assessed in order to avoid unintended consequences due to the change in the definition of credit institutions. The proposals should, for example, aim to align the wording in the different sectoral acts of Union law so as to harmonise, where appropriate, the scope of professional secrecy obligations.

2018/07/12
   EP - Committee opinion
Documents
2018/06/04
   EP - Amendments tabled in committee
Documents
2018/04/11
   EP - Committee draft report
Documents
2018/03/28
   RO_SENATE - Contribution
Documents
2018/03/08
   PT_PARLIAMENT - Contribution
Documents
2018/03/05
   ES_PARLIAMENT - Contribution
Documents
2018/01/24
   EP - Committee Opinion
2018/01/23
   EP - Responsible Committee
2018/01/18
   EP - Committee referral announced in Parliament, 1st reading/single reading
2017/12/21
   EC - Document attached to the procedure
2017/12/20
   EC - Legislative proposal published
Details

PURPOSE: to establish a proportionate and risk-based European prudential framework for investment firms.

PROPOSED ACT: Regulation of the European Parliament and of the Council.

ROLE OF THE EUROPEAN PARLIAMENT: the European Parliament decides in accordance with the ordinary legislative procedure and on an equal footing with the Council.

BACKGROUND: investment firms play an important role in facilitating savings and investment flows across the EU. They offer investors (retail, professional, corporate) various services that give them access to the securities and derivatives markets (investment advice, portfolio management, brokerage, execution of orders, etc.). Unlike credit institutions, investment firms do not take deposits or make loans. This means that they are a lot less exposed to credit risk and the risk of depositors withdrawing their money at short notice.

There were 6 051 investment firms in the European Economic Area (EEA) at the end of 2015. Most EEA investment firms are small or medium-sized enterprises . At present, these companies are concentrated in the United Kingdom, but considering relocating part of their operations in the EU-27, particularly to the Member States participating in the banking union. The UK decision to leave the EU highlights the need to modernise the EU's regulatory architecture.

As one of the new priority actions to strengthen capital markets, the Commission announced in its mid-term review of the Capital Markets Union action plan , that it would propose a more effective prudential and supervisory framework, calibrated to the size and nature of investment firms.

This proposal for a directive and the accompanying proposal for a regulation aim to ensure that investment firms that are not systemically important (the majority of them) are subject to capital and liquidity requirements and other key prudential requirements and supervisory measures that are tailored to their activities, but sufficiently stringent not to jeopardize the stability of the EU's financial markets.

The proposals are the outcome of a review mandated by Regulation (EU) No 575/2013 (Capital Requirements Regulation, or CRR) which, together with Directive 2013/36/EU (Capital Requirements Directive IV, or CRD IV), constitutes the current prudential framework for investment firms. The prudential framework applicable to investment firms set out in CRR / CRD IV works in conjunction with the MiFID II Directive / MiFIR Regulation on markets for financial instruments.

Systemically important investment firms, some of which qualify as globally important companies, would remain subject to the existing framework set out in CRR / CRD IV.

IMPACT ASSESSMENT: the review of the prudential framework for investment firms was carried out in consultation with the European Banking Authority (EBA), the European Securities and Markets Authority (ESMA) and the competent national authorities represented in these European Supervisory Authorities.

A working document accompanying the proposal concludes that, overall, the EBA recommendations represent a step towards a prudential framework for investment firms , which ensures that they operate on a sound financial basis, without hindering their commercial prospects.

CONTENT: the proposal for a directive revises and simplifies existing EU rules governing the prudential treatment of investment firms in order to (i) better accommodate and address risks in their business models; (ii) improve the level playing field among firms; and (iii) enhance supervisory convergence.

It applies to all investment firms covered by MIFID II, whose application is scheduled to begin in January 2018. In specific, the proposal:

requires Member States to designate an authority to exercise the prudential supervisory powers provided for in this directive, transferring the relevant provisions of CRD IV to the proposed directive; revises and harmonises throughout the EU the initial capital levels , based on the services and activities that investment firms are authorised to provide in accordance with MIFID, from the levels stipulated in CRD IV to take into account inflation since these levels were set. Transitional arrangements are made to allow smaller firms in particular to attain the new amounts of initial capital where necessary; confers the powers set out in CRD IV on the authorities of home and host countries for the prudential supervision of investment firms and establishes the arrangements for cooperation between these authorities; introduces provisions for the exchange of information between the competent authorities on prudential supervision and professional secrecy on the basis of CRD IV; requires Member States to establish administrative penalties and other administrative measures that are effective, proportionate and dissuasive in order to deal with infringements of the provisions of the directive; introduces simplified requirements for investment firms and competent authorities to assess the adequacy of arrangements and procedures to ensure that firms comply with the provisions of the Directive; gives competent authorities the power to review and evaluate the prudential status of investment firms and to request, where appropriate, changes in areas such as governance and internal controls, risk management processes and procedures and, where necessary, set additional requirements, including capital and liquidity requirements; revise the rules on corporate governance and remuneration to prevent excessive risk taking by the staff of investment firms; however, small, non-interconnected investment firms would be exempt from these rules. The proposal requires investment firms to establish appropriate ratios between variable and fixed components of remuneration. In addition, it sets a threshold at firm and staff levels below which investment firms and/or staff members will benefit from the derogations from the application of the rules on the deferral and pay-out in instruments; provides for the possibility for the Union to conclude agreements with third countries regarding the means of supervising compliance with the group capital test. Administrative cooperation arrangements with third countries supervisory authorities may be concluded by the Member States and EBA to facilitate the exchange of information.

DELEGATED ACTS: the proposal contains provisions empowering the Commission to adopt delegated acts in accordance with Article 290 of the Treaty on the Functioning of the European Union.

Documents

Votes

A8-0295/2018 - Markus Ferber - Am 2 16/04/2019 12:34:55.000

2019/04/16 Outcome: +: 534, -: 63, 0: 55
DE ES PL RO IT GB FR BE AT HU CZ PT SE BG NL SK FI HR LT LV SI DK LU MT EE IE CY EL
Total
93
52
46
30
55
56
69
21
17
17
20
18
17
13
24
12
11
10
8
8
8
11
6
6
5
8
1
10
icon: PPE PPE
193

United Kingdom PPE

2

Lithuania PPE

2

Denmark PPE

For (1)

1

Luxembourg PPE

3

Estonia PPE

For (1)

1

Greece PPE

1
icon: S&D S&D
163

Netherlands S&D

For (2)

2

Croatia S&D

2

Latvia S&D

1

Slovenia S&D

For (1)

1

Luxembourg S&D

For (1)

1

Malta S&D

3

Estonia S&D

For (1)

1
icon: ALDE ALDE
60

Romania ALDE

3

United Kingdom ALDE

1

Austria ALDE

For (1)

1

Portugal ALDE

1

Sweden ALDE

2

Bulgaria ALDE

3

Croatia ALDE

For (1)

1

Lithuania ALDE

2

Latvia ALDE

1

Slovenia ALDE

For (1)

1

Denmark ALDE

2

Luxembourg ALDE

For (1)

1

Estonia ALDE

2

Ireland ALDE

For (1)

1
icon: ECR ECR
65

Romania ECR

2

Czechia ECR

2

Sweden ECR

2

Bulgaria ECR

For (1)

1

Netherlands ECR

2

Slovakia ECR

2

Finland ECR

1

Croatia ECR

For (1)

1

Latvia ECR

For (1)

1

Greece ECR

Against (1)

1
icon: Verts/ALE Verts/ALE
49

Italy Verts/ALE

For (1)

1

United Kingdom Verts/ALE

5

Belgium Verts/ALE

2

Austria Verts/ALE

3

Hungary Verts/ALE

For (1)

1

Sweden Verts/ALE

3

Netherlands Verts/ALE

2

Finland Verts/ALE

For (1)

1

Croatia Verts/ALE

For (1)

1

Lithuania Verts/ALE

For (1)

1

Latvia Verts/ALE

1

Slovenia Verts/ALE

For (1)

1

Denmark Verts/ALE

For (1)

1

Luxembourg Verts/ALE

For (1)

1

Estonia Verts/ALE

For (1)

1
icon: NI NI
16

Germany NI

Against (1)

2

Poland NI

Against (1)

2

Italy NI

For (1)

1

France NI

For (1)

3

Hungary NI

Abstain (1)

3
icon: GUE/NGL GUE/NGL
43

Italy GUE/NGL

Against (1)

3

United Kingdom GUE/NGL

Abstain (1)

1

Portugal GUE/NGL

3

Sweden GUE/NGL

Abstain (1)

1

Netherlands GUE/NGL

3

Denmark GUE/NGL

Abstain (1)

1

Ireland GUE/NGL

Against (2)

Abstain (1)

3

Cyprus GUE/NGL

Against (1)

1
icon: EFDD EFDD
31

Germany EFDD

Abstain (1)

1

Czechia EFDD

Against (1)

1

Lithuania EFDD

For (1)

1
icon: ENF ENF
32

Germany ENF

Against (1)

1

Poland ENF

2

United Kingdom ENF

Against (1)

1

Belgium ENF

Against (1)

1
3

Netherlands ENF

4

A8-0295/2018 - Markus Ferber - Am 2

2019/04/16 Outcome: +: 534, -: 63, 0: 55
DE PL ES RO GB IT FR BE AT HU CZ PT BG NL SE SK FI HR LT LV SI DK LU MT EE IE ?? CY EL
Total
93
46
50
30
55
54
69
21
17
17
20
18
13
24
16
12
11
10
8
8
8
11
6
6
5
8
2
1
10
icon: PPE PPE
193

United Kingdom PPE

2

Lithuania PPE

2

Denmark PPE

For (1)

1

Luxembourg PPE

3

Estonia PPE

For (1)

1

Greece PPE

1
icon: S&D S&D
163

Netherlands S&D

For (2)

2

Croatia S&D

2

Latvia S&D

1

Slovenia S&D

For (1)

1

Luxembourg S&D

For (1)

1

Malta S&D

3

Estonia S&D

For (1)

1
icon: ALDE ALDE
59

Romania ALDE

3

United Kingdom ALDE

1

Austria ALDE

For (1)

1

Portugal ALDE

1

Bulgaria ALDE

3

Sweden ALDE

2

Croatia ALDE

For (1)

1

Lithuania ALDE

2

Latvia ALDE

1

Slovenia ALDE

For (1)

1

Denmark ALDE

2

Luxembourg ALDE

For (1)

1

Estonia ALDE

2

Ireland ALDE

For (1)

1
icon: ECR ECR
65

Romania ECR

2

Czechia ECR

2

Bulgaria ECR

For (1)

1

Netherlands ECR

2

Sweden ECR

2

Slovakia ECR

2

Finland ECR

1

Croatia ECR

For (1)

1

Latvia ECR

For (1)

1

Greece ECR

Against (1)

1
icon: Verts/ALE Verts/ALE
47

United Kingdom Verts/ALE

5

Italy Verts/ALE

For (1)

1

Belgium Verts/ALE

2

Austria Verts/ALE

3

Hungary Verts/ALE

For (1)

1

Netherlands Verts/ALE

2

Sweden Verts/ALE

2

Finland Verts/ALE

For (1)

1

Croatia Verts/ALE

For (1)

1

Lithuania Verts/ALE

For (1)

1

Latvia Verts/ALE

1

Slovenia Verts/ALE

For (1)

1

Denmark Verts/ALE

For (1)

1

Luxembourg Verts/ALE

For (1)

1

Estonia Verts/ALE

For (1)

1
icon: NI NI
16

Germany NI

Against (1)

2

Poland NI

Against (1)

2

France NI

For (1)

3

Hungary NI

Abstain (1)

3

NI

For (1)

1
icon: GUE/NGL GUE/NGL
43

United Kingdom GUE/NGL

Abstain (1)

1

Italy GUE/NGL

Against (1)

3

Portugal GUE/NGL

3

Netherlands GUE/NGL

3

Sweden GUE/NGL

Abstain (1)

1

Denmark GUE/NGL

Abstain (1)

1

Ireland GUE/NGL

Against (2)

Abstain (1)

3

Cyprus GUE/NGL

Against (1)

1
icon: EFDD EFDD
31

Germany EFDD

Abstain (1)

1

Czechia EFDD

Against (1)

1

Lithuania EFDD

For (1)

1

EFDD

Against (1)

1
icon: ENF ENF
32

Germany ENF

Against (1)

1

Poland ENF

2

United Kingdom ENF

Against (1)

1

Belgium ENF

Against (1)

1
3

Netherlands ENF

4
AmendmentsDossier
276 2017/0358(COD)
2018/06/04 ECON 192 amendments...
source: 623.597
2018/06/12 JURI 84 amendments...
source: 623.590

History

(these mark the time of scraping, not the official date of the change)

activities
  • date
    2017-12-20T00:00:00
    docs
    • url
      http://www.europarl.europa.eu/RegData/docs_autres_institutions/commission_europeenne/com/2017/0791/COM_COM(2017)0791_EN.pdf
      text
      • PURPOSE: to establish a proportionate and risk-based European prudential framework for investment firms.

        PROPOSED ACT: Regulation of the European Parliament and of the Council.

        ROLE OF THE EUROPEAN PARLIAMENT: the European Parliament decides in accordance with the ordinary legislative procedure and on an equal footing with the Council.

        BACKGROUND: investment firms play an important role in facilitating savings and investment flows across the EU. They offer investors (retail, professional, corporate) various services that give them access to the securities and derivatives markets (investment advice, portfolio management, brokerage, execution of orders, etc.). Unlike credit institutions, investment firms do not take deposits or make loans. This means that they are a lot less exposed to credit risk and the risk of depositors withdrawing their money at short notice.

        There were 6 051 investment firms in the European Economic Area (EEA) at the end of 2015. Most EEA investment firms are small or medium-sized enterprises. At present, these companies are concentrated in the United Kingdom, but considering relocating part of their operations in the EU-27, particularly to the Member States participating in the banking union. The UK decision to leave the EU highlights the need to modernise the EU's regulatory architecture.

        As one of the new priority actions to strengthen capital markets, the Commission announced in its mid-term review of the Capital Markets Union action plan, that it would propose a more effective prudential and supervisory framework, calibrated to the size and nature of investment firms.

        This proposal for a directive and the accompanying proposal for a regulation aim to ensure that investment firms that are not systemically important (the majority of them) are subject to capital and liquidity requirements and other key prudential requirements and supervisory measures that are tailored to their activities, but sufficiently stringent not to jeopardize the stability of the EU's financial markets.

        The proposals are the outcome of a review mandated by Regulation (EU) No 575/2013 (Capital Requirements Regulation, or CRR) which, together with Directive 2013/36/EU (Capital Requirements Directive IV, or CRD IV), constitutes the current prudential framework for investment firms. The prudential framework applicable to investment firms set out in CRR / CRD IV works in conjunction with the MiFID II Directive / MiFIR Regulation on markets for financial instruments.

        Systemically important investment firms, some of which qualify as globally important companies, would remain subject to the existing framework set out in CRR / CRD IV.

        IMPACT ASSESSMENT:  the review of the prudential framework for investment firms was carried out in consultation with the European Banking Authority (EBA), the European Securities and Markets Authority (ESMA) and the competent national authorities represented in these European Supervisory Authorities.

        A working document accompanying the proposal concludes that, overall, the EBA recommendations represent a step towards a prudential framework for investment firms, which ensures that they operate on a sound financial basis, without hindering their commercial prospects.

        CONTENT: the proposal for a directive revises and simplifies existing EU rules governing the prudential treatment of investment firms in order to (i) better accommodate and address risks in their business models; (ii) improve the level playing field among firms; and (iii) enhance supervisory convergence.

        It applies to all investment firms covered by MIFID II, whose application is scheduled to begin in January 2018. In specific, the proposal:

        • requires Member States to designate an authority to exercise the prudential supervisory powers provided for in this directive, transferring the relevant provisions of CRD IV to the proposed directive;
        • revises and harmonises throughout the EU the initial capital levels, based on the services and activities that investment firms are authorised to provide in accordance with MIFID, from the levels stipulated in CRD IV to take into account inflation since these levels were set. Transitional arrangements are made to allow smaller firms in particular to attain the new amounts of initial capital where necessary;
        • confers the powers set out in CRD IV on the authorities of home and host countries for the prudential supervision of investment firms and establishes the arrangements for cooperation between these authorities;
        • introduces provisions for the exchange of information between the competent authorities on prudential supervision and professional secrecy on the basis of CRD IV;
        • requires Member States to establish administrative penalties and other administrative measures that are effective, proportionate and dissuasive in order to deal with infringements of the provisions of the directive;
        • introduces simplified requirements for investment firms and competent authorities to assess the adequacy of arrangements and procedures to ensure that firms comply with the provisions of the Directive;
        • gives competent authorities the power to review and evaluate the prudential status of investment firms and to request, where appropriate, changes in areas such as governance and internal controls, risk management processes and procedures and, where necessary, set additional requirements, including capital and liquidity requirements;
        • revise the rules on corporate governance and remuneration to prevent excessive risk taking by the staff of investment firms; however, small, non-interconnected investment firms would be exempt from these rules. The proposal requires investment firms to establish appropriate ratios between variable and fixed components of remuneration. In addition, it sets a threshold at firm and staff levels below which investment firms and/or staff members will benefit from the derogations from the application of the rules on the deferral and pay-out in instruments;
        • provides for the possibility for the Union to conclude agreements with third countries regarding the means of supervising compliance with the group capital test. Administrative cooperation arrangements with third countries supervisory authorities may be concluded by the Member States and EBA to facilitate the exchange of information.

        DELEGATED ACTS: the proposal contains provisions empowering the Commission to adopt delegated acts in accordance with Article 290 of the Treaty on the Functioning of the European Union.

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      • The Committee on Economic and Monetary Affairs adopted the report by Markus FERBER (EPP, DE) on the proposal for a directive of the European Parliament and of the Council on the prudential supervision of investment firms and amending Directives 2013/36/EU and 2014/65/EU.

        The committee recommended that the European Parliament's position adopted at first reading under the ordinary legislative procedure should amend the Commission's proposal as follows.

        Objective: the proposed proposal for a Directive establishes effective, appropriate and proportionate prudential arrangements at Union level that help to ensure that investment firms authorised to operate within the Union operate on a sound financial basis and are managed in an orderly way including in the best interests of their clients. To this end, it shall establish rules concerning:

        • the initial capital of investment firms; 
        • supervisory powers and tools for the prudential supervision of investment firms by competent authorities;
        • publication requirements for competent authorities in the field of prudential supervision of investment firms.

        These measures shall help to:

        • provide a level playing field across the EU and guaranteeing effective prudential supervision, while keeping compliance costs in check and ensuring sufficient capital for the risks of most investment firms;
        • strike a balance between ensuring the safety and soundness of different investment companies and avoiding excessive costs that might undermine the viability of their business activity;
        • ensure harmonised prudential supervision of investment firms across the Union functioning promptly and efficiently.

        Competent authorities: Member States shall designate one or more competent authorities to carry out the functions and duties provided for in the Directive and inform the Commission, the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) of this designation.

        Competent authorities may apply the requirements of Regulation (EU) No 575/2013 (the Own Funds Regulation, or CRR) on an undertaking other than a credit institution provided that certain conditions are met, for example (i) the undertaking is not a commodity dealer or an emission allowances dealer, or a collective investment undertaking, or an insurance undertaking or (ii) it carries out activities similar to those of undertakings which accept deposits or other repayable funds from the public and grant credits on their own accounts.

        Any investment firm providing services covered by this Directive shall be required to take out professional liability insurance.

        Competent authorities shall ensure that the transition from the current framework to the new one offers sufficient regulatory certainty for investment firms and does not deprive them of substantive rights from which they had benefitted under the current framework.

        Capital requirements: prudential supervision and assessment powers shall allow competent authorities to assess qualitative elements, including governance and internal controls and risk management processes and procedures, and, where appropriate, to define additional requirements, in particular with regard to capital and liquidity requirements.

        Competent authorities shall only set additional capital requirements for risks not yet covered or insufficiently covered by the K factors defined in the draft regulation accompanying the proposed directive.

        Remuneration policy: investment firms shall be subject to clear principles of corporate governance arrangements and rules on remuneration that are gender neutral and that take into account the differences between credit institutions and investment firms.

        The remuneration policy shall: (i) be clearly documented and proportionate to the size, internal organisation, nature, scope and complexity of the investment firm's activities; (ii) be non-discriminatory, meaning that identical or similar jobs are remunerated in the same way, regardless of the gender of the person holding the position; (iii) take into account not only the short-term profitability but also the long-term effects of investment decisions.

        At least 40% of the variable compensation shall consist of shares or equity instruments. At least 50% of the variable remuneration shall be deferred for a period of five years, depending on the length of the investment firm's business cycle, the nature of its activity, its risks and the activities of the individual in question. If the variable remuneration is particularly high, the proportion of the variable remuneration shall be at least 60%.

        Environmental, social and governance objectives (ESG): the EBA shall prepare a report on the introduction of technical criteria related to exposures to activities associated substantially with environmental, social, and governance (ESG) objectives for the supervisory review and evaluation process of risks, with a view to assessing the possible sources and effects of such risks on investment firms.

        It shall submit a report on its conclusions to the European Parliament, the Council and the Commission no later than two years after the date of entry into force of this Directive.

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  • 2.50.03 Securities and financial markets, stock exchange, CIUTS, investments
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  • Amending Directive 2013/36/EU
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  • The Committee on Economic and Monetary Affairs adopted the report by Markus FERBER (EPP, DE) on the proposal for a directive of the European Parliament and of the Council on the prudential supervision of investment firms and amending Directives 2013/36/EU and 2014/65/EU.

    The committee recommended that the European Parliament's position adopted at first reading under the ordinary legislative procedure should amend the Commission's proposal as follows.

    Objective: the proposed proposal for a Directive establishes effective, appropriate and proportionate prudential arrangements at Union level that help to ensure that investment firms authorised to operate within the Union operate on a sound financial basis and are managed in an orderly way including in the best interests of their clients. To this end, it shall establish rules concerning:

    • the initial capital of investment firms; 
    • supervisory powers and tools for the prudential supervision of investment firms by competent authorities;
    • publication requirements for competent authorities in the field of prudential supervision of investment firms.

    These measures shall help to:

    • provide a level playing field across the EU and guaranteeing effective prudential supervision, while keeping compliance costs in check and ensuring sufficient capital for the risks of most investment firms;
    • strike a balance between ensuring the safety and soundness of different investment companies and avoiding excessive costs that might undermine the viability of their business activity;
    • ensure harmonised prudential supervision of investment firms across the Union functioning promptly and efficiently.

    Competent authorities: Member States shall designate one or more competent authorities to carry out the functions and duties provided for in the Directive and inform the Commission, the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) of this designation.

    Competent authorities may apply the requirements of Regulation (EU) No 575/2013 (the Own Funds Regulation, or CRR) on an undertaking other than a credit institution provided that certain conditions are met, for example (i) the undertaking is not a commodity dealer or an emission allowances dealer, or a collective investment undertaking, or an insurance undertaking or (ii) it carries out activities similar to those of undertakings which accept deposits or other repayable funds from the public and grant credits on their own accounts.

    Any investment firm providing services covered by this Directive shall be required to take out professional liability insurance.

    Competent authorities shall ensure that the transition from the current framework to the new one offers sufficient regulatory certainty for investment firms and does not deprive them of substantive rights from which they had benefitted under the current framework.

    Capital requirements: prudential supervision and assessment powers shall allow competent authorities to assess qualitative elements, including governance and internal controls and risk management processes and procedures, and, where appropriate, to define additional requirements, in particular with regard to capital and liquidity requirements.

    Competent authorities shall only set additional capital requirements for risks not yet covered or insufficiently covered by the K factors defined in the draft regulation accompanying the proposed directive.

    Remuneration policy: investment firms shall be subject to clear principles of corporate governance arrangements and rules on remuneration that are gender neutral and that take into account the differences between credit institutions and investment firms.

    The remuneration policy shall: (i) be clearly documented and proportionate to the size, internal organisation, nature, scope and complexity of the investment firm's activities; (ii) be non-discriminatory, meaning that identical or similar jobs are remunerated in the same way, regardless of the gender of the person holding the position; (iii) take into account not only the short-term profitability but also the long-term effects of investment decisions.

    At least 40% of the variable compensation shall consist of shares or equity instruments. At least 50% of the variable remuneration shall be deferred for a period of five years, depending on the length of the investment firm's business cycle, the nature of its activity, its risks and the activities of the individual in question. If the variable remuneration is particularly high, the proportion of the variable remuneration shall be at least 60%.

    Environmental, social and governance objectives (ESG): the EBA shall prepare a report on the introduction of technical criteria related to exposures to activities associated substantially with environmental, social, and governance (ESG) objectives for the supervisory review and evaluation process of risks, with a view to assessing the possible sources and effects of such risks on investment firms.

    It shall submit a report on its conclusions to the European Parliament, the Council and the Commission no later than two years after the date of entry into force of this Directive.

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  • PURPOSE: to establish a proportionate and risk-based European prudential framework for investment firms.

    PROPOSED ACT: Regulation of the European Parliament and of the Council.

    ROLE OF THE EUROPEAN PARLIAMENT: the European Parliament decides in accordance with the ordinary legislative procedure and on an equal footing with the Council.

    BACKGROUND: investment firms play an important role in facilitating savings and investment flows across the EU. They offer investors (retail, professional, corporate) various services that give them access to the securities and derivatives markets (investment advice, portfolio management, brokerage, execution of orders, etc.). Unlike credit institutions, investment firms do not take deposits or make loans. This means that they are a lot less exposed to credit risk and the risk of depositors withdrawing their money at short notice.

    There were 6 051 investment firms in the European Economic Area (EEA) at the end of 2015. Most EEA investment firms are small or medium-sized enterprises. At present, these companies are concentrated in the United Kingdom, but considering relocating part of their operations in the EU-27, particularly to the Member States participating in the banking union. The UK decision to leave the EU highlights the need to modernise the EU's regulatory architecture.

    As one of the new priority actions to strengthen capital markets, the Commission announced in its mid-term review of the Capital Markets Union action plan, that it would propose a more effective prudential and supervisory framework, calibrated to the size and nature of investment firms.

    This proposal for a directive and the accompanying proposal for a regulation aim to ensure that investment firms that are not systemically important (the majority of them) are subject to capital and liquidity requirements and other key prudential requirements and supervisory measures that are tailored to their activities, but sufficiently stringent not to jeopardize the stability of the EU's financial markets.

    The proposals are the outcome of a review mandated by Regulation (EU) No 575/2013 (Capital Requirements Regulation, or CRR) which, together with Directive 2013/36/EU (Capital Requirements Directive IV, or CRD IV), constitutes the current prudential framework for investment firms. The prudential framework applicable to investment firms set out in CRR / CRD IV works in conjunction with the MiFID II Directive / MiFIR Regulation on markets for financial instruments.

    Systemically important investment firms, some of which qualify as globally important companies, would remain subject to the existing framework set out in CRR / CRD IV.

    IMPACT ASSESSMENT:  the review of the prudential framework for investment firms was carried out in consultation with the European Banking Authority (EBA), the European Securities and Markets Authority (ESMA) and the competent national authorities represented in these European Supervisory Authorities.

    A working document accompanying the proposal concludes that, overall, the EBA recommendations represent a step towards a prudential framework for investment firms, which ensures that they operate on a sound financial basis, without hindering their commercial prospects.

    CONTENT: the proposal for a directive revises and simplifies existing EU rules governing the prudential treatment of investment firms in order to (i) better accommodate and address risks in their business models; (ii) improve the level playing field among firms; and (iii) enhance supervisory convergence.

    It applies to all investment firms covered by MIFID II, whose application is scheduled to begin in January 2018. In specific, the proposal:

    • requires Member States to designate an authority to exercise the prudential supervisory powers provided for in this directive, transferring the relevant provisions of CRD IV to the proposed directive;
    • revises and harmonises throughout the EU the initial capital levels, based on the services and activities that investment firms are authorised to provide in accordance with MIFID, from the levels stipulated in CRD IV to take into account inflation since these levels were set. Transitional arrangements are made to allow smaller firms in particular to attain the new amounts of initial capital where necessary;
    • confers the powers set out in CRD IV on the authorities of home and host countries for the prudential supervision of investment firms and establishes the arrangements for cooperation between these authorities;
    • introduces provisions for the exchange of information between the competent authorities on prudential supervision and professional secrecy on the basis of CRD IV;
    • requires Member States to establish administrative penalties and other administrative measures that are effective, proportionate and dissuasive in order to deal with infringements of the provisions of the directive;
    • introduces simplified requirements for investment firms and competent authorities to assess the adequacy of arrangements and procedures to ensure that firms comply with the provisions of the Directive;
    • gives competent authorities the power to review and evaluate the prudential status of investment firms and to request, where appropriate, changes in areas such as governance and internal controls, risk management processes and procedures and, where necessary, set additional requirements, including capital and liquidity requirements;
    • revise the rules on corporate governance and remuneration to prevent excessive risk taking by the staff of investment firms; however, small, non-interconnected investment firms would be exempt from these rules. The proposal requires investment firms to establish appropriate ratios between variable and fixed components of remuneration. In addition, it sets a threshold at firm and staff levels below which investment firms and/or staff members will benefit from the derogations from the application of the rules on the deferral and pay-out in instruments;
    • provides for the possibility for the Union to conclude agreements with third countries regarding the means of supervising compliance with the group capital test. Administrative cooperation arrangements with third countries supervisory authorities may be concluded by the Member States and EBA to facilitate the exchange of information.

    DELEGATED ACTS: the proposal contains provisions empowering the Commission to adopt delegated acts in accordance with Article 290 of the Treaty on the Functioning of the European Union.

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activities/0/commission/0
DG
Commissioner
DOMBROVSKIS Valdis
other/0
body
EC
dg
commissioner
DOMBROVSKIS Valdis
activities
  • date
    2017-12-20T00:00:00
    docs
    • url
      http://www.europarl.europa.eu/RegData/docs_autres_institutions/commission_europeenne/com/2017/0791/COM_COM(2017)0791_EN.pdf
      celexid
      CELEX:52017PC0791:EN
      type
      Legislative proposal published
      title
      COM(2017)0791
    body
    EC
    type
    Legislative proposal published
    commission
    committees
    • body
      EP
      responsible
      False
      committee_full
      Development
      committee
      DEVE
    • body
      EP
      responsible
      True
      committee_full
      Economic and Monetary Affairs
      committee
      ECON
    • body
      EP
      responsible
      False
      committee_full
      Industry, Research and Energy
      committee
      ITRE
    • body
      EP
      responsible
      False
      committee_full
      Legal Affairs
      committee
      JURI
    links
    other
      procedure
      reference
      2017/0358(COD)
      instrument
      Directive
      legal_basis
      • Treaty on the Functioning of the EU TFEU 053-p1
      stage_reached
      Preparatory phase in Parliament
      summary
      subtype
      Legislation
      title
      Prudential supervision of investment firms
      type
      COD - Ordinary legislative procedure (ex-codecision procedure)
      subject