BPFI response to the European Banking Authority’s Discussion Paper on the EU Investment Firms Prudential Framework
On 03 September, Banking and Payments Federation Ireland (BPFI) responded to the European Banking Authority’s (EBA) public consultation on its Discussion Paper (DP) on the EU’s Investment Firm Regulation and Directive (IFR/D).
As outlined in the response, BPFI underlines its full support for the EU regime for investment firms, introduced in 2019. Having a proportionate prudential framework for investment firms, designed to better reflect the nature, size and complexity of these entities is a welcome step forward in the development of EU financial services regulation.
Any future review should, in our view, build upon this existing regime and make targeted adjustments to ensure a more refined, future-proof framework that is tailored to the risks and business models of investment firms. More broadly, it is crucial that over the next five years the EU regains global competitiveness, in particular by developing deeper and more liquid capital markets so that EU companies and the broader EU economy can grow and flourish. To achieve this, however, it is crucial that policymakers reflect on the functioning and attractiveness of EU markets and thoughtfully adapt the regulatory framework where necessary.
In light of this, our comments focus on a number of thematic issues relevant to the development of EU markets, which can be summarised as follows:
- The need to maintain the IFR/D as a prudential regulatory framework that is appropriately calibrated to investment firms’ business models. Applying bank specific requirements to investment firms – like the new market risk framework or resolution rules – is not appropriate in our view and should be further revised.
- Liquidity requirements should be refined to better align them with investment firms’ business model. We would underline that the calculation of liquidity requirements under IFR/D is clear and well understood but there is an opportunity to adjust certain aspects of the rules as they apply to investment firms. For instance, the types of assets that are eligible to qualify as liquid assets and how liquidity requirements should apply to certain types of investment firms.
- Remuneration rules should be adjusted to ensure a level playing field across sectors. Specifically, we believe that they should be decoupled from that of CRR/CRD and be aligned with the remuneration rules in the UCITS and AIFMD frameworks to ensure they are proportionate to the size and business model of investment firms and do not impact firms’ ability to attract and retain talent.
- Create a standalone K-Factor framework within IFR and recalibrate certain calculations. We believe the time is right for policymakers to specify and calibrate k-factors on their own within the IFR/D regime without having to refer to any CRR/CRD concepts. We think this approach has added benefits for firms and supervisors considering revisions of the frameworks are not always done in parallel.
- Ensure that reporting requirements is fully harmonised at EU level. We note that within the DP, the EBA suggest potentially extending the reporting requirements for investment firms to financial information or allowing NCAs obtain this information. We would point out that financial information is already reported to some competent authorities, like Ireland, and that reporting requirements should be harmonised across the EU to avoid different NCAs apply different reporting regimes.