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Investment firm prudential regime

Day 2 Morning

Thursday 04 April

Room :

Grand Ballroom - Roundtable

Speakers

Chair
Adam Farkas - Executive Director, EBA
Discussants
Mario Nava - Director, Horizontal Policies, DG FISMA, European Commission
Jérôme Reboul - Deputy Assistant Secretary for Banking Affairs, DG Treasury, Ministry of Economy and Finance, France
Alban Aucoin - Head of Public Affairs, Crédit Agricole S.A.

Objectives of the session

Unlike credit institutions, investment firms do not accept deposits and do not grant loans on a large scale (independently of transactions in financial instruments). Beside credit institutions, investment firms (IFs) play an important role notably in the context of the Capital Markets Union. According to the European Banking Authority (EBA), there are approximately 6,000 IFs in the European Economic Area (EEA), 55% of which are in the United Kingdom. Of these 6,000 IFs, 2,780 benefit from the European passport (75% of which are British IFs).

Until now, these IFs were subject to prudential rules similar to those imposed in the EU on credit institutions. The Commission has proposed to modulate the prudential requirements for IFs, and their corresponding supervisory arrangements, according to their size. The largest IFs would remain subject to the prudential regime defined by CRR and CRD and supervised as large credit institutions by the European Central Bank. Smaller IFs (categories 2 and 3) would benefit from a lighter prudential regime and their supervision would be the responsibility of national supervisors.

Brexit changes the stakes of these developments, which may lead to the creation of a regulatory context making it possible to circumvent the third-country regime set up by the MiFID 2 Directive. Indeed, in this case certain (small?) IFs whose parent company is located in third countries, would have access to the European market with lighter requirements than credit institutions and IFs whose parent company is located in the Member States.

The objective of this session is to find out whether the on-going negotiations at the European level will ensure fair competition conditions between EU banks and FIs, and FIs from third countries, and more generally provide EU capital markets with an appropriate level of control.

Points of discussion

What are the main features of the proposed Investment firm prudential regime? What is at stake regarding systemic risk and competition in the single market?

Are there any issues raised by the EU parliament or the Council on this topic? What are the main potential fair competition issues raised by the proposed framework between investment firms and banks, notably in the context of the Brexit and new equivalence arrangements regarding supervision?

How is the proposed legislation evolving in this area and what are the necessary improvements?