Representing financial market professionals based in France

Prudential regime applicable to investment firms

On 4 November, the European Banking Authority (EBA) published a discussion paper on the prudential treatment applicable to investment firms not presenting systemic risk (cf. AMAFI Info No. 127). The aim is to set up an appropriate prudential regime for investment firms other than those identified as Global Systemically Important Institutions (G-SIIs) or Other Systemically Important Institutions (O-SIIs), which are the only ones that will be subject to the full CRR/CRD IV regime.

EBA is proposing an innovative approach to measuring the solvency of non-systemically important investment firms based not on the risk exposure of the investment firm but on the risk to which the investment firm would expose customers and the markets on which it operates in the event of its failure. EBA also leaves open the possibility of trimming and adjusting the existing regime for these firms, but has not clarified the nature of the proposed amendments at this stage.

In general, AMAFI wholeheartedly supports EBA’s aim of revising the prudential regime for investment firms. However, the proposed solvency approach, while appealing at first glance, is not entirely suited to the actual nature of the business activities carried on by investment firms in France. It also raises questions about maintaining the ability to conduct supervision on a consolidated basis of investment firms that belong to a banking group. To truly lighten the burden on these investment firms, steps would need to be taken to extensively revise the management rules applicable to these firms or Pillar II measures, which, under CRR rules, allow national regulators to impose supplementary requirements on a case by case basis. EBA’s report does not address these questions, and it is unlikely that satisfactory responses can be obtained sufficiently quickly.

Accordingly, AMAFI said that it would preferable and more practical to simplify and adapt the rules under the current regime and made a number of proposals to this effect (AMAFI / 17-09). Several of AMAFI’s sister organisations in Europe share these concerns.