Investment firms play an important role in capital markets, facilitating savings and investment flows across the EU. However, previous EU rules in this area were seen as fragmented, overly complex, inconsistently applied and often a poor fit for the actual risks involved.
New rules have therefore been agreed at EU level to update the prudential and supervisory framework, making it more effective and proportionate, being more closely matched to the size and nature of the various investment firms and the risks they are facing.
The aim is to ensure that investment firms authorised to operate in the Union function on a sound financial basis and are managed in an orderly and transparent way, in the best interests of their clients. To this end, the new rules establish capital requirements, minimum capital levels, and concentration risk, liquidity, reporting and publication obligations.
During negotiations on the new law, the European Parliament pushed successfully for the inclusion of exemptions for small investment firms from concentration, publication and reporting requirements, as well as for case-by-case authorisation for certain firms to continue applying banking requirements so as to avoid disruption to their business models. An equivalence regime will apply to third country investment firms.
The new rules are due to apply from 26 June 2021.