Subject: EBA Roadmap on Investment Firms regarding the implementation of the NEW Investment Firms Regulation (IFR) and Investment Firms Directive (IFD) entering into force from June 2021.
Background Information on the NEW IFR/IFD Prudential Framework
The EU’s new IFR/IFD framework[1] entered into force in December 2019 and will be applicable for all EU Investment Firms from June 26, 2021. The EU’s new IFR/IFD framework reshapes how investment firms calculate their regulatory capital requirements and at what level these need to be maintained from June 2021. All firms in scope of the IFR/IFD need to fall within a specific class, based on their regulated activity but also within certain quantitative metrics in the form of “K-Factors”.
Systemically important and larger risky investment firms (i.e. Class 1) will be treated either as credit institutions or be held to the same rules under the CRR 2/CRD 5 framework and will become subject to SSM and SRM supervision.
All other investment firms (Class 2 and 3) in the EU will become subject to the new IFR/ IFD framework, which includes a consolidated set of regulatory capital and liquidity requirements with limited waivers along with rules on internal models, governance, remuneration and disclosure.
The EBA Roadmap for 2020-2025
The European Banking Authority (“EBA”), in consultation with the European Securities and Markets Authority (“ESMA”), released a Roadmap for the implementation of the new prudential regulatory framework for investment firms and launched a public consultation (ended September 4, 2020) for the implementation and further clarification of the IFR/IFD framework, which is divided into six thematic areas:
- Thresholds and criteria for Investment Firms to be subject to the Capital Requirements Regulation (“CRR”);
- Capital requirements and composition;
- Reporting and disclosure;
- Remuneration and governance;
- Supervisory convergence and the supervisory review process; and
- Mandates concerning environmental, social and governance (“ESG”) aspects.
The EBA is committed in to delivering on its IFR/IFD mandates following a four-phased approach running from 2020-2025, as follows:
- Phase 1: by December 2020 covering a total of 15 deliverables
- Phase 2: by June 2021 covering a total of 8 deliverables
- Phase 3: by December 2021 covering a total of 4 deliverables
- Phase 4: between December 2021 to June 2025
EBA’s mandate includes a total of 31 deliverables, out of which 18 are Regulatory Technical Standards (RTS), 3 Implementing Technical Standards (ITS), 6 sets of Guidelines, 2 reports, the requirement of EBA to maintain a list of capital instruments and a database of administrative sanctions, and a number of notifications in various areas.
The list with the EBA’s IFR/IFD mandates by the relevant area with expected deadlines can be found in the table below:
| Regulation
Art.(para.) |
Type of
level 2 product |
Mandate summary | Legal
deadline |
EBA
deliverables |
Phase |
| Thresholds and criteria for IFs subject to CRR | |||||
| IFD 5(6) | RTS | RTS on the criteria for subjecting
certain IFs to the CRR (EUR 5 billion) |
12 months
after EIF |
December
2020 |
Phase 1 |
| IFR 55(5) | RTS | RTS on the information related to the
thresholds for credit institutions (5 billion) |
Ongoing | December
2020 |
Phase 1 |
| CRD 8a(6a) | RTS | RTS on the information to be
provided for the authorisation as credit institution |
12 months
after EIF |
December
2020 |
Phase 1 |
| CRD 8a(6b) | RTS | RTS on the calculation of the
thresholds (EUR 30 billion) to be a credit institution |
12 months
after EIF |
December
2020 |
Phase 1 |
| Capital requirements and composition | |||||
| IFR 13(4) | RTS | RTS to supplement the calculation of
the fixed overheads requirement |
12 months
after EIF |
December
2020 |
Phase 1 |
| IFR 15(5) | RTS | RTS to specify the methods for
measuring the K-factors |
12 months
after EIF |
December
2020 |
Phase 1 |
| IFR 15(5) | RTS | RTS on the definition of segregated
account |
12 months
after EIF |
December
2020 |
Phase 1 |
| IFR 15(5) | RTS | RTS to specify adjustments to the KDTF coefficients | 12 months
after EIF |
December
2020 |
Phase 1 |
| IFR 23(3) | RTS | RTS to specify the calculation of the
amount of the total margin and the method of calculation of K-CMG |
12 months
after EIF |
December
2020 |
Phase 1 |
| IFR 9(4) | List | Monitoring and publication of eligible
own funds instruments and funds for class 3 firms |
12 months
after EIF |
December
2020 |
Phase 1 |
| IFD 42(6) | RTS | RTS on liquidity risk measurement | 18 months
after EIF |
June 2021 | Phase 2 |
| IFR 43(4) | GL | GL to specify the criteria when
exempting Article 12(1) IFs (class 3) from the liquidity requirements |
None | June 2022 | Phase 4 |
| IFD 37(4) | GL | GL on benchmarking of internal
models |
None | June 2022 | Phase 4 |
| IFR 7(5) | RTS | RTS on prudential consolidation | 12 months
after EIF |
December
2020 |
Phase 1 |
| Reporting and disclosure | |||||
| IFR 54(3) | ITS | ITS on supervisory reporting | 12 months
after EIF |
December
2020 |
Phase 1 |
| IFR 52(3) | RTS | RTS to specify templates for
investment policy disclosures |
18 months
after EIF |
June 2021 | Phase 2 |
| IFR 49(2) | ITS | ITS to specify templates for own
funds disclosures |
18 months
after EIF |
December
2020 |
Phase 1 |
| Remuneration and governance | |||||
| IFD 26(4) | GL | GL to specify the content of the
application of governance arrangements |
None | First quarter
of 2021 |
Phase 2 |
| IFD 30(4) | RTS | RTS to specify appropriate criteria to
identify the categories of staff whose professional activities have a material impact on the IF’s risk profile |
18 months
after EIF |
October
2020 |
Phase 1 |
| IFD 32(8) | RTS | RTS to specify instruments for
variable remuneration convertible into CET1 |
18 months
after EIF |
October
2020 |
Phase 1 |
| IFD 34(2 | GL | GL on benchmarking of remuneration
practices and the gender pay gap |
None | Last quarter
of 2021 |
Phase 3 |
| IFD 34(3) | GL | GL on the application of sound
remuneration policies |
None | Last quarter
of 2021 |
Phase 3 |
| IFD 34(4) | Others | EBA to publish supervisory
information on high earners (the EBA may issue GL to facilitate data collection) |
None | Last quarter
of 2021 |
Phase 3 |
| Supervisory convergence and supervisory review and Pillar 2 | |||||
| IFD 13(7) | RTS | RTS on information exchange
between CAs in different Member States |
18 months
after EIF |
June
2021 |
Phase 2 |
| IFD 13(8) | ITS | ITS to establish standard forms,
templates and procedures for supervisory information sharing |
18 months
after EIF |
June
2021 |
Phase 2 |
| IFD 48(8) | RTS | RTS on how colleges of supervisors
exercise their tasks |
18 months
after EIF |
June
2021 |
Phase 2 |
| IFD 40(6) | RTS | RTS on Pillar 2 add-ons | 18 months
after EIF |
June
2021 |
Phase 2 |
| IFD 45(2) | Others | EBA to publish aggregated
information for SREP |
Ongoing | End of 2022 | Phase 4 |
| IFD 45(2) | Others | EBA to report to European Parliament
and Council on degree of convergence |
None | End of 2023 | Phase 4 |
| IFD 45(2) | GL | GL on procedures and methodologies
for the SREP |
None | End of 2022 | Phase 4 |
| IFD 57(4) | ITS | ITS format, structure, content lists
and annual publication date (on laws, discretions, SREP and sanctions) |
18 months
after EIF |
September
2021 |
Phase 2 |
| ESG exposure | |||||
| IFD 35 | Report | Report and (if appropriate GL) on
technical criteria related to exposures with substantial ESG for the SREP |
2 years
after EIF |
December
2021 |
Phase 3 |
| IFR 34(2) | Report | Report on the prudential treatment
of assets exposed to activities associated with ESG objectives |
2 years
after EIF |
2022-2025
(discussion paper followed by report) |
Phase 4 |
Contact us should you need assistance in the implementation of the new IFR/IFD framework to your Company.
E-mail: info@mnkriskconsulting.com
Tel: +357 25 508 201
[1] Consisting of Regulation EU 2019/2033 – the Investment Firms Regulation (IFR) and Directive EUR 2019/2034 – the Investment Firms Directive (IFD)