Updates for the new prudential framework of Investment Firms (IFD/IFR)

MNK Risk Consulting > Regulatory Developments > Updates for the new prudential framework of Investment Firms (IFD/IFR)

The Cyprus Securities and Exchange Commission (the “CySEC”) issued Circular C426 on the 2nd of February 2021 with updates regarding the Investment Firms Regulation (EU) 2019/2033 (‘IFR’) and Investment Firms Directive (EU) 2019/2034 (‘IFD’), which will enter into force on 26th June 2021.

All Cyprus Investment Firms (‘CIFs’) will be subject to this new prudential regime (comprising of the IFR and IFD), under which the approach for the calculation of the minimum capital requirements is way different from the ‘risk weighted assets’ approach of Regulation EU No. 575/2013 (CRR) and Directive DI144-2014-14 which are applicable today.

The Circular provides the CIFs with the following updates[1]:

  1. European Banking Authority (‘EBA’) published seven final draft technical standards regarding IFD/IFR

In line with EBA’s Roadmap, released in June 2020, EBA published on 16th December 2020, a package of seven (7) final draft Regulatory Technical Standards (RTS) related to the implementation of IFR and IFD, in an attempt to ensure a proportionate implementation of the new prudential framework

The technical standards set out the main aspects of the new prudential regime mainly in relation to:

  1. the calculation of the regulatory capital requirements; and
  2. further technical clarifications on the methodologies to be applied by all types of investment firms, including investment advisors, portfolio managers, execution brokers and firms trading on own account.

All the 7 final RTS can be found here.

  • Reporting and disclosure requirements under IFR/IFD

The EBA on 4th June 2020 issued its draft Implementing Technical Standards (ITS) on reporting requirements for investment firms falling under the Class 2 or Class 3 categories.

Along with the ITS, EBA introduced a set of templates and instructions for Class 2 & 3 investment firms, where the supervisory reporting framework incorporates different and tailored reporting templates with different frequencies.

The EBA will issue the final version of this ITS, along with the final templates, within the upcoming weeks.

  • Launch of Consultation Papers and Public hearing by the EBA

The EBA on 17TH December 2020 launched a public consultation on its new guidelines on remuneration policies and internal governance policies of Investment Firms, which will come into force on 26th June 2021 under IFD/IFR. The two consultation papers are as follows;

  • Next Actions

In conclusion, CySEC urges all CIFs to study the IFR/IFD carefully, along with the final draft RTS issued, in order to be able to:

  1. Identify the class they will be categorized at from 26th June 2021;
  2. Familiarise themselves with the new templates and the way their new capital requirement will be calculated;
  3. Identify the data needed to be collected and reported, especially in regards to the calculation of K-Factors; and
  4. Review their internal records and systems and make the necessary changes to ensure that the required historical data for the K-Factors will be available to calculate their new capital requirements. This information should be readily available at all times.

Finally, CySEC expects CIFs to start making their own assessment on the impact that the IFR and IFD will have on their own funds, concentration risk, liquidity risk, disclosure, reporting, remuneration requirements and take the necessary early actions to ensure compliance by the date of entry into force (i.e., on 26th June 2021).

CySEC Circular C246 can be found here

[1] CySEC has already issued Circular 355 regarding IFR/IFD.

In case you have any queries or need assistance in implementing any of the above provisions contact us on info@mnkriskconsulting.com