October 2017: Tapestry Alert: Financial Services: EBA Opinion on New Prudential Regime for Investment Firms

The European Banking Authority (EBA) has published an Opinion on the design of a new prudential framework for investment firms. The Opinion includes a series of recommendations which aim to develop a single and harmonised set of requirements that are simple, proportionate and relevant to the nature of investment firms authorised to provide MiFID services and activities.


The Opinion was developed in response to the European Commission’s call for advice on the design of a new prudential framework for those MiFID investment firms for which the prudential regime of the Capital Requirements Directive (CRD) and Capital Requirements Regulation (CRR) is not appropriate.


The Opinion covers a range of topics, including capital, liquidity and reporting requirements, but also provides recommendations on the applicability of the remuneration requirements and corporate governance rules set out in CRD and CRR.

In the context of remuneration, the Opinion states that:

  • Larger systemic investment firms or investment firms exposed to the same types of risks as credit institutions (Class 1) should remain under the CRD remuneration framework.
  • The new remuneration framework should differentiate between other non-systemic investment firms above specific thresholds that should be subject to a more tailored prudential regime (Class 2) and small and non-interconnected investment firms providing limited services (Class 3) firms, and not between different business activities.
  • Class 3 firms should only be subject to the MiFID remuneration provisions and no additional requirements are deemed necessary.
  • The remuneration requirements for Class 2 firms should be similar to CRD and apply to staff that have a material impact on the firms risk profile.
  • Class 2 firms should still be subject to MiFID remuneration provisions for sales staff
  • Class 2 firms should have the discretion to use a mix of instruments, where appropriate, but they should have the possibility to pay the entirety of variable remuneration in one instrument category.
  • Waivers should be available for small Class 2 firms and staff receiving low remuneration.
  • The European Commission should carefully consider the advantages and disadvantages of applying a ‘bonus cap’ for Class 2 firms. In any case, Class 2 firms should specify the level of variable remuneration that can be paid within their remuneration policy.
  • Class 2 firms should be subject to simpler and less granular disclosure requirements. Benchmarking of disclosed information by the EBA should not be required. However, collection of data on high earners by Member States and its publication by EBA is recommended for Class 2 firms.

Tapestry Comment
The proposed prudential framework sets out a proportionate approach to remuneration for investment firms which would benefit those firms which currently apply the CRD regime in full, a regime which may not be appropriate to the size or activities of an investment firm. The possibility of removing the bonus cap for Class 2 firms would be particularly advantageous for firms which are currently required to apply such a cap.

The European Commission will now consider this Opinion and other responses and propose a new regime. The new regime is unlikely to come into force for a while so firms will have plenty of time to prepare for changes once the final version is published.

If you have any questions, please do get in touch – we are always delighted to help!

Janet and Matthew

Janet Cooper   Matthew Hunter

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