New Prudential Framework: Impact Analysis for EU Investment Firms

December 20, 2017 by Michael Chambers


The European Commission today issued its proposals announcing a new prudential rule book for investment firms.  This is based largely on the opinion and final report issued by the European Banking Authority (EBA) earlier this year.

The new rules will seek to move smaller non-bank-like investment firms away from the current regime governed by the Capital Requirements Directive (CRD) and Capital Requirements Regulation (CRR) (collectively CRD IV), which had been designed with banking institutions primarily in mind.

The premise of the new rules will be to ensure investment firms have a prudential framework designed to be simpler and more proportionate to the operations of these types of firms. However, these changes will result in significant alteration to how investment firms measure their capital for regulatory purposes. And some firms, which have previously been exempt from the majority of the requirements of CRD IV, will now find themselves in scope.

This proposal will start the legislative process in earnest. But as with all new Directives and Regulations the road is long but the final rules could be in place as early as 2019. Then of course there’s the impact of Brexit to consider – will the Financial Conduct Authority abandon these proposals in favour of its own “post-Brexit” regime? Anything’s possible but for the time being it may be safest to work on the basis that the UK will adopt the new rulebook.

The Opinion and final report issued by the EBA in September 2017 contains 62 recommendations and accompanying Annexes and will be the basis of the EC draft rules within their consultation paper. The process to arrive at the EBA’s Opinion have been at least three years in the making, consisting of reports, discussion papers, a number of data gathering exercises, opinions and recommendations.

How we can help

We have a range of solutions designed to help you meet your Investment Firm Regulation (IFR) obligations. 

These include: 

  • Impact assessment – to help you understand how the new prudential framework impacts your firm. This includes categorisation, capital requirements and resources, liquidity requirement and resources, group rules, regulatory reporting, ICAAP and public disclosure. 
  • Regulatory reporting – we can look after your on-going regulatory reporting burden allowing your team to focus on the day-to-day business. 
  • ICAAP reporting services – all firms will be required to annually conduct and document is Internal Capital Adequacy Assessment Process (ICAAP) to assess the level of capital that adequately addresses future and current risks in their business. ACA assists firms in developing and documenting their ICAAP as well as advising how the key underlying processes can be embedded in day-to-day governance. 

Contact Alistair Youngs or Carl Day at +44 (0)20 7042 0560 to learn more.

About the Author

Michael is Head of Prudential Practice within ACA’s Financial and Regulatory Reporting team, responsible for regulatory reporting and prudential consulting services, technical interpretation of new and existing rules and prudential training sessions for clients.

Michael works with ACA’s clients including alternative fund managers, corporate finance firms, broker dealers and other investment firms, across a variety of strategies to address their obligations. He represents ACA in its Affiliate Membership with the Investment Association on their Prudential Committee.

Michael holds a BSc (Hons) degree in Accounting and Management Information Systems from the University of Hertfordshire, and is an Associate Chartered Accountant with the ICAEW.