On 5 December 2019, the European Union published the Investment Firm Regulation (IFR) and the Investment Firm Directive (IFD), creating a dedicated supervisory and regulatory reporting framework for investment firms. The individual EU member states have until June 2021 to implement the rules. In Germany, the Ministry of Finance recently published their draft regulation for transposing the rules.

Currently, investment firms are subject to the same strict regulatory requirements that also apply to institutions engaged in the lending and deposit business. They therefore report to their supervisors according to the requirements of the CRR/CRD. There are exceptions, particularly for small firms. However, these are usually nested in the extremely complex set of rules for banking regulation. An amendment of the supervisory requirements and regulations for European investment firms therefore seemed overdue. The amendment is intended to relieve small and medium-sized investment firms of the regulatory burden by replacing the previous complex set of rules. Around 6,000 European investment firms are likely to be affected.

Classification of these firms into three groups should make the determination of the regulatory requirements significantly easier:

  • Class 1: Must still meet the CRR/CRD requirements. Investment firms with a balance sheet total of more than EUR 30 billion must obtain a banking licence.
  • Class 2: Fall under the new IFR/IFD framework. These requirements include a modified or simplified set of rules for calculating own funds or risk concentration and liquidity.
  • Class 3: Further simplification of the IFR/IFD framework (compared to Group 2).