Response to discussion on the potential review of the investment firms’ prudential framework
Q1: What would be the operational constraints of potentially removing the threshold?
No position - (class 1- we are note concerned)
Q2: Would you suggest any further element to be considered regarding the thresholds used for the categorisation of Class 3 investment firms?
No Position - (class 3- we are note concerned)
Q3: Do you have any views on the possible ways forward discussed above regarding the transition of investment firms between Class 2 and Class 3 should be introduced?
No Position - (class 3- we are note concerned)
Q4: Should the minimum level of the own funds requirements be different depending on the activities performed by investment firms or on firms’ business model? If yes, which elements should be considered in setting such minimum?
We have not identified any reason why the minimum would be differentiated on the activities we conduct.
Q5: Is it necessary to differentiate the deductibles by activity or by business model for the purpose of calculating the FOR? If yes, which items should then be considered and for what reasons?
We do not see a need to differentiate the deductibles by activity or business model as too much granularity would bring complexity with the risk of loopholes.
Q6: Are expenses related to tied agents material for the calculation of the FOR to the extent to require a dedicated treatment for their calculation? If yes, are the considerations provided above sufficient to cover all the relevant aspects?
No position (we do not have tied agent)
Q7: Should the FOR be calculated distinguishing the costs related to non-MiFID activities, which criteria should be considered? What kind of advantages or disadvantages would this have in practice?
We are on the position that if the non-MiFID activities are not significant, distinguishing the costs would bring undue complexity
Q8: Should expenses related to fluctuation of exchange rates be included in the list of deductions for the calculation of the FOR? If yes, which criteria should be considered in addition to the ones suggested above?
No position
Q9: Should the concept of ‘ongoing advice’ be further specified for the purpose of calculating the K-AUM? If yes, which elements should be taken into account in distinguishing a recurring provision of investment advice from a one-off or non-recurring one?
No position (we do not provide investment advice)
Q10: Does the K-DTF provide a proper level of capital requirements for the provision of the services Trading on own account and execution of order on behalf of clients on account of the investment firm? If not, what elements of the calculation of the K-DTF present most challenges?
No position ( we do not hold trading book for our own account)
Q11: Would you have any examples where the calculation of the K-DTF based on comparable activities or portfolios results in very different or counterintuitive outcomes? If yes, how could the calculation of the K-DTF be improved?
No position ( we do not hold trading book for our own account)
Q12: What are the elements of the current methodology for the calculation of the K-ASA that raise most concerns? Taking into account the need to avoid complexifying excessively the methodology, how could the calculation of the K-ASA be improved to assess those elements?
The K ASA relates to assets under custody and administration, but a coefficient of 0.04% is applied regardless of the quality of the custody chain.
We believe this coefficient is quite high and should be balanced with the type of “safeguarding and administration of assets” performed and related risks. Below few examples of parameters which could be taken into account to lower the K-ASA coefficient to a more suitable level:
- Country risks differentiation: as such a chain of delegation of an Euroclear or Euroclear Settlement of Euronext Securities (ESES) settlement has a lower intrinsic custodial risk than third countries with no CSD principle, especially those with an identified country risk;
- The nature of the “administration of assets” (which definition is currently unclear);
- Rules for protection of assets held in custody: levels of segregation can differ from one country to another, as well as the local applicable regulations in case of default in the custody chain, notably when securities guarantee mechanisms exist.
To conclude, in our view, a lower K ASA taking into account the quality of asset protection should be implemented. The existence of 2 different coefficients for the K ASA calculation would not bring too much complexity. Criteria for applying a lower ASA coefficient could be set out in the RTS.
Q13: Clients’ asset protection may be implemented differently in different Member States. Should this aspect be considered in the calculation of the K-ASA? If so, how should that be taken into account in the calculation?
Please see our response in Q12 above
Q14: Should crypto-assets be included into K-factor calculation, either as a new K-factor or as part of K-NPR?
No position (we do not hold trading book for our own account)
Q15: In the context of addressing operational risk for investment firm trading on own account, is there any further element to be considered to ensure that the requirements are proportionate to their trading activities?
No position (we do not hold trading book for our own account)
Q16: The discussion paper envisages the possibility to rely on alternative methodologies with respect to the K-DTF. If the respondents suggest an alternative approach, how would this refer to the two activities addressed under the K-DTF (trading on own account and execution on own account on behalf of the clients)?
No position (we do not hold trading book for our own account)
Q17: When addressing other activities an investment firm may perform, which elements, on top of the discussed ones, should be also taken in consideration?
No position
Q18: Investment firms performing MiFID activities 3 and 6 (trading on own account and underwriting on a firm commitment basis) are more exposed to unexpected liquidity needs because of market volatility. What would be the best way to measure and include liquidity needs arising from these activities as a liquidity requirement?
No position (Not concerned)
Q19: Investment firms performing the activities of providing loans and credit to clients as an ancillary service in a non-negligeable scale would be more exposed to liquidity risks. What would be the best way to measure such risk in order to take them into account for the purposes of the liquidity requirements?
No position (Not concerned)
Q20: Investment firms, providing any of the MiFID services, but exposed to substantial exchange foreign exchange risk may be exposed to liquidity risks. What would be the best way to measure such risk in order to take them into account for the purposes of the liquidity requirements?
No position (Not concerned)
Q21: Are there scenarios where the dependency on service providers, especially in third countries, if disrupted, may lead to unexpected liquidity needs? What type of services such providers perform?
No position (Not concerned)
Q22: Are there scenarios where the dependency on liquidity providers, especially in third countries, would lead to unexpected liquidity needs? Could you provide some examples?
No position (Not concerned)
Q23: What other elements should be considered in removing the possibility of the exemption in Article 43 of the IFR?
No position (Not concerned)
Q24: Do you have any views on the possible ways forward discussed above concerning the provision of MiFID ancillary services by UCITS management companies and AIFMs?
No position (Not concerned)
Q25: Are differences in the regulatory regimes between MICAR and IFR/IFD a concern to market participants regarding a level playing field between CASPs and Investment firms providing crypto-asset related services? In particular, are there concerns on the capital and liquidity requirement regimes?
No position (Not concerned)
Q26: Sections 5.2, 5.4 as well as this Section 9.1 all touch upon how crypto-assets (exposures and services) may influence the IFD and the IFR. Is there any other related element that should be considered in the review of the investment firms’ prudential framework?
No position (Not concerned)
Q27: Is the different scope of application of remuneration requirements a concern for firms regarding the level playing field between different investment firms (class 1 minus and class 2), UCITS management companies and AIFMs, e.g., in terms of the application of the remuneration provisions, the ability to recruit and retain talent or with regard to the costs for the application of the requirements?
In our view the different scopes of applications is not problematic. The differences in certain practical requirements under CRD, IFD, UCITS or AIFMD are not creating a level playing field but leveraging on the fact that businesses can be different. We believe the framework of remuneration requirements is overall consistent as it stems from the same international principles for sound compensation.
Q28: Are the different provisions on remuneration policies, related to governance requirements and the different approach to identify the staff to whom they apply a concern for firms regarding the level playing field between different investment firms (class 1 minus under CRD or class 2 under IFD), UCITS management companies and AIFMs, e.g. in terms of the application of the remuneration provisions, the ability to recruit and retain talent or with regard to the costs for the application of the requirements?
Same answer as Q27.
Q29: Are the different provisions, criteria and thresholds regarding the application of derogations to the provisions on variable remuneration, and that they apply to all investment firms equally without consideration of their specific business model, a concern to firms regarding the level playing field between different investment firms (class 1 minus under CRD and class 2 under IFD), UCITS management companies and AIFMs, e.g., in terms of the application of the remuneration provisions, the ability to recruit and retain talent or with regard to the costs for applying the deferral and pay out in instruments requirements? Please provide a reasoning for your position and if possible, quantify the impact on costs and numbers of identified staff to whom remuneration provisions regarding deferral and pay out in instruments need to be applied.
Same answer as Q27. In addition, we would like to raise 2 concenrns to ensure equal treatment across Member States
- The “top 3” criterion of with IFD article 32 (5) (a).
Article 32 (5) sets conditions for increasing the threshold up to € 300 million of assets to benefit from the derogation foreseen by article 32 (4)(a) and to certain other requirements (governance for example).
Condition (a) requires that “the investment firm is not, in the Member State in which it is established, one of the three largest investment firms in terms of total value of assets;” This condition raises the following issues:
- the “top 3” investment firms being appreciated at the scale of each Member State, this leads to level playing field issues across IFs at EU level: in some Member States, 290 M€ total assets ends up falling in the top 3, while in another member state the top 3 largely exceed 1 bn € total assets each, which allows to apply the exemption to all investment firm whose assets are below the 300 M€ threshold (subject to the other conditions of article 32 (5) of course);
- Practically speaking, it raises many issues :
- difficult to monitor by Investment Firms, as the information on the 3 largest Investment Firms of a Member State is not available;
- this criterion does not depend only on the evolution of the Investment Firm itself, but also on the evolution of other IFs in one given country. Therefore, one firm could meet the criterion one year and not the following year and reversely the year after. The IF has no visibility on this and is not in a position to anticipate. For example, this has a significant impact on the remuneration policy that needs to be adapted from one year to another, and even more so for employees whose variable remuneration can be paid fully upfront one year and partly deferred the year after. For an employee standpoint, it is very difficult to understand that one year his/her remuneration can be deferred and another year not, whereas his/her function and responsibilities and the risks he/she may have taken have not changed at all, but only the ranking of the IF he/she works for.
We therefore believe that in case IFD is reviewed, point (a) of article 32 (5) is removed.
- Alternative arrangements for instruments with groups
We suggest the introduction in IFD of bigger flexibility in terms of the catalogue of instruments that could be used for the pay-out of variable remuneration within groups with different entities subject to different regimes. IFD art. 32 (k) provides that “by way of derogation from point (j), where an investment firm does not issue any of the instruments referred to in that point competent authorities may approve the use of alternative arrangements fulfilling the same objectives”.
In our opinion, an alternative arrangement consisting in using the same instrument as other entities of the same group should not be subject to approval. For example, an investment firm that is part of an asset management capital group that includes UCITS management company or AIFM using fund-linked instruments for that purpose, could use such instruments as alternative arrangements, without having to get the approval of competent authorities (which may lead to market fragmentation).
Q30: Are the different provisions regarding the oversight on remuneration policies, disclosure and transparency a concern for firms regarding the level playing field between different investment firm, UCITS management companies and AIFMs, e.g., with regard to the costs for the application of the requirements or the need to align these underlying provisions? Please provide a reasoning for your position.
Same answer as Q27.
Q31: What would be costs or benefits of extending existing reporting requirement to financial information? Which other elements should be considered before introducing such requirement?
We believe that financial information may be reported to authorities provided that it does not constitute an additional burden compared to the annual accounts filed to the local register of Commerce. This means the format remains at the choice of the IF or at least under the same template, format (pdf for ex.) and language as the ones used for the filing to the register of Commerce, and under the same local accounting standards, on an annual basis.
Q32: Should there be the need to introduce prudential requirement for firms active in commodity markets and that are not currently subject to prudential requirements? How could the existing framework for investment firms be adapted for those cases? If a different prudential framework needs to be developed, what are the main elements that should be considered?
No position (Not concerned)