Assuming that the third-country investment firm is subject to supervisory and regulatory requirements which apply to credit institutions in that third country and that those requirements were deemed equivalent to those applicable in the Union (henceforth 'equivalent banking requirements'), there are three distinctive scenarios that need to be considered.

The first one is when the third-country investment firm is subject to equivalent banking requirements at the individual level. In this case, from a credit-risk perspective, an exposure to that investment firm can be considered equivalent to an exposure to an institution established in the Union and, therefore, can receive the treatment provided for in Article 107(3) of Regulation (EU) No 575/2013.

The second and third scenarios relate to cases where, although the third-country investment firm is not subject to equivalent banking requirements at individual level, a number of conditions are fulfilled which allow treating the exposure to that investment firm in accordance with Article 107(3).

Under Union law, there are cases where an investment firm can be exempted from the compliance with requirements at individual basis, provided that certain conditions are met. Those conditions are spelled out in Article 7 of Regulation (EU) No 575/2013. A similar logic should apply to the treatment of exposures of third-country investment firms which comply with conditions equivalent to those listed in Article 7.

 In particular, two situations are possible:

A) The third-country investment firm is a subsidiary of a group that is subject to equivalent banking requirements at the consolidated level. Under this scenario, exposures to such an investment firm may be treated as exposures to an institution for the purposes of Article 107(3) of Regulation (EU) No 575/2013 provided that the conditions for the derogation listed in Article 7(1) of that Regulation are fulfilled in the country of origin (having also regard to paragraph 2 of that Article).

 
B) The third-country investment firm is a parent undertaking of a group that is subject to equivalent banking requirements at the consolidated level. Under this scenario, exposures to such an investment firm may be treated as exposures to an institution for the purposes of Article 107(3) of Regulation (EU) No 575/2013 provided that the conditions set out in Article 7(3) of that Regulation are complied with in the country of origin.

Disclaimer:

This question goes beyond matters of consistent and effective application of the regulatory framework. A Directorate General of the Commission (Directorate General Financial Stability, Financial Services and Capital Markets Union) has prepared the answer, albeit that only the Court of Justice of the European Union can provide definitive interpretations of EU legislation. This is an unofficial opinion of that Directorate General, which the European Banking Authority publishes on its behalf. The answers are not binding on the European Commission as an institution. You should be aware that the European Commission could adopt a position different from the one expressed in such Q&As, for instance in infringement proceedings or after a detailed examination of a specific case or on the basis of any new legal or factual elements that may have been brought to its attention.