Regulation 2019/2033 - Prudential requirements of investment firms - Main contents

EN

Official Journal of the European Union

L 314/1

Robust prudential requirements are an integral part of the regulatory conditions under which financial institutions provide services within the Union. Investment firms are, together with credit institutions, subject to Regulation (EU) No 575/2013 of the European Parliament and of the Council (4) and to Directive 2013/36/EU of the European Parliament and of the Council (5) as regards their prudential treatment and supervision, while their authorisation and other organisational and conduct requirements are set out in Directive 2014/65/EU of the European Parliament and of the Council (6).

The existing prudential regimes under Regulation (EU) No 575/2013 and Directive 2013/36/EU are largely based on successive iterations of the international regulatory standards set for large banking groups by the Basel Committee on Banking Supervision and only partially address the specific risks inherent to the diverse activities of a large number of investment firms. The specific vulnerabilities and risks inherent to those investment firms should therefore be specifically addressed by means of appropriate and proportionate prudential arrangements at Union level.

The risks which investment firms themselves incur and pose for their clients and the wider markets in which they operate depend on the nature and volume of their activities, including whether investment firms act as agents for their clients and are not party to the resulting transactions themselves, or whether they act as principals to the trades.

Sound prudential requirements should ensure that investment firms are managed in an orderly way and in the best interests of their clients. They should take into account the potential for investment firms and their clients to engage in excessive risk‐taking and the different degrees of risk assumed and posed by investment firms. Equally, such prudential requirements should aim to avoid imposing an undue administrative burden on investment firms.

Many of the prudential requirements that stem from the framework of Regulation (EU) No 575/2013 and Directive 2013/36/EU are designed to address common risks faced by credit institutions. Accordingly, the existing requirements are largely calibrated to preserve the lending capacity of credit institutions through economic cycles and to protect depositors and taxpayers from possible failure, and are not designed to address all of the different risk profiles of investment firms. Investment firms do not have large portfolios of retail and corporate loans and do not take deposits. The likelihood that their failure can have a detrimental impact on overall financial stability is lower than in the case of credit institutions. The risks faced and posed by most investment firms are thus substantially different to the risks faced and posed by credit institutions and such differences should be clearly reflected in the prudential framework of the Union.

The prudential requirements to which investment firms are subject under Regulation (EU) No 575/2013 and Directive 2013/36/EU are based on those of credit institutions. Investment firms the scope of whose authorisation is limited to specific investment services which are not targeted by the current prudential framework are subject to numerous exemptions from those requirements. Those exemptions recognise that those investment firms do not incur risks of the same nature as credit institutions. Investment firms which carry out activities that are targeted by the current prudential framework and that involve trading in financial instruments on a limited basis are subject to corresponding requirements of the framework in terms of capital but are eligible for exemptions in other areas, such as liquidity, large exposures and leverage. Investment firms the scope of whose authorisation is not subject to those limitations are subject to the same prudential requirements as credit institutions.

The trading of financial instruments, whether for the purposes of risk management, hedging or liquidity management or for taking directional positions on the value of the instruments over time, is an activity in which both credit institutions and investment firms authorised for dealing on own account may engage and which is already addressed by the prudential framework under Regulation (EU) No 575/2013 and Directive 2013/36/EU. In order to avoid an unlevel playing field which could lead to regulatory arbitrage between credit institutions and investment firms in this area, the own funds requirements resulting from those rules that address the risk should therefore also continue to apply to those investment firms. The exposures of those investment firms to their trading counterparties in specific transactions and corresponding own funds requirements are also covered by the rules and should therefore also continue to apply to investment firms in a simplified way. Finally, the rules on large exposures in the current prudential framework are also relevant when the trading exposures of those investment firms to specific counterparties are particularly large and thereby generate an excessively concentrated source of risk for an investment firm from the default of the counterparty. Those rules should therefore also continue to apply to investment firms in a simplified way.

Differences in the application of the existing prudential framework in different Member States threaten the level playing field for investment firms within the Union. Those differences stem from the overall complexity of the application of the framework to different investment firms based on the services that they provide, where some national authorities adjust or streamline such application in national law or practice. Given that the existing prudential framework does not address all the risks faced and posed by some types of investment firms, large capital add‐ons have been applied to certain investment firms in some Member States. Uniform provisions addressing those risks should be established in order to ensure harmonised prudential supervision of investment firms across the Union.

A specific prudential regime is therefore required for investment firms which are not systemic by virtue of their size and interconnectedness with other financial and economic actors. Systemic investment firms should, however, remain subject to the existing prudential framework under Regulation (EU) No 575/2013 and Directive 2013/36/EU. Those investment firms are a subset of investment firms to which the framework laid down in Regulation (EU) No 575/2013 and Directive 2013/36/EU currently applies and which do not benefit from dedicated exemptions from any of their principle requirements. The largest and most interconnected investment firms have business models and risk profiles that are similar to those of significant credit institutions. They provide ‘bank‐like’ services and underwrite risks on a significant scale. Furthermore, systemic investment firms are large enough to, and have business models and risk profiles which, represent a threat for the stable and orderly functioning of financial markets on a par with large credit institutions. Therefore it is appropriate that those investment firms remain subject to the rules set out in Regulation (EU) No 575/2013 and Directive 2013/36/EU.

The specific prudential regime for investment firms which, by virtue of their size and interconnectedness with other financial and economic actors, are not considered to be systemic should address the specific business practices of different types of investment firms. Investment firms with the highest possibility of generating risks to clients, markets or the orderly functioning of the investment firms themselves should, in particular, be subject to clear and effective prudential requirements tailored to those specific risks. Those prudential requirements should be calibrated in a manner proportionate to the type of investment firm, the best interests of the clients of that type of investment firm and the promotion of the smooth and orderly functioning of the markets in which that type of investment firm operates. They should mitigate identified areas of risk and help ensure that, if an investment firm fails, it can be wound down in an orderly manner with minimal disruption to the stability of financial markets.

The regime provided for in this Regulation should not affect the obligations of designated market makers at trading venues pursuant to Directive 2014/65/EU to provide quotes and be present in the market on a continuous basis.

The prudential regime for investment firms which, by virtue of their size and interconnectedness with other financial and economic actors, are not considered to be systemic should apply to each investment firm on an individual basis. However, in order to facilitate the application of prudential requirements for investment firms in the Union which are part of banking groups, to avoid disrupting certain business models the risks of which are already covered by the application of prudential rules, investment firms should be allowed to apply the requirements of Regulation (EU) No 575/2013 and Directive 2013/36/EU where appropriate, subject to approval by the competent authorities, provided that their decision to do so is not driven by regulatory arbitrage purposes. Further, since the risks incurred by small and non‐interconnected investment firms are limited for the most part, they should be allowed to avail themselves of an exemption from the specific prudential requirements for investment firms where they are part of a banking group or investment firm group headquartered and subject to consolidated supervision under Regulation (EU) No 575/2013 and Directive 2013/36/EU or under this Regulation and Directive (EU) 2019/2034 of the European Parliament and of the Council (7), as applicable, in the same Member State, as those prudential frameworks should adequately cover those risks in such cases. In order to mirror the existing treatment of investment firm groups under Regulation (EU) No 575/2013 and Directive 2013/36/EU, for groups consisting only of investment firms, or where consolidation under Regulation (EU) No 575/2013 does not apply, the parent undertaking in such groups should be required to comply with the requirements of this Regulation based on the consolidated situation of the group. Alternatively, instead of prudential consolidation, where such investment firm groups reflect simpler structures and risk profiles, competent authorities may allow the parent undertaking in the group to have sufficient capital to support the book value of its holdings in the subsidiaries. Where they are part of an insurance group, small and non‐interconnected investment firms should also be allowed to avail themselves of an exemption from disclosure requirements.

In order to allow investment firms to continue to rely on their existing own funds to meet their own funds requirements under the prudential framework specific to investment firms, the definition and composition of own funds should be aligned with Regulation (EU) No 575/2013. This includes full deductions of balance‐sheet items from own funds in accordance with Regulation (EU) No 575/2013, such as deferred tax assets and holdings of capital instruments of other financial sector entities. However, investment firms should be able to exempt non‐significant holdings of capital instruments in financial sector entities from deductions if held for trading purposes in order to support market making in those instruments. In order to align the composition of own funds with Regulation (EU) No 575/2013, the corresponding ratios of the types of own funds have been mirrored in the context of this Regulation. To ensure that the requirements are proportionate to the nature, scope and complexity of the activities of the investment firms and that they are readily accessible to the investment firms within this Regulation, the Commission should review the appropriateness of continuing to align the definition and composition of own funds with that of Regulation (EU) No 575/2013.

In order to ensure that investment firms always operate on the basis of the level of own funds required for their authorisation, all investment firms should, at all times, meet a permanent minimum capital requirement equal to the initial capital required for authorisation to conduct the relevant investment services set in accordance with Directive (EU) 2019/2034.

In order to ensure a simple application of the minimum own funds requirement for small and non‐interconnected investment firms, they should have own funds equal to the higher of their permanent minimum capital requirement or a quarter of their fixed overheads measured on the basis of their activity of the preceding year. Small and non‐interconnected investment firms that prefer to exercise further caution and avoid cliff effects in the case of reclassification should not be prevented from holding own funds in excess of, or applying measures stricter than, those required by this Regulation.

To account for the higher risks of investment firms which are not small and non‐interconnected, the minimum own funds requirement for such firms should be the higher of their permanent minimum capital requirement, a quarter of their fixed overheads for the preceding year, or the sum of their requirement under the set of risk factors tailored to investment firms (‘K‐factors’) which sets capital in relation to the risks in specific business areas of investment firms.

Investment firms should be considered to be small and non‐interconnected for the purposes of the specific prudential requirements for investment firms where they do not conduct investment services which carry a high risk for clients, markets or themselves and where their size means they are less likely to cause widespread negative impacts for clients and markets if risks inherent in their business materialise or if they fail. Accordingly, small and non‐interconnected investment firms should be defined as those that do not deal on own account or incur risk from trading financial instruments, hold no client assets or money, have assets under both discretionary portfolio management and non‐discretionary (advisory) arrangements of less than EUR 1,2 billion, handle less than EUR 100 million per day of client orders in cash trades or less than EUR 1 billion per day of client orders in derivatives, and have a balance sheet smaller than EUR 100 million including off‐balance‐sheet items and total gross annual revenues from the performance of their investment services of less than EUR 30 million.

In order to prevent regulatory arbitrage and to reduce the incentives for investment firms to restructure their operations to avoid exceeding the thresholds above which they do not qualify as small and non‐interconnected investment firms, the thresholds for assets under management, client orders handled, balance sheet size and total gross annual revenues should be applied on a combined basis for all investment firms that are part of the same group. The other conditions, namely whether an investment firm holds client money, administers or safeguards client assets, or trades financial instruments and incurs market or counterparty risk, are binary and leave no scope for such restructuring, and should therefore be assessed on an individual basis. In order to capture evolving business models and the risks they represent on an ongoing basis, those conditions and thresholds should be assessed on an end‐of‐day basis with the exception of holding client money, which should be assessed on an intraday basis, and balance sheet size and total annual gross revenues, which should be assessed based on the situation of the investment firm at the end of the previous financial year.

An investment firm that exceeds the regulatory thresholds or fails to meet the other conditions should not be considered small and non‐interconnected and should be subject to the requirements for other investment firms, subject to the specific transitional provisions set out in this Regulation. This should encourage investment firms to plan their business activities so as to clearly qualify as small and non‐interconnected investment firms. For an investment firm which does not satisfy the requirements to be considered small and non‐interconnected to qualify for such treatment, a monitoring phase should be provided where that investment firm meets the conditions and remains below the relevant thresholds for at least six consecutive months.

All investment firms should calculate their own funds requirement by reference to a set of K‐factors which capture Risk‐To‐Client (‘RtC’), Risk‐to‐Market (‘RtM’) and Risk‐to‐Firm (‘RtF’). The K‐factors under RtC capture client assets under management and ongoing advice (K‐AUM), client money held (K‐CMH), assets safeguarded and administered (K‐ASA), and client orders handled (K‐COH).

The K‐factor under RtM captures net position risk (K‐NPR) in accordance with the market risk provisions of Regulation (EU) No 575/2013 or, where permitted by the competent authority for specific types of investment firms which deal on own account through clearing members, based on the total margins required by an investment firm’s clearing member (K‐CMG). Investment firms should have an option to apply K‐NPR and K‐CMG simultaneously on a portfolio basis.

The K‐factors under RtF capture an investment firm’s exposure to the default of their trading counterparties (K‐TCD) in accordance with simplified provisions for counterparty credit risk based on Regulation (EU) No 575/2013, concentration risk in an investment firm’s large exposures to specific counterparties based on the provisions of that Regulation that apply to large exposures in the trading book (K‐CON), and operational risks from an investment firm’s daily trading flow (K‐DTF).

The overall own funds requirement under the K‐factors is the sum of the requirements of the K‐factors under RtC, RtM and RtF. K‐AUM, K‐ASA, K‐CMH, K‐COH and K‐DTF relate to the volume of activity referred to by each K‐factor. The volumes for K‐CMH, K‐ASA, and K‐DTF are calculated on the basis of a rolling average from the previous nine months. The volume for K‐COH is calculated on the basis of a rolling average from the previous six months, while for K‐AUM it is based on the previous 15 months. The volumes are multiplied by the corresponding coefficients set out in this Regulation in order to determine the own funds requirement. The own funds requirements for K‐NPR are derived from Regulation (EU) No 575/2013, while the own funds requirements for K‐CON and K‐TCD use a simplified application of the corresponding requirements under that Regulation for, respectively, the treatment of large exposures in the trading book and of counterparty credit risk. The amount of a K‐factor is zero if an investment firm does not undertake the relevant activity.

The K‐factors under RtC are proxies covering the business areas of investment firms from which harm to clients can conceivably be generated in case of problems. K‐AUM captures the risk of harm to clients from an incorrect discretionary management of client portfolios or poor execution and provides reassurance and client benefits in terms of the continuity of service of ongoing portfolio management and investment advice. K‐ASA captures the risk of safeguarding and administering client assets, and ensures that investment firms hold capital in proportion to such balances, regardless of whether they are on its own balance sheet or in third‐party accounts. K‐CMH captures the risk of potential for harm where an investment firm holds the money of its clients, taking into account whether they are on its own balance sheet or in third‐party accounts and arrangements under applicable national law provide that client money is safeguarded in the event of bankruptcy, insolvency, or entry into resolution or administration of the investment firm. K‐CMH excludes client money that is deposited on a (custodian) bank account in the name of the client itself, where the investment firm has access to the client money via a third‐party mandate. K‐COH captures the potential risk to clients of an investment firm which executes orders (in the name of the client, and not in the name of the investment firm itself), for example as part of execution‐only services to clients or when an investment firm is part of a chain for client orders.

The K‐factor for RtM for investment firms which deal on own account is based on the rules for market risk for positions in financial instruments, in foreign exchange, and in commodities in accordance with Regulation (EU) No 575/2013. This allows investment firms to choose to apply the standardised approach, the alternative standardised approach under Regulation (EU) No 575/2013, or the option to use internal models, once those latter two approaches become applicable to credit institutions not only for reporting purposes but also for own funds requirements purposes. In the meantime, and at least during the five years after the date of application of this Regulation, investment firms should apply the market risk framework (standardised approach or, if applicable, internal models) of Regulation (EU) No 575/2013 for the purpose of calculating their K‐NPR. If the provisions set out in Chapters 1a and 1b of Title IV of Part Three of Regulation (EU) No 575/2013 as amended by Regulation (EU) 2019/876 of the European Parliament and of the Council (8) do not become applicable to credit institutions for own funds requirements purposes, investment firms should continue to apply the requirements set out in Title IV of Part Three of Regulation (EU) No 575/2013 for the purpose of calculating K‐NPR. Alternatively, the own funds requirement of investment firms trading financial instruments with positions that are subject to clearing may, subject to the approval of the competent authority and certain conditions, be equal to the amount of total margins required by their clearing member, multiplied by a fixed multiplier. The use of K‐CMG should be predicated primarily on an investment firm’s trading activity falling entirely or substantially under this approach. However, the investment firm’s competent authority may also allow the investment firm to make partial use of the K‐CMG approach, provided that this approach is used for all positions that are subject to clearing or margining and one of the three alternative methods for K‐NPR is applied to portfolios that are not subject to clearing. In order to ensure that the requirements are proportionate to the nature, scope and complexity of the activities of the investment firms and that they are readily accessible to the investment firms within this Regulation, any review that subsequently takes place concerning the application of the methods for calculating the K‐factors should include the appropriateness of continuing to align the calculation of K‐NPR with the rules for market risk for trading book positions in financial instruments, in foreign exchange, and in commodities in accordance with Regulation (EU) No 575/2013.

For investment firms which deal on own account, the K‐factors for K‐TCD and K‐CON under RtF constitute a simplified application of the rules laid down in Regulation (EU) No 575/2013 on counterparty credit risk and large exposure risk, respectively. K‐TCD captures the risk to an investment firm by counterparties to over‐the‐counter (OTC) derivatives, repurchase transactions, securities and commodities lending or borrowing transactions, long settlement transactions, margin lending transactions, or any other securities financing transactions, as well as by recipients of loans granted by the investment firm on an ancillary basis as part of an investment service that fail to fulfil their obligations, by multiplying the value of the exposures, based on replacement cost and an add‐on for potential future exposure, by risk factors based on Regulation (EU) No 575/2013, accounting for the mitigating effects of effective netting and the exchange of collateral. In order to further align the treatment of counterparty credit risk with Regulation (EU) No 575/2013, a fixed multiplier of 1,2 and a multiplier for credit valuation adjustment (CVA) to reflect the current market value of the credit risk of the counterparty to the investment firm in specific transactions should also be added. K‐CON captures concentration risk in relation to individual or highly connected private sector counterparties with whom firms have exposures above 25 % of their own funds, or specific alternative thresholds in relation to credit institutions or other investment firms, by imposing a capital add‐on in line with Regulation (EU) No 575/2013 for excess exposures above those limits. Finally, K‐DTF captures the operational risks to an investment firm in large volumes of trades concluded for its own account or for clients in its own name in one day which could result from inadequate or failed internal processes, people and systems or from external events, based on the notional value of daily trades, adjusted for the time to maturity of interest rate derivatives in order to limit increases in own funds requirements, in particular for short‐term contracts where perceived operational risks are lower.

All investment firms should monitor and control their concentration risk, including in respect of their clients. However, only investment firms which are subject to a minimum own funds requirement under the K‐factors should report to competent authorities on their concentration risks. For investment firms specialised in commodity derivatives or emission allowances or derivatives thereof with large concentrated exposures to non‐financial counterparties, the limits for concentration risk may be exceeded without additional capital under K‐CON as long as they serve commercial, treasury or risk management purposes.

All investment firms should have internal procedures to monitor and manage their liquidity requirements. Those procedures are intended to help ensure that investment firms can function in an orderly manner over time, without the need to set aside liquidity specifically for times of stress. To that end, all investment firms should hold a minimum of one third of their fixed overheads requirement in liquid assets at all times. However, competent authorities should be allowed to exempt small and non‐interconnected investment firms from that requirement. Those liquid assets should be of high quality and aligned with those listed in Commission Delegated Regulation (EU) 2015/61 (9), together with the haircuts which apply to those assets under that Delegated Regulation. To account for the difference in liquidity profiles of investment firms compared to credit institutions, the list of appropriate liquid assets should be supplemented by the unencumbered own cash and short‐term deposits of the investment firm (which should not include any client money or financial instruments belonging to clients), and certain financial instruments for which there is a liquid market. If not exempt from liquidity requirements, small and non‐interconnected investment firms, as well as investment firms which are not licensed to carry out trading or underwriting activities, could further include items related to trade debtors and fees or commissions receivable within 30 days as liquid assets, provided that these items do not exceed one‐third of the minimum liquidity requirement, that they do not count towards any additional liquidity requirements imposed by the competent authority, and that they are subject to a haircut of 50 %. In exceptional circumstances, investment firms should be permitted to fall below the required threshold by monetising their liquid assets to cover liquidity requirements, provided that they notify their competent authority immediately. All financial guarantees provided to clients which can give rise to increased liquidity needs if triggered should reduce the amount of available liquid assets by at least 1,6 % of the total value of such guarantees. To ensure that the requirements are proportionate to the nature, scope and complexity of the activities of the investment firms and that they are readily accessible to the investment firms within the scope of this Regulation, a review should subsequently take place regarding the appropriateness of the liquid assets which are eligible for meeting the minimum liquidity requirement, including the continued alignment with those listed in Delegated Regulation (EU) 2015/61, together with the haircuts applying to those assets under that Delegated Regulation.

A proportionate corresponding regulatory reporting framework should be developed in conjunction with the new prudential regime and should be carefully tailored to the business of investment firms and the requirements of the prudential framework. Reporting requirements for investment firms should concern the level and composition of their own funds, their own funds requirements, the basis for the calculation of their own funds requirements, their activity profile and size in relation to the parameters for considering investment firms to be small and non‐interconnected, their liquidity requirements and their adherence to the provisions on concentration risk. Small and non‐interconnected investment firms should be exempt from reporting on concentration risk and should be required to report on liquidity requirements only where such requirements apply to them. The European Supervisory Authority (European Banking Authority) established by Regulation (EU) No 1093/2010 of the European Parliament and of the Council (10) (EBA) should develop draft implementing technical standards to further specify the detailed templates and arrangements for that regulatory reporting and to specify the templates for own funds disclosures. Those standards should be proportionate to the scale and complexity of different investment firms and should, in particular, take account of whether investment firms are considered to be small and non‐interconnected.

In order to provide transparency to their investors and the wider markets, investment firms which are not considered to be small and non‐interconnected should publicly disclose their levels of own funds, own funds requirements, governance arrangements, and remuneration policies and practices. Small and non‐interconnected investment firms should not be subject to public disclosure requirements, except where they issue Additional Tier 1 instruments in order to provide transparency to the investors in those instruments.

Investment firms should apply gender-neutral remuneration policies in accordance with the principle laid down in Article 157 of the Treaty on the Functioning of the European Union (TFEU). Some clarifications should be made to the remuneration disclosures. The disclosure requirements relating to remuneration set out in this Regulation should be compatible with the aims of the remuneration rules, namely to establish and maintain, for categories of staff whose professional activities have a material impact on the risk profile of investment firms, remuneration policies and practices that are consistent with effective risk management. Furthermore, investment firms benefitting from a derogation from certain remuneration rules should be required to disclose information concerning such derogation.

In order to facilitate a smooth transition for investment firms from the requirements of Regulation (EU) No 575/2013 and Directive 2013/36/EU to the requirements under this Regulation and Directive (EU) 2019/2034, it is appropriate to provide for appropriate transitional measures. In particular, for a period of five years from the date of application of this Regulation, investment firms for which own funds requirements under this Regulation would more than double compared to their own funds requirement under Regulation (EU) No 575/2013 and Directive 2013/36/EU should be able to mitigate the effects of potential increases by limiting the own funds requirement to twice their relevant own funds requirement under Regulation (EU) No 575/2013 and Directive 2013/36/EU.

In order not to disadvantage new investment firms with similar profiles to existing investment firms, investment firms which were never subject to own funds requirements under Regulation (EU) No 575/2013 and Directive 2013/36/EU should be able to limit their own funds requirements under this Regulation to twice their fixed overheads requirement for a period of five years from the date of application of this Regulation.

Equally, investment firms which were subject only to a requirement for initial capital under Regulation (EU) No 575/2013 and Directive 2013/36/EU and for which own funds requirements under this Regulation would more than double compared to their situation under Regulation (EU) No 575/2013 and Directive 2013/36/EU should be able to limit their own funds requirement under this Regulation to twice their initial capital requirement under Regulation (EU) No 575/2013 and Directive 2013/36/EU for a period of five years from the date of application of this Regulation, with the exception of local firms referred to in point (2)(b) of Article 4(1) of Regulation (EU) No 575/2013, as amended by Regulation (EU) 2019/876, which should be subject to a specific transitional own funds requirement reflecting their greater level of risk. For the purposes of proportionality, specific transitional own funds requirements should also be provided for smaller investment firms and those which provide a limited range of investment services where they would not benefit from a limitation of the own funds requirements under this Regulation to twice their initial capital requirements under Regulation (EU) No 575/2013, as amended by Regulation (EU) 2019/630 of the European Parliament and of the Council (11), and Directive 2013/36/EU, as amended by Directive (EU) 2019/878 of the European Parliament and of the Council (12), but whose binding own funds requirement under this Regulation would increase compared to their situation under Regulation (EU) No 575/2013, as amended by Regulation (EU) 2019/630.

Those transitional measures should, where applicable, also be available to investment firms referred to in Article 498 of Regulation (EU) No 575/2013, which exempts those investment firms from own funds requirements under that Regulation, whereas the requirements for initial capital with respect to those investment firms depend on the investment services or activities they provide. For a period of five years from the date of application of this Regulation, their own funds requirements under the transitional provisions of this Regulation should be calculated in view of those applicable levels.

For a period of five years from the date of application of this Regulation, or until the date of application of the changes adopted to Regulation (EU) No 575/2013 and Directive 2013/36/EU as regards own funds requirements for market risk pursuant to Chapters 1a and 1b of Title IV of Part Three of Regulation (EU) No 575/2013, as amended by Regulation (EU) 2019/876, whichever is later, investment firms subject to the corresponding provisions of this Regulation should continue to calculate their own funds requirement for the trading book in accordance with Regulation (EU) No 575/2013, as amended by Regulation (EU) 2019/630.

The largest investment firms that provide key wholesale market and investment banking services (dealing on own account in financial instruments or underwriting financial instruments or placing financial instruments on a firm commitment basis) have business models and risk profiles that are similar to those of significant credit institutions. Their activities expose them to credit risk, mainly in the form of counterparty credit risk, as well as to market risk for positions they take on own account, client related or not. As such, they present a risk to financial stability, given their size and systemic importance.

Those large investment firms present an additional challenge with regard to their effective prudential supervision by national competent authorities. Even though the largest investment firms provide cross‐border investment banking services on a significant scale, as investment firms they are subject to prudential supervision by authorities designated under Directive 2014/65/EU, which are not necessarily the same competent authorities as those designated under Directive 2013/36/EU. This may result in an unlevel playing field in the application of Regulation (EU) No 575/2013 and Directive 2013/36/EU within the Union and prevents supervisors from obtaining an overall prudential perspective which is essential for effectively addressing the risks associated with large cross‐border investment firms. As a consequence, prudential supervision may become less effective and may also distort competition within the Union. The largest investment firms should therefore be given the status of credit institutions so as to create synergies with regard to the supervision of cross‐border wholesale market activities in a peer group, promoting a level playing field, and allowing for consistent supervision across groups.

Those investment firms, by virtue of becoming credit institutions, should therefore continue to be subject to Regulation (EU) No 575/2013 and Directive 2013/36/EU and to supervision by competent authorities, including by the European Central Bank in the framework of the Single Supervisory Mechanism, in charge of credit institutions. This would ensure that the prudential supervision of credit institutions is implemented in a coherent and effective manner, and that the single rulebook for financial services is applied in the same manner to all credit institutions in light of their systemic importance. In order to prevent regulatory arbitrage and reduce the risks of circumvention, competent authorities should endeavour to avoid situations where potentially systemic groups would structure their operations in such a way as to not exceed the thresholds set out in point (1)(b) of Article 4(1) of Regulation (EU) No 575/2013 and circumvent the obligation to seek authorisation as credit institutions pursuant to Article 8a of Directive 2013/36/EU.

Large investment firms converted into credit institutions should be allowed to take deposits or other repayable funds from the public and to grant credits for their own account only once they have obtained the authorisation for those activities in accordance with Directive 2013/36/EU. Carrying out all such activities, including taking deposits or other repayable funds from the public and granting credits for their own account, should not be a necessary requirement for undertakings to be considered to be credit institutions. The change in the definition of credit institution introduced by this Regulation should therefore be without prejudice to the national authorisation regimes implemented by Member States in accordance with Directives 2013/36/EU and (EU) 2019/2034, including any provisions that Member States may consider to be appropriate for the purpose of clarifying the activities which large investment firms that fall within the amended definition of credit institutions are permitted to take up.

In addition, the supervision of credit institutions on a consolidated basis aims to ensure, inter alia, the stability of the financial system and, in order to be effective, should be applied to all groups, including those the parent undertakings of which are not credit institutions or investment firms. Therefore, all credit institutions, including those that previously had the status of investment firms, should be subject to the rules on individual and consolidated supervision of the parent undertaking by the competent authorities pursuant to Section I of Chapter 3 of Title VII of Directive 2013/36/EU.

Furthermore, it is possible that large investment firms which are not of systemic importance but which deal on own account, underwrite financial instruments or place financial instruments on a firm commitment basis have business models and risk profiles that are similar to those of other systemic institutions. Given their size and activities, it is possible that such investment firms present some risks to financial stability and, although their conversion into credit institutions is not deemed to be appropriate in light of their nature and complexity, they should remain subject to the same prudential treatment as credit institutions. In order to prevent regulatory arbitrage and reduce the risks of circumvention, competent authorities should also endeavour to avoid situations where investment firms structure their operations in such a way as to not exceed the EUR 15 billion threshold related to the total value of the assets at individual or group level, or to unduly limit the discretion of competent authorities to subject investment firms to the requirements of Regulation (EU) No 575/2013 and to compliance with the prudential requirements laid down in Directive 2013/36/EU, in accordance with Article 5 of Directive (EU) 2019/2034.

Regulation (EU) No 600/2014 of the European Parliament and of the Council (13) introduced a Union harmonised regime for granting access to third‐country firms providing investment services or activities to eligible counterparties and professional clients that are established in the Union. Access to the internal market is conditional on the Commission adopting an equivalence decision and on the European Supervisory Authority (European Securities and Markets Authority) established by Regulation (EU) No 1095/2010 of the European Parliament and of the Council (14) (ESMA) registering the third‐country firm. It is important that the assessment of equivalence is done on the basis of the relevant applicable Union law and that effective tools to monitor that the conditions under which equivalence is granted are in place. For those reasons, third‐country registered firms should be required to report annually to ESMA information concerning the scale and scope of services provided, and activities carried out, in the Union. Supervisory cooperation in relation to monitoring, enforcement and the fulfilment of the equivalence conditions should also be improved.

With the aim of guaranteeing a level playing field and promoting the transparency of the Union market, Regulation (EU) No 600/2014 should be amended to subject systemic internalisers’ quotes, price improvements and execution prices to the tick size regime when dealing in all sizes. Consequently, the currently applicable regulatory technical standards dealing with the tick size regime should also apply to the extended scope of Regulation (EU) No 600/2014.

To ensure investor protection and the integrity and the stability of financial markets in the Union, the Commission, when adopting an equivalence decision, should take into account the potential risks posed by the services and the activities that firms from that third country could carry out in the Union following that decision. Their systemic importance should be considered based on criteria such as the likely scale and scope of service provision and performance of activities by firms from the third country concerned. For the same purpose, the Commission should be able to take into account whether the third country is identified as a non‐cooperative jurisdiction for tax purposes under the relevant Union policy or as a high‐risk third country pursuant to Article 9(2) of Directive (EU) 2015/849 of the European Parliament and of the Council (15). The Commission should consider specific prudential, organisational or business conduct requirements to be equivalent only where the same effect is achieved. Furthermore, the Commission should be able, where appropriate, to adopt equivalence decisions limited to specific services and activities or categories of services and activities listed in Section A of Annex I to Directive 2014/65/EU.

EBA, with the participation of ESMA, has issued a report based on thorough background analysis, data collection and consultation for a bespoke prudential regime for all non‐systemic investment firms which serves as the basis for the revised prudential framework for investment firms.

In order to ensure the harmonised application of this Regulation, EBA should develop draft regulatory technical standards to specify the scope and methods for prudential consolidation of investment firm groups, the calculation of fixed overheads, measuring the K‐factors, specifying the notion of segregated accounts in relation to client money, adjusting the coefficients for K‐DTF in the case of stressed market conditions, the calculation for setting own funds requirements equal to the total margin required by clearing members, the templates for the public disclosures including as regards investment firms’ investment policy and regulatory reporting required under this Regulation and the information to be provided to competent authorities related to the thresholds for requiring authorisation as a credit institution. The Commission should be empowered to supplement this Regulation by adopting the regulatory technical standards developed by EBA by means of delegated acts pursuant to Article 290 TFEU and in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010. The Commission and EBA should ensure that those regulatory technical standards can be applied by all investment firms concerned in a manner that is proportionate to the nature, scale and complexity of those investment firms and their activities.

The Commission should also be empowered to adopt the implementing technical standards developed by EBA and by ESMA by means of implementing acts pursuant to Article 291 TFEU and in accordance with Article 15 of Regulation (EU) No 1093/2010 and Article 15 Regulation (EU) No 1095/2010.

In order to ensure the uniform application of this Regulation and to take account of developments in financial markets, the power to adopt acts in accordance with Article 290 TFEU should be delegated to the Commission to supplement this Regulation by clarifying the definitions in this Regulation. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level, and that those consultations be conducted in accordance with the principles laid down in the Interinstitutional Agreement of 13 April 2016 on Better Law‐Making (16). In particular, to ensure equal participation in the preparation of delegated acts, the European Parliament and the Council receive all documents at the same time as Member States’ experts, and their experts systematically have access to meetings of Commission expert groups dealing with the preparation of delegated acts.

In order to ensure legal certainty and avoid overlaps between the current prudential framework applicable to both credit institutions and investment firms and this Regulation, Regulation (EU) No 575/2013 and Directive 2013/36/EU should be amended in order to remove investment firms from their scope. However, investment firms which are part of a banking group should remain subject to those provisions in Regulation (EU) No 575/2013 and Directive 2013/36/EU which are relevant to the banking group, such as the provisions on the intermediate EU parent undertaking referred to in Article 21b of Directive 2013/36/EU and to the rules on prudential consolidation set out in Chapter 2 of Title II of Part One of Regulation (EU) No 575/2013.

Since the objective of this Regulation, namely to set up an effective and proportionate prudential framework to ensure that investment firms which are authorised to operate within the Union operate on a sound financial basis and are managed in an orderly way including, where relevant, in the best interests of their clients, cannot be sufficiently achieved by the Member States but can rather, by reason of its scale and effects, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality, as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve that objective,

own funds requirements relating to quantifiable, uniform and standardised elements of risk‐to‐firm, risk‐to‐client and risk‐to‐market;

requirements limiting concentration risk;

liquidity requirements relating to quantifiable, uniform and standardised elements of liquidity risk;

reporting requirements related to points (a), (b) and (c);

public disclosure requirements.

the total value of the consolidated assets of the investment firm is equal to or exceeds EUR 15 billion, calculated as an average of the previous 12 months excluding the value of the individual assets of any subsidiaries established outside the Union that carry out any of the activities referred to in this subparagraph;

the total value of the consolidated assets of the investment firm is less than EUR 15 billion, and the investment firm is part of a group in which the total value of the consolidated assets of all undertakings in the group that individually have total assets of less than EUR 15 billion and that carry out any of the activities referred to in points (3) and (6) of Section A of Annex I to Directive 2014/65/EU is equal to or exceeds EUR 15 billion, all calculated as an average of the previous 12 months, excluding the value of the individual assets of any subsidiaries established outside the Union that carry out either of the activities referred to in this subparagraph; or

the investment firm is subject to a decision by the competent authority in accordance with Article 5 of Directive (EU) 2019/2034.

the investment firm is a subsidiary and is included in the supervision on a consolidated basis of a credit institution, a financial holding company or a mixed financial holding company, in accordance with the provisions of Chapter 2 of Title II of Part One of Regulation (EU) No 575/2013;

the investment firm notifies the competent authority under this Regulation and the consolidating supervisor, if applicable;

the competent authority is satisfied that the application of the own funds requirements of Regulation (EU) No 575/2013 on an individual basis to the investment firm and on a consolidated basis to the group, as applicable, is prudentially sound, does not result in a reduction of the own funds requirements of the investment firm under this Regulation, and is not undertaken for the purposes of regulatory arbitrage.

‘ancillary services undertaking’ means an undertaking, the principal activity of which consists of owning or managing property, managing data‐processing services, or a similar activity which is ancillary to the principal activity of one or more investment firms;

‘asset management company’ means an asset management company as defined in point (19) of Article 4(1) of Regulation (EU) No 575/2013;

‘clearing member’ means an undertaking established in a Member State which fulfils the definition in point (14) of Article 2 of Regulation (EU) No 648/2012 of the European Parliament and of the Council (17);

‘client’ means a client as defined in point (9) of Article 4(1) of Directive 2014/65/EU except that, for the purposes of Part Four of this Regulation, ‘client’ means any counterparty of the investment firm;

‘commodity and emission allowance dealer’ means a commodity and emission allowance dealer as defined in point (150) of Article 4(1) of Regulation (EU) No 575/2013;

‘commodity derivatives’ means commodity derivatives as defined in point (30) of Article 2(1) of Regulation (EU) No 600/2014;

‘competent authority’ means a competent authority as defined in point (5) of Article 3(1) of Directive (EU) 2019/2034;

‘credit institution’ means a credit institution as defined in point (1) of Article 4(1) of Regulation (EU) No 575/2013;

‘dealing on own account’ means dealing on own account as defined in point (6) of Article 4(1) of Directive 2014/65/EU;

‘derivatives’ means derivatives as defined in point (29) of Article 2(1) of Regulation (EU) No 600/2014;

‘consolidated situation’ means the situation that results from applying the requirements of this Regulation in accordance with Article 7 to a Union parent investment firm, Union parent investment holding company or Union parent mixed financial holding company as if that undertaking formed, together with all the investment firms, financial institutions, ancillary services undertakings and tied agents in the investment firm group, a single investment firm; for the purpose of this definition, the terms ‘investment firm’, ‘financial institution’, ‘ancillary services undertaking’ and ‘tied agent’ shall also apply to undertakings established in third countries, which, were they established in the Union, would fulfil the definitions of those terms;

‘consolidated basis’ means on the basis of the consolidated situation;

‘execution of orders on behalf of clients’ means execution of orders on behalf of clients as defined in point (5) of Article 4(1) of Directive 2014/65/EU;

‘financial institution’ means an undertaking other than a credit institution or investment firm, and other than a pure industrial holding company, the principal activity of which is to acquire holdings or to pursue one or more of the activities listed in points (2) to (12) and point (15) of Annex I to Directive 2013/36/EU, including a financial holding company, a mixed financial holding company, an investment holding company, a payment institution within the meaning of Directive (EU) 2015/2366 of the European Parliament and of the Council (18), and an asset management company, but excluding insurance holding companies and mixed‐activity insurance holding companies as defined in point (g) of Article 212(1) of Directive 2009/138/EC of the European Parliament and of the Council (19);

‘financial instrument’ means a financial instrument as defined in point (15) of Article 4(1) of Directive 2014/65/EU;

‘financial holding company’ means a financial holding company as defined in point (20) of Article 4(1) of Regulation (EU) No 575/2013;

‘financial sector entity’ means a financial sector entity as defined in point (27) of Article 4(1) of Regulation (EU) No 575/2013;

‘initial capital’ means initial capital as defined in point (18) of Article 3(1) of Directive (EU) 2019/2034;

‘group of connected clients’ means a group of connected clients as defined in point (39) of Article 4(1) of Regulation (EU) No 575/2013;

‘investment advice’ means investment advice as defined in point (4) of Article 4(1) of Directive 2014/65/EU;

‘investment advice of an ongoing nature’ means the recurring provision of investment advice as well as the continuous or periodic assessment and monitoring or review of a client portfolio of financial instruments, including of the investments undertaken by the client on the basis of a contractual arrangement;

‘investment firm’ means an investment firm as defined in point (1) of Article 4(1) of Directive 2014/65/EU;

‘investment holding company’ means a financial institution, the subsidiaries of which are exclusively or mainly investment firms or financial institutions, at least one of such subsidiaries being an investment firm, and which is not a financial holding company as defined in point (20) of Article 4(1) of Regulation (EU) No 575/2013;

‘investment services and activities’ means investment services and activities as defined in point (2) of Article 4(1) of Directive 2014/65/EU;

‘investment firm group’ means a group of undertakings which consists of a parent undertaking and its subsidiaries or of undertakings which meet the conditions set out in Article 22 of Directive 2013/34/EU of the European Parliament and of the Council (20), of which at least one is an investment firm and which does not include a credit institution;

‘K‐factors’ means own funds requirements set out in Title II of Part Three for risks that an investment firm poses to clients, markets and to itself;

‘assets under management’ or ‘AUM’ means the value of assets that an investment firm manages for its clients under both discretionary portfolio management and nondiscretionary arrangements constituting investment advice of an ongoing nature;

‘client money held’ or ‘CMH’ means the amount of client money that an investment firm holds, taking into account the legal arrangements in relation to asset segregation and irrespective of the national accounting regime applicable to client money held by the investment firm;

‘assets safeguarded and administered’ or ‘ASA’ means the value of assets that an investment firm safeguards and administers for clients, irrespective of whether assets appear on the investment firm’s own balance sheet or are in third‐party accounts;

‘client orders handled’ or ‘COH’ means the value of orders that an investment firm handles for clients, through the reception and transmission of client orders and through the execution of orders on behalf of clients;

‘concentration risk’ or ‘CON’ means the exposures in the trading book of an investment firm to a client or a group of connected clients the value of which exceeds the limits in Article 37(1);

‘clearing margin given’ or ‘CMG’ means the amount of total margin required by a clearing member or qualifying central counterparty, where the execution and settlement of transactions of an investment firm dealing on own account take place under the responsibility of a clearing member or qualifying central counterparty;

‘daily trading flow’ or ‘DTF’ means the daily value of transactions that an investment firm enters through dealing on own account or the execution of orders on behalf of clients in its own name, excluding the value of orders that an investment firm handles for clients through the reception and transmission of client orders and through the execution of orders on behalf of clients which are already taken into account in the scope of client orders handled;

‘net position risk’ or ‘NPR’ means the value of transactions recorded in the trading book of an investment firm;

‘trading counterparty default’ or ‘TCD’ means the exposures in the trading book of an investment firm in instruments and transactions referred to in Article 25 giving rise to the risk of trading counterparty default;

‘current market value’ or ‘CMV’ means the net market value of the portfolio of transactions or securities legs subject to netting in accordance with Article 31, where both positive and negative market values are used in computing CMV;

‘long settlement transactions’ means long settlement transactions as defined in point (2) of Article 272 of Regulation (EU) No 575/2013;

‘margin lending transaction’ means margin lending transactions as defined in point (10) of Article 3 of Regulation (EU) 2015/2365 of the European Parliament and of the Council (21);

‘management body’ means a management body as defined in point (36) of Article 4(1) of Directive 2014/65/EU;

‘mixed financial holding company’ means a mixed financial holding company as defined in point (15) of Article 2 of Directive 2002/87/EC of the European Parliament and of the Council (22);

‘off‐balance‐sheet item’ means any of the items referred to in Annex I to Regulation (EU) No 575/2013;

‘parent undertaking’ means a parent undertaking within the meaning of point (9) of Article 2 and Article 22 of Directive 2013/34/EU;

‘participation’ means participation as defined in point (35) of Article 4(1) of Regulation (EU) No 575/2013;

‘profit’ means profit as defined in point (121) of Article 4(1) of Regulation (EU) No 575/2013;

‘qualifying central counterparty’ or ‘QCCP’ means a qualifying central counterparty as defined in point (88) of Article 4(1) of Regulation (EU) No 575/2013;

‘portfolio management’ means portfolio management as defined in point (8) of Article 4(1) of Directive 2014/65/EU;

‘qualifying holding’ means a qualifying holding as defined in point (36) of Article 4(1) of Regulation (EU) No 575/2013;

‘securities financing transaction’ or ‘SFT’ means SFT as defined in point (11) of Article 3 of Regulation (EU) 2015/2365;

‘segregated accounts’, for the purposes of Table 1 in Article 15(2), means accounts with entities where client money held by an investment firm is deposited in accordance with Article 4 of Commission Delegated Directive (EU) 2017/593 (23) and, where applicable, where national law provides that, in the event of insolvency or entry into resolution or administration of the investment firm, the client money cannot be used to satisfy claims in relation to the investment firm other than claims by the client;

‘repurchase transaction’ means a repurchase transaction as defined in point (9) of Article 3 of Regulation (EU) 2015/2365;

‘subsidiary’ means a subsidiary undertaking as defined in point (10) of Article 2 and within the meaning of Article 22 of Directive 2013/34/EU, including any subsidiary of a subsidiary undertaking of an ultimate parent undertaking;

‘tied agent’ means a tied agent as defined in point (29) of Article 4(1) of Directive 2014/65/EU;

‘total gross revenue’ means the annual operating income of an investment firm, in connection with the investment firm’s investment services and activities it is authorised to perform, including income stemming from interest receivable, from shares and other securities whether fixed yield or variable, from commission and fees, any gain and losses that the investment firm incurs on its trading assets, on assets held at fair value, or from hedging activities, but excluding any income which is not linked to the investment services and activities performed;

‘trading book’ means all positions in financial instruments and commodities held by an investment firm, either with trading intent or in order to hedge positions held with trading intent;

‘positions held with trading intent’ means any of the following:

‘Union parent investment firm’ means an investment firm in a Member State which is part of an investment firm group and which has an investment firm or a financial institution as a subsidiary or which holds a participation in such an investment firm or financial institution, and which is not itself a subsidiary of another investment firm authorised in any Member State, or of an investment holding company or mixed financial holding company set up in any Member State;

‘Union parent investment holding company’ means an investment holding company in a Member State which is part of an investment firm group and which is not itself a subsidiary of an investment firm authorised in any Member State or of another investment holding company in any Member State;

‘Union parent mixed financial holding company’ means a parent undertaking of an investment firm group which is a mixed financial holding company as defined in point (15) of Article 2 of Directive 2002/87/EC.

ensure uniform application of this Regulation;

take account, in the application of this Regulation, of developments on financial markets.

the investment firm meets the conditions for qualifying as a small and non‐interconnected investment firm set out in Article 12(1);

one of the following conditions is satisfied:

both the investment firm and its parent undertaking are subject to authorisation and supervision by the same Member State;

the authorities competent for the supervision on a consolidated basis in accordance with Regulation (EU) No 575/2013 or in accordance with Article 7 of this Regulation agree to such an exemption;

own funds are distributed adequately between the parent undertaking and the investment firm, and all of the following conditions are satisfied:

the investment firm meets the conditions for qualifying as a small and non‐interconnected investment firm set out in Article 12(1);

the investment firm is a subsidiary and is included in the supervision on a consolidated basis of an insurance or reinsurance undertaking in accordance with Article 228 of Directive 2009/138/EC;

both the investment firm and its parent undertaking are subject to authorisation and supervision by the same Member State;

the authorities competent for the supervision on a consolidated basis in accordance with Directive 2009/138/EC agree to such an exemption;

own funds are distributed adequately between the parent undertaking and the investment firm and all of the following conditions are satisfied:

the investment firm is included in the supervision on a consolidated basis in accordance with Chapter 2 of Title II of Part One of Regulation (EU) No 575/2013 or is included in an investment firm group for which Article 7(3) of this Regulation applies and the exemption provided for in Article 7(4) does not apply;

the parent undertaking, on a consolidated basis, monitors and has oversight at all times over the liquidity positions of all institutions and investment firms within the group or sub‐group that are subject to a waiver and ensures a sufficient level of liquidity for all of those institutions and investment firms;

the parent undertaking and the investment firm have entered into contracts that, to the satisfaction of the competent authorities, provide for the free movement of funds between the parent undertaking and the investment firm to enable them to meet their individual obligations and joint obligations as they become due;

there is no current or foreseen material, practical or legal impediment to the fulfilment of the contracts referred to in point (c);

the authorities competent for the supervision on a consolidated basis in accordance with Regulation (EU) No 575/2013 or in accordance with Article 7 of this Regulation agree to such an exemption.

‘own funds instruments’ means own funds as defined in Article 9 of this Regulation, without applying the deductions referred to in point (i) of Article 36(1), point (d) of Article 56, and point (d) of Article 66 of Regulation (EU) No 575/2013;

the terms ‘investment firm’, ‘financial institution’, ‘ancillary services undertaking’ and ‘tied agent’ shall also apply to undertakings established in third countries, which, were they established in the Union, would fulfil the definitions of those terms in Article 4.

the sum of the full book value of all of their holdings, subordinated claims and instruments referred to in point (i) of Article 36(1), point (d) of Article 56, and point (d) of Article 66 of Regulation (EU) No 575/2013 in investment firms, financial institutions, ancillary services undertakings and tied agents in the investment firm group; and

the total amount of all of their contingent liabilities in favour of investment firms, financial institutions, ancillary services undertakings and tied agents in the investment firm group.

,

,

,

Common Equity Tier 1 capital is defined in accordance with Chapter 2 of Title I of Part Two of Regulation (EU) No 575/2013, Additional Tier 1 capital is defined in accordance with Chapter 3 of Title I of Part Two of Regulation (EU) No 575/2013, and Tier 2 capital is defined in accordance with Chapter 4 of Title I of Part Two of Regulation (EU) No 575/2013; and

D is defined in Article 11.

the deductions referred to in point (c) of Article 36(1) of Regulation (EU) No 575/2013 shall apply in full, without the application of Articles 39 and 48 of that Regulation;

the deductions referred to in point (e) of Article 36(1) of Regulation (EU) No 575/2013 shall apply in full, without the application of Article 41 of that Regulation;

the deductions referred to in point (h) of Article 36(1), point (c) of Article 56, and point (c) of Article 66 of Regulation (EU) No 575/2013, insofar as they relate to holdings of capital instruments which are not held in the trading book, shall apply in full, without the application of the mechanisms provided for in Articles 46, 60 and 70 of that Regulation;

the deductions referred to in point (i) of Article 36(1) of Regulation (EU) No 575/2013 shall apply in full, without the application of Article 48 of that Regulation;

the following provisions shall not apply to the determination of own funds of investment firms:

there is no current or foreseen material, practical or legal impediment to the prompt transfer of capital or repayment of liabilities by the parent undertaking;

the risk evaluation, measurement and control procedures of the parent undertaking include the financial sector entity;

the derogation provided for in Article 8 is not used by the competent authorities.

a qualifying holding, the amount of which exceeds 15 % of the own funds of the investment firm calculated in accordance with Article 9 of this Regulation but without applying the deduction referred to in point (k)(i) of Article 36(1) of Regulation (EU) No 575/2013, in an undertaking which is not a financial sector entity;

the total amount of the qualifying holdings of an investment firm in undertakings other than financial sector entities that exceeds 60 % of its own funds calculated in accordance with Article 9 of this Regulation but without applying the deduction referred to in point (k)(i) of Article 36(1) of Regulation (EU) No 575/2013.

those shares are held temporarily during a financial assistance operation as referred to in Article 79 of Regulation (EU) No 575/2013;

the holding of those shares is an underwriting position held for five working days or fewer;

those shares are held in the own name of the investment firm and on behalf of others.

their fixed overheads requirement calculated in accordance with Article 13;

their permanent minimum capital requirement in accordance with Article 14; or

their K‐factor requirement calculated in accordance with Article 15.

AUM measured in accordance with Article 17 is less than EUR 1,2 billion;

COH measured in accordance with Article 20 is less than either:

ASA measured in accordance with Article 19 is zero;

CMH measured in accordance with Article 18 is zero;

DTF measured in accordance with Article 33 is zero;

NPR or CMG measured in accordance with Articles 22 and 23 is zero;

TCD measured in accordance with Article 26 is zero;

the on‐ and off‐balance‐sheet total of the investment firm is less than EUR 100 million;

the total annual gross revenue from investment services and activities of the investment firm is less than EUR 30 million, calculated as an average on the basis of the annual figures from the two‐year period immediately preceding the given financial year.

staff bonuses and other remuneration, to the extent that they depend on the net profit of the investment firm in the respective year;

employees’, directors’ and partners’ shares in profits;

other appropriations of profits and other variable remuneration, to the extent that they are fully discretionary;

shared commission and fees payable which are directly related to commission and fees receivable, which are included within total revenue, and where the payment of the commission and fees payable is contingent on the actual receipt of the commission and fees receivable;

fees to tied agents;

non‐recurring expenses from non‐ordinary activities.

Risk‐to‐Client (RtC) K‐factors calculated in accordance with Chapter 2;

Risk‐to‐Market (RtM) K‐factors calculated in accordance with Chapter 3;

Risk‐to‐Firm (RtF) K‐factors calculated in accordance with Chapter 4.

specify the methods for measuring the K‐factors in Title II of Part Three;

specify the notion of segregated accounts for the purposes of this Regulation for the conditions that ensure the protection of client money in the event of the failure of an investment firm;

specify adjustments to the K‐DTF coefficients referred to in Table 1 of paragraph 2 of this Article in the event that, in stressed market condition as referred to in Commission Delegated Regulation (EU) 2017/578 (25), the K‐DTF requirements seem overly restrictive and detrimental to financial stability.

for cash trades, the value is the amount paid or received on each trade;

for derivatives, the value of the trade is the notional amount of the contract.

the standardised approach set out in Chapters 2, 3 and 4 of Title IV of Part Three of Regulation (EU) No 575/2013;

the alternative standardised approach set out in Chapter 1a of Title IV of Part Three of the Regulation No (EU) No 575/2013;

the alternative internal model approach set out in Chapter 1b of Title IV of Part Three of the Regulation No (EU) No 575/2013.

the investment firm is not part of a group containing a credit institution;

the clearing and settlement of these transactions take place under the responsibility of a clearing member of a QCCP and that clearing member is a credit institution or an investment firm referred to in Article 1(2) of this Regulation, and the transactions are either centrally cleared in a QCCP or otherwise settled on a delivery versus payment basis under the responsibility of that clearing member;

the calculation of the total margin required by the clearing member is based on a margin model of the clearing member;

the investment firm has demonstrated to the competent authority that the choice of calculating RtM with K‐CMG is justified by certain criteria, which may include the nature of the main activities of the investment firm which shall essentially be trading activities subject to clearing and margining under the responsibility of a clearing member, and the fact that other activities performed by the investment firm are immaterial in comparison to those main activities; and

the competent authority has assessed that the choice of the portfolio(s) subject to K‐CMG has not been made with a view to engaging in regulatory arbitrage of the own funds requirements in a disproportionate or prudentially unsound manner.

derivative contracts listed in Annex II to Regulation (EU) No 575/2013, with the exception of the following:

long settlement transactions;

repurchase transactions;

securities or commodities lending or borrowing transactions;

margin lending transactions;

any other type of SFTs;

credits and loans referred to in point (2) of Section B of Annex I to Directive 2014/65/EU, if the investment firm is executing the trade in the name of the client or receiving and transmitting the order without executing it.

central governments and central banks, where the underlying exposures would receive a 0 % risk weight under Article 114 of Regulation (EU) No 575/2013;

multilateral development banks listed in Article 117(2) of Regulation (EU) No 575/2013;

international organisations listed in Article 118 of Regulation (EU) No 575/2013.

the counterparty is a credit institution, an investment firm, or a financial institution, subject to appropriate prudential requirements;

the counterparty is included in the same prudential consolidation as the investment firm on a full basis in accordance with Regulation (EU) No 575/2013 or Article 7 of this Regulation, or the counterparty and the investment firm are supervised for compliance with the group capital test in accordance with Article 8 of this Regulation;

the counterparty is subject to the same risk evaluation, measurement and control procedures as the investment firm;

the counterparty is established in the same Member State as the investment firm;

there is no current or foreseen material practical or legal impediment to the prompt transfer of own funds or repayment of liabilities from the counterparty to the investment firm.

for derivative contracts, RC is determined as the CMV;

for long settlement transactions, RC is determined as the settlement amount of cash to be paid or to be received by the investment firm upon settlement; a receivable is to be treated as a positive amount and a payable is to be treated as a negative amount;

for repurchase transactions and securities or commodities lending or borrowing transactions, RC is determined as the amount of cash lent or borrowed; cash lent by the investment firm is to be treated as a positive amount and cash borrowed by the investment firm is to be treated as a negative amount;

for securities financing transactions, where both legs of the transaction are securities, RC is determined by the CMV of the security lent by the investment firm; the CMV shall be increased using the corresponding volatility adjustment in Table 4 of Article 30;

for margin lending transactions and credits and loans referred to in point (g) of Article 25(1), RC is determined by the book value of the asset in accordance with the applicable accounting framework.

the effective notional (EN) amount of the transaction set in accordance with paragraphs 2 to 6 of this Article; and

the supervisory factor (SF) set in accordance with paragraph 7 of this Article.

for foreign exchange derivative contracts, the notional amount is defined as the notional amount of the foreign currency leg of the contract, converted to the domestic currency; if both legs of a foreign exchange derivative are denominated in currencies other than the domestic currency, the notional amount of each leg is converted to the domestic currency and the leg with the larger domestic currency value is the notional amount;

for equity and commodity derivatives contracts and emission allowances and derivatives thereof, the notional amount is defined as the product of the market price of one unit of the instrument and the number of units referenced by the trade;

for transactions with multiple payoffs that are state contingent including digital options or target redemption forwards, an investment firm shall calculate the notional amount for each state and use the largest resulting calculation;

where the notional is a formula of market values, the investment firm shall enter the CMVs to determine the trade notional amount;

for variable notional swaps such as amortising and accreting swaps, investment firms shall use the average notional over the remaining life of the swap as the trade notional amount;

leveraged swaps shall be converted to the notional amount of the equivalent unleveraged swap so that where all rates in a swap are multiplied by a factor, the stated notional amount is multiplied by the factor on the interest rates to determine the notional amount;

for a derivative contract with multiple exchanges of principal, the notional amount shall be multiplied by the number of exchanges of principal in the derivative contract to determine the notional amount.

0,42, for netting sets of transactions with financial and non‐financial counterparties for which collateral is exchanged bilaterally with the counterparty, if required, in accordance with the conditions laid down in Article 11 of Regulation (EU) No 648/2012;

1, for other netting sets.

for the purposes of points (a), (e) and (g) of Article 25(1), by the amount of collateral received by the investment firm from its counterparty decreased in accordance with Table 4;

for the transactions referred to in points (b), (c), (d) and (f) of Article 25(1), by the sum of the CMV of the security leg and the net amount of collateral posted or received by the investment firm.

a netting contract with the counterparty or other agreement which creates a single legal obligation covers all included transactions, such that the investment firm would have either a claim to receive or obligation to pay only the net sum of the positive and negative mark‐to‐market values of included individual transactions in the event a counterparty fails to perform due to any of the following:

the netting contract does not contain any clause which, in the event of default of a counterparty, permits a non‐defaulting counterparty to make limited payments only, or no payments at all, to the estate of the defaulting party, even if the defaulting party is a net creditor;

the investment firm has obtained an independent, written and reasoned legal opinion that, in the event of a legal challenge of the netting agreement, the investment firm’s claims and obligations would be equivalent to those referred to in point (a) under the following legal regime:

transactions with non‐financial counterparties as defined in point (9) of Article 2 of Regulation (EU) No 648/2012, or with non‐financial counterparties established in a third country, where those transactions do not exceed the clearing threshold as specified in Article 10(3) and (4) of that Regulation;

intragroup transactions as provided for in Article 3 of Regulation (EU) No 648/2012;

long settlement transactions;

SFTs, including margin lending transactions, unless the competent authority determines that the investment firm’s CVA risk exposures arising from those transactions are material; and

credits and loans referred to in point (g) of Article 25(1).

for cash trades, the value is the amount paid or received on each trade;

for derivatives, the value of the trade is the notional amount of the contract.

methodological options for assessing the exposures of asset classes to activities substantially associated with environmental or social objectives;

specific risk profiles of assets exposed to activities associated substantially with environmental or social objectives;

risks related to the depreciation of assets due to regulatory changes such as climate change mitigation;

potential effects of dedicated prudential treatment of assets exposed to activities associated substantially with environmental or social objectives on financial stability.

the positive excess of the investment firm’s long positions over its short positions in all the trading book financial instruments issued by the client in question, the net position for each instrument calculated in accordance with the provisions referred to in points (a), (b) and (c) of Article 22;

the exposure value of contracts and transactions referred to in Article 25(1) with the client in question, calculated in the manner laid down in Article 27.

500 % of the investment firm’s own funds, where 10 days or less have elapsed since the excess occurred;

in aggregate, 600 % of the investment firm’s own funds, for any excesses that have persisted for more than 10 days.

200 %, where the excess has not persisted for more than 10 days;

the corresponding factor in Column 2 of Table 6, after the period of 10 days calculated from the date on which the excess has occurred, by allocating each proportion of the excess to the appropriate line in Column 1 of Table 6.

exposures which are entirely deducted from an investment firm’s own funds;

exposures incurred in the ordinary course of the settlement of payment services, foreign currency transactions, securities transactions and the provision of money transmission;

exposures constituting claims against:

covered bonds;

exposures incurred by an investment firm to its parent undertaking, to other subsidiaries of that parent undertaking or to its own subsidiaries, insofar as those undertakings are supervised on a consolidated basis in accordance with Article 7 of this Regulation or with Regulation (EU) No 575/2013, are supervised for compliance with the group capital test in accordance with Article 8 of this Regulation, or are supervised in accordance with equivalent standards in force in a third country, and provided that the following conditions are met:

the other counterparty is a non‐financial counterparty;

both counterparties are subject to appropriate centralised risk evaluation, measurement and control procedures;

the transaction can be assessed as reducing risks directly relating to the commercial activity or treasury financing activity of the non‐financial counterparty or of that group.

the assets referred to in Articles 10 to 13 of Delegated Regulation (EU) 2015/61, subject to the same conditions regarding eligibility criteria and the same applicable haircuts as those laid down in those Articles;

the assets referred to in Article 15 of Delegated Regulation (EU) 2015/61, up to an absolute amount of EUR 50 million or the equivalent amount in domestic currency, subject to the same conditions regarding eligibility criteria, with the exception of the EUR 500 million threshold amount referred to in Article 15(1) of that Regulation, and the same applicable haircuts as those laid down in in that Article;

financial instruments not covered by points (a) and (b) of this subparagraph, traded on a trading venue for which there is a liquid market as defined in point (17) of Article 2(1) of Regulation (EU) No 600/2014 and in Articles 1 to 5 of Commission Delegated Regulation (EU) 2017/567 (26), subject to a haircut of 55 %;

unencumbered short‐term deposits at a credit institution.

they account for up to a maximum of one third of the minimum liquidity requirements as referred to in paragraph 1 of this Article;

they are not to be counted towards any additional liquidity requirements required by the competent authority for firm‐specific risks in accordance with point (k) of Article 39(2) of Directive (EU) 2019/2034;

they are subject to a haircut of 50 %.

the number of directorships held by members of the management body;

the policy on diversity with regard to the selection of members of the management body, its objectives and any relevant targets set out in that policy, and the extent to which those objectives and targets have been achieved;

whether or not the investment firm has set up a separate risk committee and the number of times the risk committee has met annually.

a full reconciliation of Common Equity Tier 1 items, Additional Tier 1 items, Tier 2 items and applicable filters and deductions applied to own funds of the investment firm and the balance sheet in the audited financial statements of the investment firm;

a description of the main features of the Common Equity Tier 1 and Additional Tier 1 instruments and Tier 2 instruments issued by the investment firm;

a description of all restrictions applied to the calculation of own funds in accordance with this Regulation and the instruments and deductions to which those restrictions apply.

a summary of the investment firm’s approach to assessing the adequacy of its internal capital to support current and future activities;

upon a request from the competent authority, the result of the investment firm’s internal capital adequacy assessment process, including the composition of the additional own funds based on the supervisory review process as referred to in point (a) of Article 39(2) of Directive (EU) 2019/2034;

the K‐factor requirements calculated, in accordance with Article 15 of this Regulation, in aggregate form for RtM, RtF, and RtC, based on the sum of the applicable K‐factors; and

the fixed overheads requirement determined in accordance with Article 13 of this Regulation.

the most important design characteristics of the remuneration system, including the level of variable remuneration and criteria for awarding variable remuneration, payout in instruments policy, deferral policy and vesting criteria;

the ratios between fixed and variable remuneration set in accordance with Article 30(2) of Directive (EU) 2019/2034;

aggregated quantitative information on remuneration, broken down by senior management and members of staff whose actions have a material impact on the risk profile of the investment firm, indicating the following:

information on whether the investment firm benefits from a derogation laid down in Article 32(4) of Directive (EU) 2019/2034.

the proportion of voting rights attached to the shares held directly or indirectly by the investment firm, broken down by Member State and sector;

a complete description of voting behaviour in the general meetings of companies the shares of which are held in accordance with paragraph 2, an explanation of the votes, and the ratio of proposals put forward by the administrative or management body of the company which the investment firm has approved; and

an explanation of the use of proxy advisor firms;

the voting guidelines regarding the companies the shares of which are held in accordance with paragraph 2.

level and composition of own funds;

own funds requirements;

own funds requirement calculations;

the level of activity in respect of the conditions set out in Article 12(1), including the balance sheet and revenue breakdown by investment service and applicable K‐factor;

concentration risk;

liquidity requirements.

the level of concentration risk associated with the default of counterparties and with trading book positions, both on an individual counterparty and aggregate basis;

the level of concentration risk with respect to the credit institutions, investment firms and other entities where client money is held;

the level of concentration risk with respect to the credit institutions, investment firms and other entities where client securities are deposited;

the level of concentration risk with respect to the credit institutions where the investment firm’s own cash is deposited;

the level of concentration risk from earnings;

the level of concentration risk as described in points (a) to (e) calculated taking into account assets and off‐balance‐sheet items not recorded in the trading book in addition to exposures arising from trading book positions.

the formats;

reporting dates and definitions and associated instructions which shall describe how to use those formats.

twice the relevant own funds requirement pursuant to Chapter 1 of Title I of Part Three of Regulation (EU) No 575/2013, subject to Article 93(1) of that Regulation, with reference to levels of initial capital set by Title IV of Directive 2013/36/EU, as amended by Directive (EU) 2019/878, that would have applied if the investment firm had continued to be subject to the own funds requirements of that Regulation as amended by Regulation (EU) 2019/630; or

twice the applicable fixed overhead requirement set out in Article 13 of this Regulation, where the investment firm was not in existence on or before 26 June 2021.

investment firms that were subject only to an initial capital requirement before 26 June 2021 may limit their own funds requirements to twice the applicable initial capital requirement set out in Title IV of Directive 2013/36/EU, as amended by Directive (EU) 2019/878, with the exception of points (b) and (c) of Article 31(1), and Article 31(2) respectively, of that Directive;

investment firms that were in existence before 26 June 2021 may limit their permanent minimum capital requirements to those provided for in Article 93(1) of Regulation (EU) No 575/2013, as amended by Regulation (EU) 2019/876, with reference to levels of initial capital set by Title IV of Directive 2013/36/EU, as amended by Directive (EU) 2019/878, that would have applied if the investment firm had continued to be subject to that Regulation, subject to an annual increase in the amount of those requirements of at least EUR 5 000 during the five‐year period;

investment firms that were in existence before 26 June 2021, that are not authorised to provide the ancillary services referred to in point (1) of Section B of Annex I to Directive 2014/65/EU, that only provide one or more of the investment services and activities listed in points 1, 2, 4 and 5 of Section A of Annex I to that Directive, that are not permitted to hold client money or securities belonging to their clients and that therefore may not at any time place themselves in debt with those clients, may limit their permanent minimum capital requirement to at least EUR 50 000, subject to an annual increase of at least EUR 5 000 during the five‐year period.

the conditions for investment firms to qualify as small and non‐interconnected investment firms in accordance with Article 12;

the methods for measuring the K‐factors in Title II of Part Three, including investment advice in the scope of AUM, and in Article 39;

the coefficients referred to in Article 15(2);

the method used to calculate K‐CMG, the level of own funds requirements deriving from K‐CMG as compared with K‐NPR, and the calibration of the multiplying factor set out in Article 23;

the provisions set out in Articles 43, 44 and 45 and in particular the eligibility for the liquidity requirement of liquid assets in points (a), (b) and (c) of Article 43(1);

the provisions set out in Section 1 of Chapter 4 of Title II of Part Three;

the application of Part Three to commodity and emission allowance dealers;

the modification of the definition of credit institution in Regulation (EU) No 575/2013 as a result of point (a) of Article 62(3) of this Regulation and potential unintended negative consequences;

the provisions set out in Articles 47 and 48 of Regulation (EU) No 600/2014 and their alignment with a consistent framework for equivalence in financial services;

the thresholds set out in Article 12(1);

the application of the standards of Chapters 1a and 1b of Title IV of Part Three of Regulation (EU) No 575/2013 to investment firms;

the method of measuring the value of a derivative in point (b) of Article 20(2) and point (b) of Article 33(2), and the appropriateness of introducing an alternative metric and/or calibration;

the provisions set out in Part Two, in particular concerning the permission for further instruments or funds to qualify as own funds pursuant to Article 9(4), and the possibility of granting such permission to investment firms that fulfil the conditions for qualifying as small and non‐interconnected investment firms set out in Article 12(1);

the conditions for investment firms to apply the requirements of Regulation (EU) No 575/2013 in accordance with Article 1(2) of this Regulation;

the provision set out in Article 1(5);

the relevance of the application of the disclosure requirements set out in Article 52 of this Regulation for other sectors, including investment firms referred to in Article 1(2) and (5) of this Regulation and credit institutions as defined in point (1) of Article 4(1) of Regulation (EU) No 575/2013.

with regard to Regulation (EU) 2019/2033 of the European Parliament and of the Council (*1) and Directive (EU) 2019/2034of the European Parliament and of the Council (*2), competent authorities as defined in point (5) of Article 3(1) of that Directive.

the title is replaced by the following:

‘Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and amending Regulation (EU) No 648/2012’;

in Article 2, the following paragraph is added:

‘5.   When applying the provisions laid down in Article 1(2) and 1(5) of Regulation (EU) 2019/2033 of the European Parliament and of the Council (*3) with regard to investment firms referred to in those paragraphs, the competent authorities as defined in point (5) of Article 3(1) of Directive (EU) 2019/2034 of the European Parliament and of the Council (*4) shall treat those investment firms as if they were “institutions” under this Regulation.

(*3)  Regulation (EU) 2019/2033 of the European Parliament and of the Council of 27 November 2019 on the prudential requirements of investment firms and amending Regulations (EU) No 1093/2010, (EU) No 575/2013, (EU) No 600/2014 and (EU) No 806/2014 (OJ L 314, 5.12.2019, p. 1)."

(*4)  Directive (EU) 2019/2034 of the European Parliament and of the Council of 27 November 2019 on the prudential supervision of investment firms and amending Directives 2002/87/EC, 2009/65/EC, 2011/61/EU, 2013/36/EU, 2014/59/EU and 2014/65/EU (OJ L 314, 5.12.2019, p. 64).’;"

Article 4(1) is amended as follows:

Article 6 is amended as follows:

the following article is inserted in Section 1 of Chapter 2 of Title II of Part One:

‘Article 10a

Application of prudential requirements on a consolidated basis where investment firms are parent undertakings

For the purposes of the application of this Chapter, investment firms shall be considered to be parent financial holding companies in a Member State or Union parent financial holding companies where such investment firms are parent undertakings of an institution or of an investment firm subject to this Regulation that is referred to in Article 1(2) or (5) of Regulation (EU) 2019/2033.’;

in Article 11, paragraph 4 is replaced by the following:

‘4.   EU parent institutions shall comply with Part Six and point (d) of Article 430(1) of this Regulation on the basis of their consolidated situation where the group comprises one or more credit institutions or investment firms that are authorised to provide the investment services and activities listed in points (3) and (6) of Section A of Annex I to Directive 2014/65/EU.

Where a waiver has been granted under Article 8(1) to (5), the institutions and, where applicable, the financial holding companies or mixed financial holding companies that are part of a liquidity sub‐group shall comply with Part Six and point (d) of Article 430(1) of this Regulation on a consolidated basis or on the sub‐consolidated basis of the liquidity sub‐group.’;

Articles 15, 16 and 17 are deleted;

in Article 81(1), point (a) is replaced by the following:

in Article 82, point (a) is replaced by the following:

Article 84 is amended as follows:

Article 85 is amended as follows:

Article 87 is amended as follows:

Article 93 is amended as follows:

in Chapter 1 of Title I of Part Three, Section 2 (Articles 95 to 98) is deleted with effect from 26 June 2026;

in Article 119, paragraph 5 is replaced by the following:

‘5.   Exposures to financial institutions authorised and supervised by the competent authorities and subject to prudential requirements comparable to those applied to institutions in terms of robustness shall be treated as exposures to institutions.

For the purposes of this paragraph, the prudential requirements laid down in Regulation (EU) 2019/2033 shall be considered to be comparable to those applied to institutions in terms of robustness.’;

in the second subparagraph of Article 162(3), point (a) is replaced by the following:

Article 197 is amended as follows:

in Article 200, point (c) is replaced by the following:

in Article 202, the introductory wording is replaced by the following:

‘An institution may use institutions, investment firms, insurance and reinsurance undertakings and export credit agencies as eligible providers of unfunded credit protection which qualify for the treatment set out in Article 153(3) where they meet all the following conditions:’;

in Article 224, paragraph 6 is replaced by the following:

‘6.   For unrated debt securities issued by institutions or investment firms and satisfying the eligibility criteria in Article 197(4), the volatility adjustments is the same as for securities issued by institutions or corporates with an external credit assessment associated with credit quality step 2 or 3.’;

in Article 227(3), the following point is inserted:

in Article 243(1), the second subparagraph is replaced by the following:

‘In the case of trade receivables, point (b) of the first subparagraph shall not apply where the credit risk of those trade receivables is fully covered by eligible credit protection in accordance with Chapter 4, provided that in that case the protection provider is an institution, an investment firm, an insurance undertaking or a reinsurance undertaking.’;

in Article 382(4), point (b) is replaced by the following:

Article 388 is deleted;

in Article 395, paragraph 1 is replaced by the following:

‘1.   An institution shall not incur an exposure to a client or group of connected clients the value of which exceeds 25 % of its Tier 1 capital, after taking into account the effect of the credit risk mitigation in accordance with Articles 399 to 403. Where that client is an institution or an investment firm, or where a group of connected clients includes one or more institutions or investment firms, that value shall not exceed 25 % of the institution’s Tier 1 capital or EUR 150 million, whichever is higher, provided that the sum of exposure values, after taking into account the effect of the credit risk mitigation in accordance with Articles 399 to 403, to all connected clients that are not institutions, does not exceed 25 % of the institution’s Tier 1 capital.’;

Article 402(3) is amended as follows:

in Article 412, paragraph 4a is replaced by the following:

‘4a.   The delegated act referred to in Article 460(1) shall apply to institutions.’;

in point (a) of Article 422(8), point (i) is replaced by the following:

in Article 428a, point (d) is deleted;

in Article 430b, paragraph 1 is replaced by the following:

‘1.   From the date of application of the delegated act referred to in Article 461a, credit institutions that do not meet the conditions set out in Article 94(1) nor the conditions set out in Article 325a(1) shall report, for all their trading book positions and all their non‐trading book positions that are subject to foreign exchange or commodity risks, the results of the calculations based on using the alternative standardised approach set out in Chapter 1a of Title IV of Part Three on the same basis as such institutions report the obligations laid down in points (b)(i) and (c) of Article 92(3).’;

in Article 456(1), points (f) and (g) are deleted;

Article 493 is amended as follows:

in Article 498(1), the first subparagraph is replaced by the following:

‘Until 26 June 2021, the provisions on own funds requirements as set out in this Regulation shall not apply to investment firms the main business of which consists exclusively of the provision of investment services or activities in relation to the financial instruments set out in points (5), (6), (7), (9), (10) and (11) of Section C of Annex I to Directive 2014/65/EU and to which Directive 2004/39/EC did not apply on 31 December 2006.’;

in Article 508, paragraphs 2 and 3 are deleted;

in point (1) of Annex I, point (d) is replaced by the following:

Annex III is amended as follows:

in Article 1, the following paragraph is inserted:

‘4a.   Chapter 1 of Title VII of this Regulation also applies to third‐country firms providing investment services or performing investment activities within the Union.’;

in Title III, the title is replaced by the following:

‘TRANSPARENCY FOR SYSTEMATIC INTERNALISERS AND INVESTMENT FIRMS TRADING OTC AND TICK SIZE REGIME FOR SYSTEMATIC INTERNALISERS’;

the following article is inserted:

‘Article 17a

Tick sizes

Systematic internalisers’ quotes, price improvements on those quotes and execution prices shall comply with tick sizes set in accordance with Article 49 of Directive 2014/65/EU.

Application of tick sizes shall not prevent systematic internalisers matching orders large in scale at mid‐point within the current bid and offer prices.’;

Article 46 is amended as follows:

Article 47 is amended as follows:

Article 49 is replaced by the following:

‘Article 49

Measures to be taken by ESMA

• 1. 

  ESMA may temporarily prohibit or restrict a third‐country firm from providing investment services or performing investment activities with or without any ancillary services in accordance with Article 46(1) where the third‐country firm has failed to comply with any prohibition or restriction imposed by ESMA or EBA in accordance with Articles 40 and 41 or by a competent authority in accordance with Article 42, has failed to comply with a request from ESMA in accordance with Article 46(6a) and (6b) in due time and a proper manner, or where the third‐country firm does not cooperate with an investigation or an on‐site inspection carried out in accordance with Article 47(2).

• 2. 

  Without prejudice to paragraph 1, ESMA shall withdraw the registration of a third‐country firm in the register established in accordance with Article 48 where ESMA has referred the matter to the competent authority of the third country, and that competent authority has not taken the appropriate measures needed to protect investors or the proper functioning of the markets in the Union, or has failed to demonstrate that the third‐country firm concerned complies with the requirements applicable to it in the third country or with the conditions under which a decision in accordance with Article 47(1) has been adopted, and one of the following applies:

• 3. 

  ESMA shall inform the third‐country competent authority of its intention to take action in accordance with paragraph 1 or 2 in due course.

In deciding the appropriate action to take under this Article, ESMA shall take into account the nature and seriousness of the risk posed to investors and the proper functioning of the markets in the Union, having regard to the following criteria:

ESMA shall inform the Commission and the third‐country firm concerned of any measure adopted in accordance with paragraph 1 or 2 without delay and shall publish its decision on its website.

The Commission shall assess whether the conditions under which a decision in accordance with Article 47(1) was adopted continue to persist in relation to the third country concerned.’;

in Article 52, the following paragraph is added:

‘13.   By 31 December 2020, ESMA shall assess the staffing and resources needs arising from the assumption of its powers and duties in accordance with Article 64 of Regulation (EU) 2019/2033 and submit a report on that assessment to the European Parliament, to the Council and to the Commission.’;

in Article 54, paragraph 1 is replaced by the following:

‘1.   Third‐country firms may continue to provide services and activities in Member States, in accordance with national regimes, until three years after the adoption by the Commission of a decision in relation to the relevant third country in accordance with Article 47. Services and activities not covered by such a decision may continue to be provided in accordance with national regime.’.

references to point (c) of Article 92(1) of Regulation (EU) No 575/2013 as regards the total capital ratio requirement in this Regulation shall refer to Article 11(1) of Regulation (EU) 2019/2033;

references to Article 92(3) of Regulation (EU) No 575/2013 as regards the total risk exposure amount in this Regulation shall refer to the applicable requirement in Article 11(1) of Regulation (EU) 2019/2033, multiplied by 12,5.

points (2) and (3) of Article 63 shall apply from 26 March 2020;

point (30) of Article 62 shall apply from 25 December 2019.