The European Parliament has adopted the Investment Firm Directive (IFD) and the Investment Firm Regulation (IFR), which will apply from June 2021. The most important changes as to the general functioning of investment firms concern new classification of investment firms, grouping them into firms that will fall under either Class 1, Class 2, or Class 3 firms. The impact of the new regime will be reflected in new capital and liquidity requirements, which will be now modelled based on K-factor calculations. This will not only require changes to the overall business models of investment firms but will also require modifications related to internal data systems and reporting processes, whilst considering the general impact of the IFD&IFR on investment firms that fall under its scope.
The new reporting requirements and regime are intended to simplify the difficulty level of reporting for investment firms, aiming at better proportionality and adequacy of data points to reflect the business activity of investment firms. The strongest impact of the new regime will be for firms that are classified as Class 2 investment firms, as they will be subject to the full scope of the IFR&IFD regime and will be obligated to submit reports on a quarterly basis, whereas Class 1 firms will still be subject to the CRD IV and CRR regime. Class 3 will be subject to a proportionally simpler reporting regime under the IFR and IFD package, reporting on an annual basis. The challenges lying under the hood of the new simplified regime include:
- More frequent reporting for Class 2 investment firms;
- The need to constantly monitor thresholds set out by the k-factors to ensure the firm is classified correctly and prepared to disclose the information immediately on request of the relevant authority;
- Ensuring the firms’ internal data software systems are prepared for the June 2021 deadline and the first obligatory reporting date.
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The Investment Firm Directive (IFD) and The Investment Firm Regulation (IFR)
Provides investment services and activities
Provides investment services and activities excluding dealing on own account and underwriting
Dealing on own account or underwriting and assets under 30 Bn EUR
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