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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:

  1. More frequent reporting for Class 2 investment firms;
  2. 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;
  3. Ensuring the firms’ internal data software systems are prepared for the June 2021 deadline and the first obligatory reporting date.

Articles

One step closer to IFPR – the FCA publishes its second consultation paper on the new regime for investment firms

In 2018, the European Banking Authority set out to provide investment firms with a less burdensome prudential regime. As a result of many considerations circling around compliance and reporting issues, the Investment Firms Regulation and Directive was introduced: in short, the IFR/IFD package.

Lens on the IFR&IFD Regime: Potential implications for reporting answered in 3 questions

Within the euro area, the non-banking sector currently accounts for 55% of the financial sector, compared to 14% thirteen years ago- in 2008. Whereas the foremost regulatory focus has been on the importance of supervision over the banking and insurance sectors, non-banking entities have become significant players and contributors to the financial landscape as a whole. This, coupled with drivers of change, such as innovation sweeping through the financial landscape and the increasing number of digitally provided services, has triggered regulatory changes to encompass these trends. As a result, investment firms within the EU will fall under regulations specified by the Investment Firms Regulation and Directive (IFR&IFD) from 26 June 2021.

IFR&IFD: Catching up with the EBA timeline

In June of the previous year, the EBA published a roadmap showing the “way to go” in implementing the new regime for investment firms, referred to as the IFR&IFD. Now, approximately two months before the “go-live” date, we take a look at what is coming in the next months. The Investment Firms Regulation becomes applicable on June 26th, 2021 and EU Member States are required to publish measures necessary to comply with the Investment Firms Directive by the same date.

Classification under IFR&IFD

Key aspects of the IFR/IFD regime

Your team should be asking…

Combining the business implications and data reporting perspective

A BR-AG webinar with guest speakers from PwC Belgium
Downloads

The IFR&IFD timeline

December 2019

IFR&IFD enters into force

December 2020

EBA submits IFR&IFD technical standards to the European Commission

June 2021

Deadline for adopting IFR&IFD begins to apply. EBA and ESMA will submit second regulatory technical standards under IFR&IFD.

December 2022

Introduction od the environmental, social and governance risks disclosures.

The Investment Firm Directive (IFD) and The Investment Firm Regulation (IFR)

INVESTMENT FIRMS

Provides investment services and activities

Provides investment services and activities excluding dealing on own account and underwriting

or

Dealing on own account or underwriting and assets under 30 Bn EUR

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