European Union: Review Of CRD IV For Investment Firms | A Big Win For The Industry?

Last Updated: 27 January 2016
Article by Katherine Jane and Kateryna Bobrova

Most Read Contributor in UK, August 2017

Just in time for Christmas, the EBA published its long-awaited report setting out recommendations for a review of the current prudential regime for investment firms. Produced at the request of the European Commission, and in cooperation with ESMA, the report identified a number of issues in the current application of the CRD/CRR requirements to investment firms (including a lack of adequate risk sensitivity and the complexity of the framework stemming from the current categorisation of firms based on MiFID definitions) and suggested a new approach to their categorisation. The latter would distinguish between systemic and "bank-like" investment firms, to which full CRD/CRR requirements should apply, and other investment firms namely those that are not considered 'systemic' or 'interconnected'. For the 'non-systemic' firms, the EBA recommended that requirements should be tailored to reflect the risks specific to their activities.

A 'more proportionate and risk-based' regime: what's in store?

The good news for the industry is that the EBA has acknowledged that the CRD/CRR regime does not appropriately capture the risks attached to activities of investment firms. While at this stage it is too early to draw specific conclusions, it is safe to assume that for smaller players or those not running 'bank-like' activities (such as market making or taking a margin on credit risks), the situation is likely to change substantially and for the better. In the meantime, the review raises a number of important questions.

First of all, the review is set to change the definition of 'investment firm' and potentially the range of firms caught by the CRD IV framework. Currently, the definition is tied to the MiFID activities undertaken by firms. MiFID II (originally planned to kick-in at the start of 2017 but likely to be delayed till 2018) could bring new firms into the scope of CRD IV/CRR (as more firms will now be classified as MiFID ones). The review is set to break the link with MiFID and offer a more suitable definition of an investment firm for CRD/CRR purposes. There is a question of whether this definition will capture firms currently benefiting from the exemption to CRD IV in Article 95(2) of the CRR and, thus, remaining under the CRD III treatment.

Secondly, the new categorisation proposed by the EBA, which will be underpinned by a set of quantitative and qualitative criteria, will significantly reduce the complexity in classifying different types of firms. The EBA's report suggested that any 'bank-like' investment firms meeting certain thresholds (or those that would otherwise present a clear risk to financial stability in normal conditions) will be deemed 'systemic'. However, it remains unclear what these thresholds will be (and whether they will be linked to the FSB's and IOSCO's work on systemic importance of non-bank non-insurer financial institutions) and what activities will be branded 'bank-like' (this might link to the FSB's taxonomy of 'shadow banking activities'). At the same time, the EBA recognised that only a small minority of MiFID firms carry out 'bank-like' intermediation and underwriting risks at a significant scale, so this group of firms could be relatively small.

For firms that will be categorised as 'non-systemic' or not 'bank-like', the EBA recommended developing a less complex prudential regime to address the specific risks arising from their investment business, including specifically credit, market, operational and liquidity risks along with those related to holding client money and securities. For small and non-interconnected firms, the EBA thought a very simple regime (designed to allow them to be wound down in an orderly manner) would be appropriate. They should also benefit from simplified reporting obligations. The fact that the EBA has specifically referenced client money risks (to which CRD III firms are not subject) indicates that this exemption for firms not holding client money may remain. Depending on where the rules land, some firms may want to reconsider whether they should take on client money.

Another aspect of the CRD IV regime that needs to be clarified is remuneration. In this regard, the EBA intends to send its advice to the European Commission suggesting legislative amendments that would allow for a broader application of the proportionality principle and exempt certain firms from specific requirements. Just before Christmas, the EBA also published its guidelines on sound remuneration policies and an opinion on the application of proportionality. While based on the current wording of CRD IV, competent authorities should not be permitted to 'neutralise' or disapply entire provisions under CRD IV, the EBA also recommended that small and non-complex institutions should be permitted by competent authorities to disapply certain requirements, particularly those related to deferral, pay-out instruments and discretionary pension benefits, to recognise the proportionality principle.

Next steps

At this stage, the EBA has provided no specific thresholds or criteria for categorisation of firms and no calibrations for a new prudential framework. It is therefore too early to say what implications this review will have for each category of investment firms but it shows the EBA has listened to both the FCA's and firms' concerns about the inappropriateness of the current regime. The benefits of this review could be wide-ranging to CRD IV firms and particularly to the asset management industry.

Following the EBA's report, the European Commission is now expected to report to the European Parliament and Council. If it is given the green light, the EBA will prepare a second, more detailed report with specific thresholds for categorisation and calibrations for a new prudential regime. To inform this follow-up report, the EBA will conduct a data collection exercise and firms should be ready to take the opportunity to input. Given the amount of work that will be required, it is unlikely that we will see any legislative proposal on the new prudential regime for investment firms before 2017. The EBA also recommended extending the waiver for commodity trading firms (that are currently exempt from the large exposures and capital adequacy provisions) until 31 December 2020. The latter has already been followed up on by the European Commission with the legislative proposal amending the CRR to that effect. The extension of the waiver suggests an aim to have new rules for investment firms implemented by 2020.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.