12 May 2023
The European Banking Authority (EBA) today published its draft Regulatory Technical Standards (RTS) on the scope and methods of consolidation of an investment firm group under the Investment Firms Regulation (IFR). These RTS detail the scope and methods for the prudential consolidation, as well as the methodology for the consolidation of capital requirements and the rules applicable for minority interest and additional Tier 1 and Tier 2 instruments issued by subsidiaries in the context of prudential consolidation. The aim of these RTS is to ensure prudential consolidation is carried out in a harmonised and consistent way. These RTS are the last regulatory products of the EBA Roadmap on investment firms, released in June 2020.
The IFR requires investment firm groups to identify a parent undertaking and those of its subsidiaries that are subject to the IFR to carry out the consolidation of the group. Particular attention is given to the setting up of a proper organisational structure and appropriate internal control mechanisms to ensure that the data required for consolidation are duly processed and reported.
These RTS address in detail the main elements that come into play when carrying out prudential consolidation for investment firm groups. In particular, the RTS detail four key aspects:
In developing these draft RTS the EBA has leveraged, where possible, the existing work on the prudential consolidation of credit institutions, although differences exist based on the legal texts (i.e. IFR vs CRR). Therefore, the scope of consolidation for investment firm groups is more limited than that of banking groups and calls for a closer alignment with Article 22 of the Accounting Directive in terms of entities in the scope of consolidation, as well as on the methods for consolidation available to investment firm groups.
These RTS are the final regulatory product of the EBA Roadmap on Investment Firms. However, the EBA is continuing its work on the implementation of the IFR/IFD package, including in the context of the IFR/IFD review, which has been requested by the European Commission.
The EBA has developed these RTS in accordance with Article 7(5) Regulation (EU) 2019/2033 (IFR) that mandates the EBA to develop draft RTS to specify the details of the scope and methods for prudential consolidation of an investment firm group, in particular for the purpose of calculating the fixed overheads requirement, the permanent minimum capital requirement, the K-factor requirement on the basis of the consolidated situation of the investment firm group, and the method and necessary details for minority interest and additional Tier 1 and Tier 2 instruments issued by subsidiaries in the context of prudential consolidation.