Response to consultation Paper on Draft Regulatory Technical Standards related to implementation of a new prudential regime for investment firms

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Is the proposed articulation of the K-factors calculation methods, in particular between AUM and CMH and ASA, exhaustive or should any other element be considered?


Are the requirements for notion of segregated accounts sufficient? Are there issues on segregated accounts which need to be elaborated further?


Is there any example of situations of market stress which would not been taken into account applying the proposed approach but would be relevant for the measurement of the K-DTF?


What would be appropriate thresholds or events that should trigger the comparison between the calculation under the K-CMG compared to the one under the K-NPR?


Which other conditions should be considered to avoid double counting or to prevent regulatory arbitrage in the use of the K-CMG approach?


Do you have any comment on the elements included in this Consultation Paper for the application of the aggregation method?


Do you currently use the method of proportional consolidation for the consolidation of subsidiaries in accordance with Article 18(4) of Regulation (EU) No 575/2013? If proportional consolidation is used, please explain if the conditions included in this Consultation Paper are met.


Do you have any comments on the conditions established in this Consultation Paper to apply proportional consolidation to investment firms groups under Regulation (EU) No 2019/2033?

We believe that Article 7 of the draft RTS on prudential consolidation of investment firms groups (Article 7(5) of the IFR) would benefit from further clarification. The current drafting suggests that firms will be obliged to obtain permission from the relevant competent authority (CA) if they continue to follow the default treatment for joint control by using proportional consolidation. We believe that this obligation would create uncertainty for firms currently applying proportional consolidation as they plan the implementation of the regime, whilst awaiting a response or feedback from the CA on the application. We would strongly encourage the EBA to remove the requirement for permission and instead allow CAs to review the application as part of a SREP.

The methods for calculating the K-factors in a consolidated situation may allow for further specifications. Is there any K-factor for which the calculation in the context of the consolidated basis would require further specifications? What aspects should be considered?

We do not believe that the EBA is sufficiently clear on the correct treatment of cross-holdings between two entities within the same consolidation group, or which have the same ultimate parent company, where both of these entities are required to calculate an AUM-based capital requirement. Specific clarity on this point within the RTS would be welcomed.

Without further clarity, holdings that have shared ownership may not be correctly applied to the relevant entities which will impact the accuracy of the K-AUM calculation. We therefore strongly recommend that the EBA clarifies the correct treatment of cross-holdings between entities that are part of the same parent group.

In addition, we would encourage the EBA to clarify whether it intends that the provisions of Article 11(3)(a) shall apply to all undertakings in a consolidation group. In particular, we seek clarity as to whether the EBA intends to capture AIFM / UCITS management firms within the consolidation group. If this is indeed the EBA’s intention, we believe that the provision would create an unlevel playing field as an AIFM / UCITS entity could be subject to significantly higher capital requirements (via K-AUA and K-CMH in particular, and also the effective removal of the €10m cap on capital requirements from AUM) than an AIFM / UCITS entity that is not within an Investment Firm Group.

Finally, the consultation paper (EBA/CP/2020/06) provides extensive detail on the four elements of client orders handled (COH), however we would appreciate further clarity on the exclusion of orders handled that, according to Article 20 of the IFR, “.. arise from the servicing of a client’s investment portfolio where the investment firm already calculates K-AUM in respect of that client’s investments…”. For example, is it the EBA’s intention that for investment firm groups with a single dealing entity within the group, that this investment firm will report a K-COH on a solo basis (for all clients within the group that are not contracted with this entity for investment management) but upon consolidation this K-factor will disappear as all orders are part of servicing a client’s investment? As we do not believe this consideration to be sufficiently clear in the current drafting, we would strongly recommend the EBA to provide further clarity.

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