Die Deutsche Kreditwirtschaft / German Banking Industry Committee
The GBIC welcomes the opportunity to comment on the draft RTS on the reclassification of investment firms as credit institutions. Our submission solely addresses the in our view unintended consequence that medium-sized and smaller investment firms will be fully subject to prudential banking regulation and will have to be part of a bank deposit guarantee scheme if CRR credit institutions are taken into account in the ‘group test’ according to Article 8a (1) b) CRD.
The objective of the new IFR and IFD regulations was to create a separate supervisory regime for investment firms. In a risk-adequate manner, the largest investment firms are to be placed on an equal footing with CRR credit institutions, and small and medium-sized investment firms are supposed to be subject to lighter requirements. In this context, the amendment of the definition of a credit institution in Article 4 of the CRR, which was expanded to include large investment firms (Article 4 (1) no. 1 b) i) CRR), raises several problems:
### Inclusion of credit institutions in the group test ###
Including CRR credit institutions in the definition leads to contradictory results: If, for example, both a CRR credit institution according to Art. 4 (1) no. 1 a) with total assets of EUR 25 billion and an investment firm that engages in proprietary trading and has total assets of EUR 6 billion exist in a group, the investment firm would be classified as a CRR credit institution if, in the context of Art. 4 (1) no. 1 b) ii) CRR, CRR credit institutions would also have to be included. If the investment firm had total assets of EUR 10 billion and the CRR credit institution according to Article 4 (1) no. 1 a) CRR had total assets of EUR 31 billion, the CRR credit institution would not have to be included in the context of the classification of the investment firm as a CRR credit institution in accordance with Article 4 (1) no. 1 b) ii) CRR. Consequently, the investment firm would not qualify as a CRR credit institution because it does not exceed the threshold of EUR 30 billion, even though the aggregate total assets of the group-affiliated undertakings would be significantly larger than in the initial case.
Hence, entities already included as CRR credit institutions under Article 4 (1) no. 1 a) CRR, must be excluded from the scope of this provision, even if they engage in proprietary trading or issuing business. This would be in accordance with the purpose and the legislative history of Article 4 (1) no. 1 b) CRR,
With the extension of the legal definition for CRR credit institutions by Art. 4 (1) no. 1 b) i) CRR, only those entities should be captured previously classified as CRR investment firms. However, to the extent that a consolidated group already includes entities engaged in deposit-taking and lending business, there is no supervisory need to include them under Art. 4 (1) no. 1 b) CRR because they are already included as CRR credit institutions under Art. 4 (1) no. 1 a) CRR.
### Investment firms in groups ###
According to the definition, investment firms with total assets less than EUR 30 billion have to be treated the same way as CRR credit institutions if they are part of a group in two cases. Both variants regulate similar constellations, but differ insofar as according to Art. 4 (1) no. 1 b) ii) CRR the term credit institution is extended to a small or medium-sized investment firm if this belongs to a group in which the total value of the consolidated total assets of all undertakings in the group (which individually have total assets of less than EUR 30 billion and engage in proprietary trading or issuing business), amounts to EUR 30 billion or more. In contrast, Article 4 (1) no. 1 b) iii) CRR links the legal consequence to the fact that the total assets of all undertakings is more than EUR 30 billion and a supervisory college makes the decision on the classification as a CRR credit institution.
This would render point iii) meaningless due to the broad wording of point ii). The broad wording would not only cover circumvention constellations but would declare all investment firms belonging to a large group to be CRR credit institutions without differentiation. Moreover, it is inconsistent if under (ii), where the individual group undertakings must each have total assets of less than EUR 30 billion, the upgrading follows directly by law, whereas the upgrading under iii), where this restrictive condition does not exist, is subject to the exercise of discretion by the competent authorities. One consequence of these requirements is that the investment firms concerned are themselves subject to all banking supervisory requirements and must comply with them at the individual level. In our opinion, the current version of Art. 4 (1) no. 1 b) CRR, which is to be amended, is an editorial error that could have very significant negative consequences for small and medium-sized investment firms. This can be justified, among other things, by the fact that the facilitation rules provided for investment firm according to the IFD (implementation in German law as Wertpapierfirmen-/Wertpapierinstitutsgesetz), would in fact not apply in the case of a broad group concept, with consideration of the CRR credit institutions.
• According to the Monthly Report March 2021 of Deutsche Bundesbank the group definition refers to investment firms groups, i.e. to the "joint (consolidated) consideration of several such investment firms within a group”. The classification of investment firms as CRR credit institutions is, in our opinion, not required to counteract possible risks of circumvention or potential risks to the financial stability of the European Union.
• If small/medium-sized investment firms are classified as CRR credit institutions, this may also have consequences for the management of the companies, as different requirements are placed on the management of a CRR credit institution than on that of an investment firm. This could even lead to the necessity to dismiss the management, which in turn would counteract the aim of the new supervisory regime for investments firms to facilitate prudential requirements.
### Consequences for deposit insurance ###
The classification of investment firms as CRR credit institutions leads to a problem with regard to deposit insurance. Investment firms do not engage in deposit-taking business. It is unclear whether due to the reclassification to a CRR credit institution, the investment firm has to become member of a deposit guarantee scheme. In France, for example, such CRR credit institutions are given a separate status and are not allowed to engage in either deposit-taking or lending business (cf. on the possibility of determining this at national level recital (40) of the IFR). Although these institutions are formally assigned to the deposit guarantee scheme, they only pay an administrative fee. From our point of view, it would be worth considering a similar restriction of the business field of such institutions and thus to come to a negation of the scope of application of § 1 sentence 1 EinSiG and Article 4 (3) of Directive 2014/49, respectively.
Die Deutsche Kreditwirtschaft / German Banking Industry Committee