In our view it might be simpler to describe the applicable capital requirements in relation to the different types of activities that investment firms may have authorization to perform under MiFID instead of class 1-3.
SIFA is positive to introducing a more appropriate prudential regime and a new categorisation of investment firms. SIFA would like to encourage the EBA initiative to revise and simplify the regulations regarding capital requirements for investment firms. The proposed regime is definitely a step in the right direction and it is our view that the requirements will be easier to apply.
However, we question the applicability of the regulation for fund managers. Fund managers are already subject to the capital requirements of the UCITS Directive and the AIFMD.
On page 5 f. of the Discussion Paper it says that “the DP will also be relevant for UCITS management companies or AIF managers authorized to conduct certain MiFID investment services or activities”. Considering that CRD IV and CRR are not applicable to neither UCITS nor AIF managers, SIFA seeks clarification on how the DP is relevant for those companies.
Fund managers are subject to appropriate capital requirements of the UCITS Directive or the AIFMD based on assets under management, but at least 25 % of the fixed overhead. Those requirements are easy to apply and cover operational risk. SIFA would urge EBA to consider those requirements as a model for investment firms performing portfolio management, thus creating a level-playing-field between investment firms and fund managers. It should be noted that a fund manager may manage fund assets both under its authorisation as fund manager (UCITS Directive or AIMFD) and under a separate authorisation to perform portfolio management why it makes sense that the capital requirements are the same for both activities.
We would like to provide one example regarding fund managers. Swedish fund managers that perform discretionary portfolio management are today required to apply CRD and CRR on that part of their business. This has over the years become an increasingly disproportionate administrative burden. Moreover, it is very difficult to apply two different set of capital requirements on one and the same company with the same balance sheet; one set for the fund management and another for the portfolio management. A recent legislative proposal has therefore suggested the disapplication of the CRD/CRR rules for fund managers.
We strongly support a separate regime for investment firms. This would serve as a good example of “better regulation”.