TD Direct Investing (Europe) Limited

We recognise that large ‘systemic and bank-like’ investment firms may need to be subject to a separate regime more akin to the existing CRD. We have no further comment on this matter.
Broadly-speaking, we support the principles for the proposed prudential regime for investment firms.
We do not consider that we would be treated as a Class 3 firm, therefore we have no comment on this issue.
We do not consider that we would be treated as a Class 3 firm, therefore we have no comment on this issue.
Broadly-speaking, we support the proposed approach, however, in relation to the application of a scalars to the K-factors, we would question EBA’s proposal that size can equitably be used as a proxy for measuring the risk of harm an investment firm can cause to others.

As EBA itself identifies in Paragraph 31, ‘the harm an investment firm might cause to others may, in general, be expected to arise from some combination of the “size, internal organisation, nature, scope and complexity” of its business’.

It therefore follows that, simply because Firm A is, say, five times the size of Firm B, when measured by the amount of, for example, assets under administration, this does not necessarily equate to Firm A being five times more ‘risky’ than Firm B. However, if the regime incorporates the application of a strict linear scalar to the K-factors, this would not appear to reflect anything other than the size of the business.

We therefore consider that the application of the scalars should be flexible enough to reflect the other factors that the EBA has itself identified, namely: internal organisation, nature, scope and complexity of the business.

If a firm can demonstrate sound risk mitigation in relation to, for example, the assets it has under administration, this should be reflected in the scalar that is applied.

In order to enable this flexibility to be built into the regime, we would encourage EBA and ESMA publish, on an ongoing basis, ‘Level 3’ guidance on the appropriate application of the K-factor scalars.
We believe there should be separate K-factors for client money and financial instruments belonging to clients. The risk of holding client money and securities differ and the amount of client money held is not reasonable proxy for the value of securities held by clients.
We are supportive of the approach outlined in the DP.
We do not consider that we would be treated as a Class 3 firm, therefore we have no comment on this issue.
A fixed overhead requirement has been a feature of the UK regulatory regime for many years albeit that the cost definitions have changed from time to time. We would like clarity as to how the fixed overhead requirement should be calculated at individual cost component level and the criteria that should be applied to determine whether or not a cost is ‘fixed’.
We have no comment – this is not applicable to our firm.
We have no comment – this is not applicable to our firm.
We have no comment on this issue.
We have no comment on this issue.
We have no comment on this issue.
We have no comment on this issue.
We strongly support the second option to introduce new standards on what is regulatory capital specifically for investment firms; simplifying the area of definition and quality of capital consistent with a new framework for determining regulatory capital.
We agree with the statement in the DP that an on-going obligation is retained and clarified as such, so that the minimum level(s) for authorisation in effect act as a further ’floor’ to the minimum level of capital an investment firm must continue to hold in order to keep its authorisation to conduct MiFID investment services. We support the recommendation that the definition of capital used for the purposes of meeting the minimum level(s) required as a condition for (on-going) authorisation of an investment firm under MiFID should also be aligned with whatever definition of capital (i.e. own funds) is decided to be used for the purposes of meeting the capital adequacy requirements of investment firms.
We believe the current arrangements whereby the initial capital is set by reference to the activities to be undertaken by the investment firm should continue.
We would support the concept of eligible capital should being aligned, such that there is only one, single, definition of regulatory capital (i.e. own funds) to work with for investment firms, for whatever prudential purpose.
We have no comment on this issue.
We would support a holding an amount of liquid assets set by reference to a percentage of the amount of obligations reflected in regulatory capital requirements such as the FOR.
We have no comment on this issue.
We have no comment on this issue.
We would caution against adding layers of complexity in the rules governing liquidity risk management. Issues around operational requirements should rest with the NCA and be addressed as part of the supervisory engagement with the individual firm.
We have no comment on this issue.
We are supportive of the approach illustrated in Figure 6 of the DP.
We have no comment on this issue.
We would encourage the development of a simpler, more streamlined supervisory review processes for NCAs that is part of a wider discussion about the activities of the firm as a whole and is less focussed on technical minutia.
We would draw your attention the UK Wealth Management Association (‘WMA’) response to this question:

Firms have had to incur costs in acquiring systems to meet COREP requirements and have to pay ongoing maintenance costs. The reporting requirements are exceedingly complex and the reporting requirements focus upon the needs of major banks. In most cases investment firms are only completing a very few number of data fields. The complex nature of the reporting requirements means that many small and medium investment firms have to seek ongoing external advice to ensure they meet their obligations. The data reported is meaningless for most investment firms and does not reflect the typical management information maintained by investment firms. We believe the data is of limited use to NCAs.

Consequently, we would favour a significantly simplified and more relevant reporting regime.
We have no comment on this issue.
Our view is that the MIFID governance and remuneration requirements are sufficient.
We have no comment on this issue.
Our view is that the existing MIFID remuneration requirements are sufficient. In particular, the ‘material risk takers’ regime in CRD IV is materially disproportionate to the risk to the financial system presented by firms dealing in an agency capacity.
In our view, a separate regime for investment firms reflecting their particular activities and not those of banks is very desirable.

Broadly-speaking, the proposals in the DP represent a good starting-point for the development of the regime.

We would strongly oppose a solution for investment firms that is based upon amendments to the existing CRD regime.
The principle problem with the current regime is that it has essentially been designed in response to the global banking crisis and its primary objective is to address the risks posed to the financial system by systemically significant and large, globally active, banks.

Consequently, investment firms with very simple business models find themselves having to expend a significant amount of energy (and therefore cost) firstly on assessing the extent to which the regime is applicable to them and secondly on establishing and maintaining the systems, controls and processes required to comply with a regime that is administratively disproportionate to the risk they pose to global markets.

In practice, most investment firms pose no material risk to the financial system, rather the key risk they pose is to consumer confidence, particularly in relation to misconduct in the areas of advice, sales and safeguarding of client assets and client money. The current prudential regime for investment firms is not adequately reflective of this reality.
EBA DP 3.docx
Ben Bright
T