Changing the calculation method would lead to ongoing implementation expenses and, in limited cases, to higher own funds requirements based of fixed overheads. This depends on how the wording of ‘total expense’ is defined and which variable costs items should be deduced from the total expense.

Therefore, we propose to clarify the definition of ‘total expense’. According to the Consultation Paper, EBA refers to the ‘total expenses as calculated according to the applicable accounting framework’. The resulting total expense is equal to the ‘expenses’ of the International Financial Reporting Standards (IFRS), which are defined as:

‘… decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other then those relating to distributions to equity participants.’

This definition does not include distribution profits. Therefore, we request EBA to clarify that distribution profits are not taken into account under the definition of total expense. Moreover, contract-based profit transfers and taxes on income and similar tax group transfers should also be outside the scope of total expenses.

Furthermore, we disagree with the proposed list of items which may be deducted from the total expenses.

 The list of items which may be deducted from the total expenses should also consider voluntary social security and fringe benefits, even in the event that the investment firm determines the amount of these items at its reasonable discretion (for example employees shares) or that the items are variable in relation of the amount (for example variable performance bonus, employees’ anniversaries).

 The proposal under letter d) (shared commissions and fees payable which are directly related to commission and fees receivable) is too restricted. This would lead to the consequence that the commission expense would not be deducted from the total expense, even though the investment firm is able to finance the commission expense out of the commission income or the payment is based on another contract or calculation method (such as monthly advisory fee based on a quarterly management fee, sales commissions based on the front load of the fund). In particular, it is inherent in the system of sales commissions that there always must be a positive commission income. Therefore, in the asset management area it is not appropriate to consider the commission expense under the own funds requirements.

 Extraordinary expenses should not be limited to non-recurring expenses such as reorganisation and legal costs. In our view, costs such as overtime payments or costs for in-house events should be deemed variable costs. Even though these costs could arise in a repeated manner, they may vary considerably in amount and should therefore be deemed extraordinary.

In summary, we propose amending the wording of Article 36(1) as follows:

1. For the purposes of Article 97(1) of Regulation (EU) No 575/2013 investment firms shall calculate their fixed overheads of the previous year, using figures resulting from the applicable accounting framework, by subtracting from the total expenses (before taxes on income, tax group and profit transfer) in their most recent audited annual financial statements, the following variable items:
(a) staff bonuses;
(b) employees', directors' and partners’ shares in profits;
(c) other appropriations of profits and fringe benefits, to the extent that they are discretionary;
(d) commission and fees payable which are covered by commission and fees receivable, which are included within total revenue;
(e) fees, brokerage and other charges paid to clearing houses, exchanges and intermediate brokers for the purposes of executing, registering or clearing transactions;
(f) fees to tied agents;
(g) interest paid to customers on client money;
(h) extraordinary and non-recurring expenses.