EU authorities publish joint final report on technical advice on IFR and IFD prudential framework

The European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) have published their joint final report on technical advice in response to the European Commission's Call for Advice on the Investment Firms Regulation (IFR) and the Investment Firms Directive (IFD). The report, mandated under Article 60 of the IFR and Article 66 of the IFD, proposes limited but targeted revisions to the existing prudential framework which has been deemed fit-for-purpose following feedback to its 2024 June discussion paper. The authorities make a series of 49 recommendations in the report, which aim to: (i) enhance the proportionality and functioning of the prudential framework; and (ii) improve the framework's ability to contribute to a level playing field among investment firms, and between investment firms and financial institutions that perform similar activities.

The report also highlights areas where greater or lesser alignment with the banking framework could be beneficial, and identifies the need to refine definitions, calculation methodologies and threshold monitoring for investment firms. In addition, the report emphasises the importance of harmonising the scope of calculations to ensure consistent application of the framework. Finally, the report addresses broader issues such as the adequacy of own funds requirements, the implications of the Banking Package, prudential consolidation, remuneration and the interaction of the IFR/IFD regime with other regulatory frameworks including the Market in Crypto-Assets Regulation (MiCAR), the Undertakings for Collective Investment in Transferable Securities (UCITS) and the Alternative Investment Funds Managers (AIFM) Directives. The report has now been submitted to the European Commission for consideration.

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