1.3 Scope and reservations

15. This study has been conducted alongside a full time employment at De Nederlandsche Bank (DNB, Dutch Central Bank), where, while working for the Supervision Policy division, I was part of the Project Team on Investment Firms at the EBA during the drafting of the EBA’s first report on investment firms in 2015.1 Subsequently I worked for the department within DNB responsible for the prudential supervision of investment firms in the Netherlands. This research, however, has been conducted purely in a personal capacity and views expressed do not necessarily reflect official positions of De Nederlandsche Bank or the EBA. This study was conducted in my role of researcher and has not been sponsored by De Nederlandsche Bank.

16. While working on the implementation of the CRD 2013 and CRR in the processes and methodologies of DNB in 2012 and 2013, I was confronted with the complicated regime for investment firms included therein. This complicated regime lead me to further analyse the manner in which the European legislators established the supervisory regime for investment firms, which in turn evolved into this more extensive study into the prudential regime for investment firms in the European Union.

17. This research has a European focus and encompasses the prudential regime for investment firms in European law. Although also worthy of study, the differences between the implementation of the European prudential regime for investment firms in the various European member states are not part of this study. As this study focusses on the most appropriate means of addressing the risk profile of an investment firm, a European law orientation is the most relevant. The prudential regime is set at a European level and differences in the implementation thereof between member states will most likely concern details of the regime, due to the maximum harmonisation aspects of (large) parts of the applicable European law. Therefore, when analysing the usefulness of the regime in European law, the focus and interest will be in the choices made by the European legislator. No empirical research had been conducted.

18. A limited comparative study of the regulatory frameworks in the United States and the European Union is included in Chapter 5, however, due to the differences in in the types of firms subject to the frameworks, a more detailed comparative analysis is difficult to perform. The most important differences between both frameworks is the risk measurement approach and this aspect is discussed further in Chapter 5.

19. While conducting this research, one of the obstacles encountered was the availability of literature. Most literature concerning investment firms focusses on the market conduct requirements of MiFID, or it focusses on the investment policies and strategies of the investment firms. Literature that covers the Basel Capital accords or the CRD IV and CRR prudential regimes primarily focusses on the impact of those regimes for banks or the trading desks of banks. Very limited information can be found on the impact of these regimes for investment firms. Due to limited availability of (English) literature, this research will also make use of available Dutch literature. Furthermore, to illustrate certain points, examples of the Dutch investment firm sector and of the applicable regime in the Netherlands are used. The focus, however, is European. Examples used of national laws and the role of national supervisory authorities are to illustrate the requirements and provisions included in European law.

20. This limited availability of literature is also reflected in the availability of relevant case law. Although there is case law available that concerns investment firms, most of this case law focusses on the market conduct requirements of investment firms. There are very few cases where an investment firm has objected to its capital requirements in courts.2 Case law, insofar relevant, has been included in this study, but an extensive analysis of (limited) existing case law has not been conducted.

21. One other aspect of the limited availability of literature on this subject, is that the literature that is available will inevitably receive more attention in the discussions in this study. The literature that is available needs to be carefully assessed and discussed as it will, for most readers, be one of the only sources of information available. Most notably is the work of Niamh Moloney, whose books on EU Securities Regulation3 and EU Securities and Financial Markets Regulation4 contain one of the few pieces of international literature that cover the risk profile of investment firms. The framework for assessing the prudential risks of investment firms Moloney has included in her books is, therefore, one of the few frameworks available in international literature that specifically addresses investment firms. Other frameworks will usually concern the risks of banks or other institutions and are therefore less useful for the analysis in this research. As such, the framework presented by Moloney is used as a starting point for the analysis in this research and its usefulness is discussed in detail.

22. This study will focus on the risk profile of investment firms and the subsequent (quantitative) capital requirements needed to address those risks. The more qualitative governance requirements and the requirements on the capital instruments used to comply with the quantitative capital requirements will not be discussed in detail.