9.2.1.1 Class 1 investment firms

363. Class 1 comprises “large investment firms of systemic importance”.1 These firms are, according to the European legislator, “the largest and most interconnected investment firms [and] have business models and risk profiles that are similar to those of significant credit institutions – they provide ‘bank-like’ services and underwrite risks on a significant scale. Furthermore, systemic investment firms are large enough to, and have business models and risk profiles which, represent a threat for the stable and orderly functioning of financial markets on a par with large credit institutions”.2 The European Commission judged that some investment firms are more similar to banks, both in terms of risk profile and in terms of balance sheet size. Because of their size and risk profiles, the European Commission concluded that they might pose risks to financial stability. For those investment firms, the European Commission deemed that the CRD 2013 and CRR regime would still be an appropriate prudential regime and these investment firms should not be subject to the requirements of the IFR and IFD.

364. With the introduction of the IFR, the European legislator changes the definition of credit institution in the CRR to also include these ‘bank-like’ investment firms. This is done by adding to the definition of credit institution a definition which investment firms are, according to the European legislator, ‘bank-like’. The new definition of credit institution in the CRR will thus contain two sets of institutions: credit institutions as defined under point A of the definition and ‘bank-like’ investment firms as defined under point B of the definition. Both of these types of institutions are, however, referred to as credit institutions. The new definition of credit institutions is:

365. The new Point B in the CRR definition of credit institution, concerning the ‘bank-like’ investment firms, contains two aspects,4 which will be explored further below.

366. The first part of the new definition starts by defining the activities an investment firm can perform, in the first sentence of Point B, based on Annex I of MiFID II, which could lead to “bank-like” risks. These activities are: “dealing on own account” and “underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis”.

367. The second aspect of the changed definition relates to balance sheet size and contains 3 different calculations in Sub-sections i, ii and iii of Point B to determine if an investment firms exceeds the threshold of €30 billion. Not every investment firm that performs one of activities mentioned in the first sentence of Point B should remain within the prudential regime of the CRD 2013. Only those investment firms that can pose a risk to financial stability should be caught by the revised definition of “credit institution” in the CRR. The European Commission has tried to achieve this by setting a threshold of €30 billion for the value of consolidated assets of the investment firm. The threshold set by the European Commission also ensures that these systemic investment firms, if they are located within the Eurozone, fall within the supervisory responsibility of the SSM.5

368. The three methods to calculate if an investment firms exceeds the threshold, concern if and how other entities within the group to which the investment firm belongs, should be included in the calculations.6 Sub-section i of Point B states that if an investment firm on a solo basis (thus only looking at its own balance sheet) has total assets equal to or exceeding €30 billion, it will qualify as a credit institution. Sub-points ii and iii of Point B describe the situation where the individual total assets of the investment firm are below the € 30 billion, but the consolidated assets of all group entities that provide these ‘bank-like’ activities exceeds the € 30 billion. The difference being that Sub-point ii refers to those groups were all individual group entities are (at individual level) below the € 30 billion threshold, with the combination of these individual group assets leading to consolidated assets above the € 30 billion. Whereas Sub-point iii applies to those groups were the consolidating supervisor decides to classify an investment firm as Class 1, based on the risks to which the investment firm is exposed.