7.2.2.5 Article 93 of the CRR

276. In the Netherlands most investment firms are small or medium-sized enterprises for which the own funds requirement is often equal to or lower than their initial capital requirement. For these instances, the CRR provides for an additional “back stop” in the own funds requirements. Article 93 of the CRR1 states that the “own funds requirement may not fall below the amount of initial capital required at the time of authorisation”.2 This provision has little relevance for banks, as a bank will generally have a higher own funds requirement than its initial capital of € 5 million.3 Investment firms, however, will often have an own funds requirement which is similar to their initial capital requirement. Article 93 provides for a minimum “floor” in the own funds requirement for all institutions falling within the scope of the CRR. The European legislator and the European Banking Authority (EBA), however, did not include this relevant “floor” of Article 93 when drafting the common reporting framework (COREP).4 In the capital adequacy templates of COREP, investment firms and credit institutions have to calculate their total risk exposure, the amount of supervisory capital and whether they comply with the capital requirement. The capital adequacy templates of COREP do not account for Article 93, which leads to a situation whereby the third capital adequacy template of COREP will show investment firms that they comply with the capital requirements based on their total risk exposure amount,5 whereas in truth the firm does not comply with the capital requirement based on Article 93. The third capital adequacy template of the COREP shows an investment firm or a credit institution whether it complies with the capital requirement calculated using the methods prescribed in Article 92, 95 or 96 of the CRR. For investment firms this capital requirement based on the risk exposure or fixed overhead can be lower than the initial capital requirement. So, although the COREP templates show that the investment firm complies with the capital requirement based on Article 92, 95 or 96 of the CRR, the investment firm can still be in breach of its capital requirement based on Article 93. This breach is not visible in the COREP templates, which diminishes the added value of the COREP framework for (supervisors of) investment firms and might possibly lead to national supervisors creating additional reporting templates and thus frustrate the desired effects of a common reporting framework across Europe.