9.3.1 Changes to the BRRD

473. As discussed in Section 8.3, the BRRD is currently applicable to investment firms which are subject to an initial capital requirement of €730,000, as required by article 28 of the CRD 2013. With the introduction of the IFD this cross-reference between the BRRD and CRD 2013 needed to be updated with a reference to the IFD. This is facilitated in the IFD by changing the definition of investment firm in the BRRD1 to now refer to the IFR definition of investment firm and the initial capital requirement of €750,000 included in the IFD. This change however fails to acknowledge the strange scoping of the BRRD for investment firms and still only uses the initial capital requirement as an indicator for the applicability of the BRRD. As discussed in Section 8.3, this fails to accommodate for business models of investment firms that might benefit from the BRRD requirements but are not subject to this specific initial capital requirement of €750,000. It therefore appears that the European legislators merely updated the references in the BRRD to the new IFD regime but have not given the actual content of the BRRD and the scoping of that directive any thought. Furthermore, now that investment firms operating an MTF or OTF2 have had a reduction in the required initial capital from €730.000 tot €150.000, these types of investment firms are now out of scope of the BRRD. Given the discussion in Section 8.4, investment firms operating an MTF or OTF might actually be the types of investment firms for which the BRRD requirements would provide a useful tool.

474. This lack of thought on the implications of the IFD and IFR regime for other directives leads to a strange conclusion. The argumentation for introducing the IFD and IFR regime was to create a supervisory and regulatory regime better aligned with the specific risk profile of investment firms. By introducing the three classes of investment firms, the EC also made explicit that only the largest investment firms that qualify as Class 1 investment firms are susceptible to systemic risks and would therefore require additional regulatory requirements to address those systemic risks. Which is why these Class 1 investment firms will remain subject to the CRR and CRD 2013 requirements. It is therefore questionable why the BRRD would still be applicable to Class 2 investment firms with an initial capital requirement of €750,000, since the EC has stated in the IFD and IFR proposals that Class 2 and Class 3 investment firms are not systemic.3 It is unfortunate that the IFD proposal does not include a true assessment of the scoping of the BRRD

475. Recital 1 of the BRRD states that the reasons for establishing the BRRD are “to prevent insolvency or, when insolvency occurs, to minimise negative repercussions by preserving the systemically important functions of the institution concerned”4 (Emphasis by author). By simply referring to the initial capital requirement for investment firms, no true assessment of systemically important functions of investment firms has been done. As discussed Section 8.4, there are activities of investment firms that might lead to that investment firm having systemically important functions. Similarly, the size of an investment firm, besides the possible positive effects based on the ‘learning organisation’ discussed in Section 2.1.4, might also lead that investment firm to having systemically important functions. Given that the IFD and IFR are intended to contain a new assessment of the risk profile of investment firms, it would have been useful if the EC had extended that assessment to other regulatory requirements such as the BRRD.