9.1 A new proposal for a prudential regime for investment firms

349. On 5 December 2019 The European Commission published the IFR and IFD, which established a new prudential framework for investment firms1 and which were based on the proposals2 published by the European Commission on 20 December 2017.3 The CRD 2013 contains several4 provisions requiring a review by the European Commission (the EC) of the applicable rules of the CRD 2013 and CRR for investment firms. This review was prepared by the EBA in response to two calls for advice from the Commission5 and, as regards the main regime,6 resulted in a report7 and opinion,8 which were the basis for IFR and IFD. In its proposals the EC evaluated whether the prudential framework for investment firms was still appropriate. However, much of the justification provided by the EC in its proposals is a literal translation of the advice by the EBA. So, even though the EBA has only provided ‘technical advice’ to the EC, it appears that the EBA has actually performed much of the legislative process. The consequences of this will be discussed in this Chapter. This Chapter will analyse this new prudential regime for investment firms established in the IFR and the IFD. The IFR and IFD proposals published by the EC on 20 December 2017 and the subsequent presidency compromise versions of these proposals will be included in this analysis as they provide (some) additional reasoning as to why certain choices were made.

350. The introduction of this new regime fits in the broader work programme of the European Commission as “included in the 2017 Commission Work Programme as a [Regulatory Fitness and Performance] exercise”.9 The Commission’s “Regulatory Fitness and Performance (REFIT) programme aims to ensure that EUR legislation stays simple, proportionate and up-to-date, and delivers results for citizens and businesses effectively, efficiently and at minimum cost”.10 This chapter will discuss if the new regime does indeed deliver on these objectives.

351. This Chapter will discuss the new IFR and IFD regime and will compare the final legislative texts with the opinion given by the EBA and the subsequent proposals made by the EC. When discussing the new regime this study will also discuss those aspects of the new regime that raise questions or that could be improved. The final legislative texts of the IFR and IFR nor the proposals by the EC contain a complete or comprehensive argumentation or explanation of all the choices made. To fully understand the rationale for certain choices we also need to look at the EBA report and opinions, as these preparatory documents of the EBA contain useful background as to the rationale for the new regime. However, these are not formally part of the final legislative texts and cannot be seen as an argumentation or justification of choices made by the European Commission. The EBA report and opinions are useful to further explore the rationale for the choices made by the EBA, which have led to the IFR and IFD. To give this full explanation, this study will have to take “side steps” at certain points, where the IFR and IFD or the EC proposals lack a more detailed explanation, to refer to the EBA report and opinion. These “side steps” will be clearly marked and will provide the argumentation by the EBA, most notably on those points where the argumentation or justification by the EC is lacking.