7.3 Conclusions

295. The European legislator has placed investment firms under prudential supervision to protect these firms’ clients and to ensure financial stability and these reasons seem to have remained the principal grounds for prudential supervision of investment firms in the CRD 2013. The manner in which the European legislator has formulated the current prudential supervisory regime for investment firms in the CRD 2013 and the CRR, leads to the conclusion that improvements of that regime were necessary and a comprehensive analysis of these needed improvements and the identified shortcomings should have been part of the new prudential regime for investment firms which has been introduced at the end of 2019. This will be further discussed in Chapter 9. The main reason for a regulatory regime for investment firms similar to the regime for credit institutions seems to be the focus on universal banking in some European countries versus specialized banking in other. Given that non-bank investment firms pose very different risks than universal banks, a differentiation in the supervisory regime seems appropriate. That does not mean, however, that similar activities performed in universal banks and investment firms, where a differentiated supervisory regime is applicable, should result in a competitive advantage of either of these types of firms. The focus should be on trying to establish a supervisory regime for investment firms which better addresses the risks these firms themselves and the investment services and activities they provide pose.

296. One important and significant change is the subset of MiFID investment firms which have been excluded from the scope of the CRD 2013 and the CRR, but which were within the scope of the CRD 2006. These firms should have been kept within scope of the CRD 2013 and the CRR. The scope of the CRD and the CRR should include all relevant investment firms, which subsequently could be excluded from some specific parts of the CRR framework1 where necessary. The current regime merits further simplification in particular given that the sector usually consists of smaller or medium-sized firms, especially when compared to the size of credit institutions. One other major negative effect of the supervisory regime for investment firms in the CRD 2013 is the lack of consolidated supervision of those firms excluded from the definition of investment firms in the CRR.

297. In the discussion above, it seems apparent that the European legislator and its member states have not devoted as much attention to investment firms as to credit institutions, in the drafting of the CRD 2013 and the CRR. The own funds requirements and the initial capital requirement seem to be based on the risk profile of a credit institution performing these activities instead of being based on the risks of the activities themselves.