9.2.1.5 Class 2 and 3 investment firms

393. All other investment firms that do not fall within Class 1, 1a or 1b fall within the scope of the new Investment Firm Regulation. These investment firms then fall within Class 2 or 3. The Class 3 regime is intended for “small and non-interconnected investment firms”.1 Investment firms can be considered small and non-interconnected “where they do not conduct investment services which carry a high risk for clients, markets or themselves and whose size means they are less likely to cause widespread negative impacts for clients and markets in case risks inherent in their business materialize in case they fail”.2 The risk profile of these Class 3 investment firms should, therefore, be limited. Article 12 of the IFR defines small and non-interconnected investment firms as “those that do not deal on own account or incur risk from trading financial instruments, have no client assets or money under their control, have assets under both discretionary portfolio management and non-discretionary (advisory) arrangements of less than €1.2 billion, handle fewer than €100 million per day of client orders in cash trades or € 1 billion per day in derivatives, and have a balance sheet smaller than €100 million and total gross annual revenues from the performance of their investment services of less than €30 million”.3

394. Investment firms that do not qualify as a small and non-interconnected Class 3 investment firm fall, per se, within Class 2. Besides the specified quantitative criteria mentioned in Paragraph 393, above which an investment firm cannot qualify as Class 3, there are also more qualitative criteria. An investment firm that deals on own account or which “incurs market and counterparty credit risk, safeguards and administers client assets, or holds client money […]”4will in every case, without exception, be categorized as a Class 2 investment firm.