To strengthen the capital markets, the European Commission set out to establish a more effective supervisory framework for investment firms. The new regime entered into force in December 2019, recognising the special role of investment firms in the overall functioning of the EU financial markets by simplifying the rules for investment firms and facilitating investment flows throughout the EU. Investment Firms Regulation and Directive (IFR/D) are designed to ensure that key prudential requirements for investment firms are adequately set and that compliance with them is monitored.

For example, IFR/D introduces a classification scheme, divided into four categories, according to which capital requirements for investment firms are determined. The so-called “K-factors” are calculated for each individual firm, based on the various risks in the respective activities of the investment firm, which determine its classification and the final level of capital requirements. In addition, the regulation lays down the conditions under which investment firms located in non-EU countries may obtain market access to the European single market. At the same time, it strengthens the supervisory powers of the European Securities and Markets Authority (ESMA).

Following the adoption of the IFR/D (level 1) in 2019, EBA and ESMA began to finalise the majority of delegated acts. Further work within the Level 2 process is planned until 2025. The transposition period for rules prescribed in the Directive ended in June 2021. The regulatory review process will start in June 2024, with the Commission currently examining whether any changes to the existing regime are necessary.

As an operator of regulated markets, Deutsche Börse Group welcomed the new rules, as they acknowledge and support the important contribution of investment firms to trading and liquidity provision.

For further information on Deutsche Börse Group’s positioning on the matter, find our statements and position papers under Publications.