In June 2021, the EBA introduced the Investment Firm Regulation (IFR) and Directive (IFD) which brings about new set of rules and reporting requirements for Investment Firms – supervised under the MFSA – to comply with in order to meet their prudential obligations.
To meet the June 2021 deadline, firms will need strong and focused project management and strategic partnerships.
All firms in scope of the IFR/IFD directive need to fall within a specific class, based on their regulated activity but also within certain quantitative metrics in the form of ‘K-Factors’.
Larger and riskier investment firms which fall under ‘Class 1’ will be treated as credit institutions or be held to the same rules under the CRR S/CRD V2 framework. Those in the Eurozone and its Banking Union will become subject to SSM and SRM supervision. All other investment firms (Class 2 and 3) in the EU-273 will be subject to the IFR/IFD framework which includes a consolidated set of regulatory capital and liquidity requirements with limited waivers along with rules on internal models, governance, remuneration and disclosure. In-scope firms in particular those in groups, will want to take prompt action well ahead of the June 2021 start date.
The new reporting regimes use a system of K-Factor calculations to apply to the investment firm based on the classification in place. These K-Factors are used as a measure of risk management processes to identify thresholds and ensure that the firm’s values are maintained within thresholds. There are 3 risk categories established by the EBA which are:
These are reported on a quarterly and annual basis depending on the firm’s classification.