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Investment Firm Regulation and Investment Firm Directive

What do investment firms need to know?

The Investment Firm Regulation (IFR) and Investment Firm Directive (IFD) establish a new prudential regime for investment firms. They are both due to apply from 26 June 2021 across Europe and for the most part in the UK. Many of the existing prudential rules for investment firms, e.g. those contained in CRD IV,  were developed largely with deposit-taking institutions in mind. 

Under the new regime, investment firms fall into one of three categories:

  • Class 1: Systemic investment firms
  • Class 2: Investment firms which exceed certain size and risk thresholds, but are not systemically important
  • Class 3: The smallest and non-interconnected firms, that are subject to reduced requirements

The impact on firms is wide-ranging and includes:

  • new capital requirements, to be calculated using the “K-factor” methodology  designed to reflect the risks presented by firms;
  • new rules on prudential consolidation, liquidity and concentration risk;
  • a new approach to the Internal Capital Adequacy Assessment Process (ICAAP);
  • new requirements on remuneration policies and practices; and
  • extensive reporting and disclosure requirements. 

Our Financial Services Regulatory team have produced a helpful guide, which can be accessed here, and a series of briefing papers on the main pillars of the regime and their expected impact, which can be accessed via the links below. If you would like to receive more information please get in touch with your usual A&O contact. 

Read about the regime

Download full IFD/IFR guide

Read our guide on the main pillars of the regime and their expected impact.

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