Global Trustee and Fiduciary Services News and Views Issue 53

Markets and Securities Services | Europe 30 Legislative process On 5 December 2019, the IFR and the IFD were published in the Official Journal of the European Union and entered into force on 25 December 2019. The IFR becomes directly applicable in member states on 26 June 2021, though some amendments to the Markets in Financial Instruments Regulation (MiFIR) will apply from the 26 March 2020. 3 Member states must adopt and publish measures that transpose the IFD by 26 June 2021. The new regime deviates from the strict MiFID II services-based categorisation, using instead quantitative indicators (so called K-factors) that reflect the risk that the new prudential regime intends to address. 2 The new prudential regime will introduce higher regulatory capital requirements for most investment firms and a new form of consolidation group. The regime will also mean new remuneration rules, internal governance, disclosure and reporting requirements. THE NEW EU PRUDENTIAL REGIME FOR INVESTMENT FIRMS The way in which investment firms are to be treated for the purposes of prudential regulation is changing. The introduction of the Investment Firms Regulation (IFR) and Investment Firms Directive (IFD) will make significant alterations to the prudential framework governing investment firms. 1 For MiFID II investment firms (including portfolio managers, but in particular arranger/advisory firms), the new regime will have a significant impact, and such investment firms will need to start considering the likely impact of the new prudential regime and the adjustments that will be required to their internal system and controls. The starting point for such firms is to collect all relevant data in order to assess their classification under the new regime. Another important point is whether the shift in the prudential capital framework creates an opportunity for a change in business strategy and approach. Figure 1. Managing the implementation Impact assessment ü Classification and implications ü Implications for group structures ü Opportunity for change in business strategy and approach ü Impact of Brexit and other financial services legislation ü Impact on new remuneration requirements Gap analysis ü Identification of the new prudential requirements ü Review internal system and controls ü Amending current policies and procedures Implementation ü New processes, systems and policies go live ü Quality assurance, reporting and monitoring Post-implementation review ü Compliance monitoring ü Ongoing risk assessment ü Audit and independent assurance 2 3 4 1