New Prudential framework for investment firms

CySEC on 2nd February 2021, issued Circular C426 which analyses the new prudential framework that the investment firms will be subject to. More specifically, on 26th June 2021, the Investment Firms Regulation (EU) 2019/2033 (‘IFR’) and Investment Firms Directive (EU) 2019/2034 (‘IFD’) comes into force, thus, all CIFs should comply with the new prudential regime which is different and independent from the Regulation EU No. 575/2013 (CRR) and Directive DI144-2014-14 which are applicable today.

Some of the main changes that the new prudential framework shall introduce are the following:

Initial capital requirements

New initial capital requirements for the authorization of all Investment Firms required pursuant to Art.15 of Directive 2014/65/EU (section 16 of the Law) to provide any of the investment services and/or perform any of the investment activities listed below:

  Activities per Part I, Annex A of the Law (87(I)/2017) Initial Capital
(a) – Dealing on own account

– Underwriting and/or placing on a firm commitment basis

(b) – Reception and transmission of orders in relation to one or more financial instruments;

– Execution of orders on behalf of clients,

– Portfolio management;

– Investment advice and

– Placing of financial instruments without a firm commitment basis


and is not permitted to hold client money or securities belonging to its clients

(c) Investment firms other than those referred in points (a), (b) and (d) €150,000
(d) Operation of an Organised Trading Facility (where the investment firm engages in dealing on own account or is permitted to do so) €750,000


The initial capital of an Investment Firm shall consist of the Common Equity Tier 1 capital (‘CET1’), Additional Tier 1 capital (‘AT1’) and Tier 2 capital (subject to certain conditions – Art. 9 of IFR).


European Banking Authority (‘EBA’) published seven final draft technical standards regarding IFD/IFR  

EBA published a package of seven (7) final draft Regulatory Technical Standards (RTS) related to the implementation of IFR and IFD which have been submitted to the European Commission.

These final draft RTS, which are part of the phase 1 mandates of the EBA roadmap on investment firms, will ensure a proportionate implementation of the new prudential framework for investment firms taking into account the different activities, sizes and complexity of investments firms.

The relevant RTS can be found here.


Reporting and disclosure requirements under IFR/IFD

On 4th June 2020, the EBA issued its draft Implementing Technical Standards (ITS) on reporting requirements for investment firms under Article 54(3) of IFR and on disclosures requirements under Article 49(2) of IFR.

Along with the ITS, EBA introduced a set of templates and instructions for class 2 investment firms (Annexes I and II of the Draft ITS) and a set of templates and instructions for class 3 firms (Annexes III and IV of the Draft ITS), where the supervisory reporting framework incorporates different and tailored reporting templates with different frequencies.

The templates mentioned above can be found here.


Actions to be taken by the CIFs

CIFs are urged to study the IFR/IFD carefully, along with the final draft RTS issued, so as to:

a) Identify the class they will be categorized at from 26th June 2021,*

b) Familiarise themselves with the new templates and the way their new capital requirement will be calculated,*

c) Identify the data needed to be collected and reported, especially in regards to the calculation of K-Factors,*

d) Review their internal records and systems and make the necessary changes to ensure that the required data for the K-Factors (i.e. assets under management, daily trading flow, clients’ orders held, etc) will be available to calculate their new capital requirements. This information should be readily available at all times.

CIFs should make their own assessment on the impact that the IFR and IFD will have on their own funds, concentration risk, liquidity risk, disclosure, reporting, remuneration requirements and take the necessary early actions to ensure compliance by the date of entry into force i.e. on 26th June 2021.

*CIFs should also consult the CySEC practical guide for the new prudential framework for Investment Firms, which can be found here.

You can contact our firm for more information and guidance.