EUROPE: EBA consults on liquidity requirements for investment firms

Tuesday December 14 2021

The European Banking Authority (EBA) has launched a public consultation on its draft Regulatory Technical Standards (RTS) on specific liquidity measurement requirements for investment firms and draft Guidelines on liquidity requirements exemptions for small and non-interconnected investment firms. The draft RTS and draft Guidelines aim to ensure consistent supervisory practices with regards to the application of liquidity requirements for investment firms across all EU Member States. The consultations run until 10 March 2022.

The draft RTS on specific liquidity measurement set out liquidity risk elements that may raise major concern for investment firms and that competent authorities will be required to consider when setting specific liquidity requirements as a result of an investment firm’s supervisory review and evaluation process (SREP). The draft RTS specify that those elements shall be considered under normal and severe, but plausible, conditions. In addition, to ensure proportionality, competent authorities should assess only a smaller set of elements for small and non-interconnected investment firms.

The draft Guidelines set out the criteria that competent authorities should take into account when exempting small and non-interconnected investment firms from liquidity requirements set out in the Investment firms Regulation. These Guidelines specify that an exemption should be based on the assessment of the financial resource needed for an orderly wind-down of the investment firm.

The draft RTS has been developed in accordance with Article 42(6) of the Directive (EU) 2019/2034, which mandates the Authority to specify how liquidity risk and elements of liquidity risk are to be measured for the purpose of specific liquidity requirements.

The draft Guidelines have been developed in accordance with Article 43(4) of the Regulation (EU) 2019/2033 which mandates the Authority to specify further the criteria which the competent authorities may take into account when exempting investment firms that meet the conditions for qualifying as small and non‐interconnected investment firms set out in Article 12(1) from the liquidity requirement.

Directive (EU) 2019/2034 (IFD) and the Regulation (EU) 2019/2033 (IFR) were published in the Official Journal on 5 December 2019 and represent the new prudential framework for investment firms authorised under the Markets in Financial Instruments Directive (MIFID).

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