A Proportional Prudential Regime for Investment Firms

Possibly facilitated by the perspective of Brexit, the European Commission has proposed, for the first time, a truly proportional regime in its new prudential framework for investment firms. The very large firms, which are all headquartered in London today, will be required to obtain a banking license – to the extent they will relocate to the EU – given the possible systemic effects. For mid-sized and smaller firms, a different and lighter regime is proposed.

This initiative should be welcomed in the context of capital markets union (CMU) as it not only harmonises, but also recognises that a clearly distinct regime is needed for investment firms with their different risk profile. Vibrant capital markets require specialised intermediaries, but they have been priced out of the market in most countries.

Karel Lannoo is General Manager of ECMI and Chief Executive of CEPS.