es Español


"The purpose of the standard is, thus, to adjust all prudential regulation as much as possible, to the profile of each specific ESI."
Ignacio Santillan Fraile

Recently, the European Commission has published a proposal for a Directive and a proposal for a Regulation to specifically regulate the prudential regime of investment firms (Investment Services Companies or "ESI" in Spanish regulations).
This regulatory initiative is preceded by two advisory reports from the European Banking Authority (EBA, in English) - which has worked together with ESMA (European Securities and Markets Authority) and the national authorities in its preparation - from December 2015 and September 2017 XNUMX, preceded, in turn, by various processes of public consultation and data collection.

The purpose of these proposals is to establish a specific prudential regime for investment services companies that, to date, continue to be fundamentally regulated in this matter by an extension of the regulation designed for credit institutions - more or less modulated by an inefficient principle of proportionality - fundamentally contained in Regulation 575/2013 and Directive 2013/36.

This initiative, and the long preparatory work carried out by EBA and ESMA that preceded it, represent an approach to what is the reality of this industry in Europe, its numbers, its activities and business profiles, its risk profiles and its relevance in the development of securities markets in Europe. Not surprisingly, this initiative is part of the broad project of the European Union of Capital Market Union. These normative proposals - essentially following the advice of the EBA - include, among other things, the classification of ESIs into three different types of categories. Those that exceed certain size thresholds, set according to certain criteria, must necessarily obtain authorization as a credit institution and will be subject to the entire prudential and supervisory regime - by the ECB, where appropriate - applicable to them. To this end, the concept of credit institution is expanded to include these investment services companies.

According to the proposal, within the European Union there are only 8 of these entities, all of them located in the United Kingdom.

From the rest of ESI, there is a difference between those that are "small and not very interconnected" and the others; subjecting the former to a very simple regime for setting minimum equity indexed to their overheads or initial capital, and the latter to a new regime for setting minimum equity, based on a series of risk factors against its clients, in front of the market and for the entity itself. Additionally, the rest of prudential requirements are significantly softened, especially in terms of remuneration and reporting.

The purpose of the standard is, thus, to adjust all prudential regulation as much as possible, to the profile of each specific ESI.

Beyond how this regulatory process ends, and what are the specific prudential requirements for ESI - capital adequacy, but not only - what is very interesting is that an analysis of this sector is carried out at the EU level, as a European sector, for the first time (at least, as far as I know). EBA has analyzed the number of ESIS in Europe - 6.051, most of them in the United Kingdom, followed by Germany, France, the Netherlands and Spain - the profile of their activity, their size, etc. Although the analysis has limitations in scope due to the difficulty of accessing all the relevant data, the result is that, for the first time, this type of quantitative and qualitative analysis of this industry has been carried out. It is significantly relevant thus, that it is even superficially reviewed, what this industry means at a European level, that it deepens in knowing its business profiles, that it deepens in understanding the risks posed by its activity - and those that it does not pose - and that It is understood that these are entities that have in the provision of investment services and auxiliary services, their exclusive scope of income and the viability of their business depends on it. It is true that the European regulation on investment services - specifically MIFID and MIFID II - regulate ESIs in their organizational, structural, authorization and activity aspects.

MIFID and MIFID II establish requirements for ESIs, which are then extended to other types of entities that provide investment services - typically credit institutions, which are dominant in the market at continental European level - essentially in terms of standards. of conduct and concomitant organizational aspects. But this regulation - MIFID and MIFID II- has been developed without a parallel analysis and understanding of the reality of this type of entities, their activities, their relative volume, the risks they pose and their usefulness in development. of a European capital market.
This is one of the most noteworthy values ​​of this new proposal from the European Commission, and its preparation procedure, beyond the specific prudential regulations, on the other hand very timely.

If all this constitutes a relevant first step in the development of certain areas of the securities markets industry in Europe - making this specific industry recognizable as a European industry - and if this can additionally help the effective development and implementation of the European Union Capital Markets, and the development of equity markets in Europe, will be something to pay attention to in the coming years. 

Ignacio Santillan Fraile

If the article has been interesting to you,

We invite you to share it on Social Networks


About the Blog

Blog Tribute Antonio Moreno

Blog Tribute Antonio Moreno

Blog tribute to Antonio Moreno Espejo, who was Director of Authorizations and Registrations, National Securities Market Commission (CNMV), co-director of the Financial Markets Forum of Fide and Member of the Academic Council of FIDE. This collective blog contains articles and reflections generated by people who regularly participate in the Financial Markets Forum of Fide.

Leave a comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.


Fill out the form and someone from our team will contact you shortly.