Brexit, MiFID II and Investment Firms

The EBA has recently published a Brexit-related Opinion in which it makes a number of recommendations including regarding: the authorisation/supervision of investment firms; and the equivalence regime set out in the revised Markets in Financial Instruments Directive 2014/65 (“MiFID II”) and in the Markets in Financial Instruments Regulation 600/2014 (“MiFIR”).  The Opinion is accompanied by a Report which sets out the EBA’s supporting analysis (“Report”). 

This briefing focuses on the EBA’s recommendations relevant to investment firms and accompanies our more general briefing on those recommendations (here).

Authorisation/Supervision of Investment Firms

According to the EBA’s Brexit-related Opinion, when assessing an investment firm’s application for authorisation, a competent authority should:

  • refer to ESMA’s opinion on investment firms, published on 13 July 2017 (the “ESMA Opinion”); and
  • consider the systemic implications of investment firms seeking authorisation and when the firm is granted authorisation, ensure that all the relevant requirements in the Capital Requirements Directive 2013/36 (“CRD”) and MiFID II/MiFIR are satisfied.

The EBA is also recommending that the European Commission should consider proposing that the ECB should supervise investment firms that are identified as Globally Systemically Important Institutions (“G-SIIs”) or Other Systemically Important Institutions (“O-SIIs”) in accordance with the existing regulatory framework. This is to ensure that such investment firms are subject to equivalent prudential regulation as that applicable to credit institutions as well as to:

  • allow comparability between institutions exposed to similar types of risks; and
  • ensure that the type of licence sought by an institution cannot be used as a way to choose the identity of its competent authority.

The background to the second and third recommendations above lies in the EBA’s work on a new prudential framework for investment firms. 

Currently, the prudential regulation that governs the exercise of investment services stems from the CRD and the Capital Requirements Regulation 575/2013 (“CRR”). Depending on the services they exercise, and their combination or size, some investment firms are exempt from prudential regulation, some are subject to lighter prudential regulations, and others are subject to the full CRD/CRR rules.

Over the past few years the EBA has published a number of reports setting out its proposals for a new prudential framework for investment firms, in response to two calls for advice from the European Commission issued in December 2014 and June 2015 respectively.

In essence, the EBA is recommending the introduction of a more targeted prudential framework for investment firms, which distinguishes between:

  • investments firms that are identified as Global Systemically Important Institutions (G-SIIs) and Other Systemically Important Institutions (O-SIIs) according to the applicable regulatory framework, which should be subject to the full prudential framework set out in the CRR/CRD;
  • a middle category for the majority of firms – these will not be systemic but do pose risks and should be subject to a less-complex prudential regime calibrated to address specific risks;  and
  • small firms which are not interconnected which should be subject to a very simple regime to cater for wind-down, if appropriate.

The EBA is also recommending that those investment firms for which the CRD and CRR are not applicable be subject to a specific prudential regime.

MiFID II/MiFIR Equivalence

According to the EBA, third country investment firms should be subject to a robust assessment of the equivalence of the prudential standards applicable to them, when providing investment services in EU member states.

Under the framework set out in MiFID II/MiFIR, the issue of equivalence will play a significant role in determining whether investment firms whose clients are professional clients or eligible counterparties can either provide services into the EU, or alternatively passport from an EU branch to other member states. However, according to the EBA, the current MiFID/MiFIR equivalence regime is suboptimal, since it does not take into account the prudential standards set out in the CRR, but only the more limited ones in MiFID II/MiFIR and the CRD.  

In this context, the EBA recommends that:

  • when carrying out an equivalence assessment, the Commission should consult the EBA for advice to support the Commission’s decisions on the equivalence of third countries’ prudential framework;
  • the Commission should consider the manner in which third country firms should be able to access the EU market in the context of its wider deliberations about the prudential rules for investment firms in the EU. In particular, investment services should be provided by only those third country firms (whether directly or via establishment) that are subject to prudential standards as complete and robust as those applicable to EU firms.


Issues regarding delegation, outsourcing and equivalence have assumed considerable importance in EU financial services law in the face of Brexit. The ESMA Opinion mentioned above pays considerable attention to both delegation and outsourcing with a view to ensuring that Brexit-related EU27 relocations are not empty shells, but have real substance in the member state of authorisation. Significantly, the European Commission’s recently published proposed Regulation to amend the various regulations establishing each of the European Supervisory Authorities (“ESAs”), namely the EBA, ESMA and EIOPA, also proposes amendments which if adopted, will lead to a substantial increase in the ESAs’ powers regarding delegation and outsourcing arrangements.

It is also worth noting that the EBA’s recommendations regarding MiFID/MiFIR equivalence follow on from amendments contained in the above-mentioned proposed Regulations.  Among other things, if adopted, these amendments would confirm that the ESAs will assist the Commission in preparing equivalence decisions pertaining to regulatory and supervisory regimes in third countries, following a specific request for advice from the Commission, or when required to do so by specific acts. They also entrust the ESAs with the responsibility for monitoring on an on-going basis the regulatory and supervisory developments as well as enforcement practices in third countries on which the Commission has taken an equivalence decision and requires them to submit a confidential report on their findings to the Commission on an annual basis.

This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.