In 2018 there will be changes to the capital regime for investment firms and for some firms this could mean an increase in capital rather than the simplification most are expecting.
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This regime for investment firms has grown over a number of years into a highly complex framework. Since this framework was primarily designed with banks in mind, for investment firms this has introduced an excessive amount of complexity. The good news is that the European Commission (EC) have recognised this and put in motion steps to address the situation, tasking the EBA with finding and proposing a solution.
The EBA set out their initial proposals on how a new prudential regime should look in order to more accurately reflect the risks faced by investment firms. Having now consulted on these proposals and received feedback on them, the final proposals are due to be presented to the EC by the end of 2017 with a view to implementing changes to the current prudential regime in 2018.
The proposed regulation is not straightforward; it remains lengthy and rather involved for all firms. Whilst some will benefit from the new regime and others will be worse off, all firms will be impacted to a greater or lesser degree.
During our briefing, we went through the key issues of the proposed new regime, setting out:
- What is changing (and why)
- Who is affected
- How the changes will affect you
- What you should do to prepare in the meantime.
It is only by being prepared for the new regime that investment firms can ensure they are well placed to minimise the impacts of the changes and effectively manage the transition to the new rules.