MNI EXCLUSIVE: EC To Bring Large Investment Firms Under SSM

--New Regulation Will Create Specific Framework for Investment Firms

--Larger Companies Will Be Placed Under Remit of Single Supervisory Mechanism

--Commission Still Pondering How To Define Largest Firms

by Jean Comte

     BRUSSELS (MNI) - The European Commission is set to unveil a new draft law

laying down capital requirements and supervision obligations for investment

firms. The goal of the text is to set up a more proportionate regulatory

framework for these companies, which are currently covered by other European

legal texts whose primary purpose is to target banks.

     MNI understands that the text, expected in December, will create a 3-tier

classification for these companies, subject to a decreasingly stringent regime.

     The larger firms with bank-like activities will enter into the first tier,

that will be placed under the remit of the Single Supervisory Mechanism. The

other two, to cover the rest of the spectrum, will see ad hoc provisions.

     The classification currently being finalised by the Commission is expected

to closely align to preparatory work published in September by the European

Banking Authority (EBA). 

     According to the EBA, first tier firms would be the ones currently

recognized at O-SIIs, second tier would apply to non-O-SIIs whose balance sheet

is higher than E100 million and total gross revenues is higher than EUR 30

million, and third tier would concern smaller entities.

     A debate is nevertheless ongoing regarding the exact limit of what firms

the first tier would cover, as several stakeholders want to broaden it to any

large company whose activities are 'bank-like', i.e. meaning taking risks on

their own balance sheet and direct underwriting of financial instruments.

     "The EBA recommendation would only apply to nine companies - mostly the

investment unit of Bank of America Merrill Lynch, Goldman Sachs, and the likes,"

 one official told MNI. "It would be more sensitive to have an approach based on

risk, not on size."

     France, in particular, is said to be pushing to include banks ancillary

activities -- possibly increasing by dozens the number of banks captured in the

tier 1 category. "Placing them under the SSM remit would increase the need for

the UK-based ones to relocate in the EU following Brexit -- and that's obviously

what Paris is eyeing," said an EU official.

     The Commission recently postponed from the 6th to the 20th of December the

publication of the proposal -- a sign that it might be working further on the

adjustment of class 1.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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