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The European Commission released its Mid-Term Review of the Capital Markets Union Action Plan, proposing a more effective prudential and supervisory framework for investment firms as a part of the Commission’s REFIT programme, and in line with a mandate in the Capital Requirements Regulation (CRR).

The European Commission established a two-track overhaul making life simpler for smaller investment firms, while bringing the largest, systemic companies under the same regime as European banks.

On one hand, the European Commission intends to establish new and simpler prudential rules for the large majority of investment firms which are not systemic, without compromising the financial stability. The new rules split non-systemic investment firms into two groups. The capital requirements for the smallest and less risky investment firms will be set in a simpler way. For larger firms, the rules introduce a new way of measuring their risks based on their business models.

On the other hand, the European Commission’s rules will ensure that large, systemic investment firms which carry out bank-like activities (i.e. underwriting and dealing on own account), having assets over €30 billion and posing similar risks as banks must be regulated and supervised like banks. The European Central Bank, in its supervisory capacity, would supervise such systemic investment firms in the Banking Union.