Article 1: This Directive lays down the capital adequacy requirements applying to investment firms and credit institutions, the rules for their calculation and the rules for their prudential supervision. Member States shall apply the requirements of this Directive to investment firms and credit institutions as defined in Article 3.
2
A Member State may impose additional or more stringent requirements on those investment firms and credit institutions that it has authorised.
Article 2: Subject to Articles 18, 20, 22 to 32, 34 and 39 of this Directive, Articles 68 to 73 of Directive 2006/48/EC shall apply mutatis mutandis to investment firms. In applying Articles 70 to 72 of Directive 2006/48/EC to investment firms, every reference to a parent credit institution in a Member State shall be construed as a reference to a parent investment firm in a Member State and every reference to an EU parent credit institution shall be construed as a reference to an EU parent investment firm.
2
When a group covered by paragraph 1 does not include a credit institution, Directive 2006/48 shall apply, subject to the following:
a
every reference to credit institutions shall be construed as a reference to investment firms;
b
in Articles 125 and 140(2) of Directive 2006/48, each reference to other articles of that Directive shall be construed as a reference to MIFID;
c
for the purposes of Article 39(3) of Directive 2006/48, references to the European Banking Committee shall be construed as references to the Council and the Commission; and
d
by way of derogation from Article 140(1) of Directive 2006/48, where a group does not include a credit institution, the first sentence of that Article shall be replaced by the following: ‘Where an investment firm, a financial holding company or a mixed-activity holding company controls one or more subsidiaries which are insurance companies, the competent authorities and the authorities entrusted with the public task of supervising insurance undertakings shall cooperate closely’.
Article 3: For the purposes of this Directive the following definitions shall apply:
2
The terms ‘parent undertaking’, ‘subsidiary undertaking’, ‘asset management company’ and ‘financial institution’ shall cover undertakings defined in Article 4 of Directive 2006/48.
The terms ‘financial holding company’, ‘parent financial holding company in a Member State’, ‘EU parent financial holding company’ and ‘ancillary services undertaking’ shall cover undertakings defined in Article 4 of Directive 2006/48, save that every reference to credit institutions shall be read as a reference to institutions.
3
For the purposes of applying Directive 2006/48 to groups covered by Article 2(1) which do not include a credit institution, the following definitions shall apply:
a
‘financial holding company’ means a financial institution the subsidiary undertakings of which are either exclusively or mainly investment firms or other financial institutions, at least one of which is an investment firm, and which is not a mixed financial holding company within the meaning of Directive 2002/87 of the European Parliament and of the Council of 16 December 2002 on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate ( 9 ) ;
b
‘mixed-activity holding company’ means a parent undertaking, other than a financial holding company or an investment firm or a mixed financial holding company within the meaning of Directive 2002/87, the subsidiaries of which include at least one investment firm; and
c
‘competent authorities’ means the national authorities which are empowered by law or regulation to supervise investment firms.
Article 4: For the purposes of this Directive, ‘initial capital’ shall be comprised of the items referred to in Article 57(a) and (b) of Directive 2006/48/EC.
Article 5: An investment firm that does not deal in any financial instruments for its own account or underwrite issues of financial instruments on a firm commitment basis, but which holds clients' money and/or securities and which offers one or more of the following services, shall have initial capital of EUR 125 000:
2
The competent authorities may allow an investment firm which executes investors' orders for financial instruments to hold such instruments for its own account if the following conditions are met:
a
such positions arise only as a result of the firm's failure to match investors' orders precisely;
b
the total market value of all such positions is subject to a ceiling of 15 % of the firm's initial capital;
d
such positions are incidental and provisional in nature and strictly limited to the time required to carry out the transaction in question.
The holding of non-trading-book positions in financial instruments in order to invest own funds shall not be considered as dealing in relation to the services set out in paragraph 1 or for the purposes of paragraph 3.
3
Member States may reduce the amount referred to in paragraph 1 to EUR 50 000 where a firm is not authorised to hold clients' money or securities, to deal for its own account, or to underwrite issues on a firm commitment basis.
Article 6: Local firms shall have initial capital of EUR 50 000 insofar as they benefit from the freedom of establishment or to provide services specified in Articles 31 and 32 of Directive 2004/39/EC.
Article 7: Coverage for the firms referred to in Article 3(1)(b)(iii) shall take one of the following forms:
a
initial capital of EUR 50 000;
b
professional indemnity insurance covering the whole territory of the Community or some other comparable guarantee against liability arising from professional negligence, representing at least EUR 1 000 000 applying to each claim and in aggregate EUR 1 500 000 per year for all claims; or
c
a combination of initial capital and professional indemnity insurance in a form resulting in a level of coverage equivalent to that referred to in points (a) or (b).
The amounts referred to in the first sub-paragraph shall be periodically reviewed by the Commission in order to take account of changes in the European Index of Consumer Prices as published by Eurostat, in line with and at the same time as the adjustments made under Article 4(7) of IMD of the European Parliament and of the Council of 9 December 2002 on insurance mediation ( 10 ) .
Article 8: If a firm as referred to in Article 3(1)(b)(iii) is also registered under Directive 2002/92/EC, it shall comply with Article 4(3) of that Directive and have coverage in one of the following forms:
a
initial capital of EUR 25 000;
b
professional indemnity insurance covering the whole territory of the Community or some other comparable guarantee against liability arising from professional negligence, representing at least EUR 500 000 applying to each claim and in aggregate EUR 750 000 per year for all claims; or
c
a combination of initial capital and professional indemnity insurance in a form resulting in a level of coverage equivalent to that referred to in points (a) or (b).
Article 9: All investment firms other than those referred to in Articles 5 to 8 shall have initial capital of EUR 730 000.
Article 10: By way of derogation from Articles 5(1), 5(3), 6 and 9, Member States may continue an authorisation of investment firms and firms covered by Article 6 which was in existence before 31 December 1995, the own funds of which firms or investment firms are less than the initial capital levels specified for them in Articles 5(1), 5(3), 6 and 9.
2
If control of a firm covered by paragraph 1 is taken by a natural or legal person other than the person who controlled it previously, the own funds of that firm shall attain at least the level specified for them in Articles 5(1), 5(3), 6 and 9, except in the case of a first transfer by inheritance made after 31 December 1995, subject to the competent authorities' approval and for a period of not more than 10 years from the date of that transfer.
3
In certain specific circumstances, and with the approval of the competent authorities, in the event of a merger of two or more investment firms and/or firms covered by Article 6, the own funds of the firm produced by the merger need not attain the level specified in Articles 5(1), 5(3), 6 and 5(1) 85(3)ype="unknown" class="internal-link article" href="#art_6" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="Local firms shall have initial capital of EUR 50 000 insofar as they benefit from the freedom of establishment or to provide services specified in Articles 31 and 32 of MIFID." data-bs-placement="top" >6="unknown" class="internal-link article" href="#art_9" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="All investment firms other than those referred to in Articles 5 to 8 shall have initial capital of EUR 730 000." data-bs-placement="top" >9lass="internal-link article" href="#art_5.1" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="No text available" data-bs-placement="top" >5(1) 85(3)ype="unknown" class="internal-link article" href="#art_6" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="Local firms shall have initial capital of EUR 50 000 insofar as they benefit from the freedom of establishment or to provide services specified in Articles 31 and 32 of MIFID." data-bs-placement="top" >6="unknown" class="internal-link article" href="#art_9" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="All investment firms other than those referred to in Articles 5 to 8 shall have initial capital of EUR 730 000." data-bs-placement="top" >9lass="internal-link article" href="#art_31" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="The competent authorities may authorise the limits laid down in Articles 111 to 117 of Directive 2006/48 to be exceeded if the following conditions are met:" data-bs-placement="top" >31to 832unknown" class="internal-link article" href="#art_5" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="An investment firm that does not deal in any financial instruments for its own account or underwrite issues of financial instruments on a firm commitment basis, but which holds clients' money and/or securities and which offers one or more of the following services, shall have initial capital of EUR 125 000:" data-bs-placement="top" >5 to 8e="unknown" class="internal-link article" href="#art_31" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="The competent authorities may authorise the limits laid down in Articles 111 to 117 of Directive 2006/48 to be exceeded if the following conditions are met:" data-bs-placement="top" >31to 832unknown" class="internal-link article" href="#art_5" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="An investment firm that does not deal in any financial instruments for its own account or underwrite issues of financial instruments on a firm commitment basis, but which holds clients' money and/or securities and which offers one or more of the following services, shall have initial capital of EUR 125 000:" data-bs-placement="top" >5 to 8e="unknown" class="internal-link article" href="#art_31" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="The competent authorities may authorise the limits laid down in Articles 111 to 117 of Directive 2006/48 to be exceeded if the following conditions are met:" data-bs-placement="top" >31to 832unknown" class="internal-link article" href="#art_5" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="An investment firm that does not deal in any financial instruments for its own account or underwrite issues of financial instruments on a firm commitment basis, but which holds clients' money and/or securities and which offers one or more of the following services, shall have initial capital of EUR 125 000:" data-bs-placement="top" >5 to 8e="unknown" class="internal-link article" href="#art_31" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="The competent authorities may authorise the limits laid down in Articles 111 to 117 of Directive 2006/48 to be exceeded if the following conditions are met:" data-bs-placement="top" >31to 832unknown" class="internal-link article" href="#art_5" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="An investment firm that does not deal in any financial instruments for its own account or underwrite issues of financial instruments on a firm commitment basis, but which holds clients' money and/or securities and which offers one or more of the following services, shall have initial capital of EUR 125 000:" data-bs-placement="top" >5 to 8 shall have initial capital of EUR 730 000." data-bs-placement="top" >9lass="internal-link article" href="#art_5.1" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="No text available" data-bs-placement="top" >5(1), 5(3), 6 and 5(1) 85(3)ype="unknown" class="internal-link article" href="#art_6" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="Local firms shall have initial capital of EUR 50 000 insofar as they benefit from the freedom of establishment or to provide services specified in Articles 31 and 32 of MIFID." data-bs-placement="top" >6="unknown" class="internal-link article" href="#art_9" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="All investment firms other than those referred to in Articles 5 to 8 shall have initial capital of EUR 730 000." data-bs-placement="top" >9lass="internal-link article" href="#art_5.1" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="No text available" data-bs-placement="top" >5(1) 85(3)ype="unknown" class="internal-link article" href="#art_6" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="Local firms shall have initial capital of EUR 50 000 insofar as they benefit from the freedom of establishment or to provide services specified in Articles 31 and 32 of MIFID." data-bs-placement="top" >6="unknown" class="internal-link article" href="#art_9" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="All investment firms other than those referred to in Articles 5 to 8 shall have initial capital of EUR 730 000." data-bs-placement="top" >9lass="internal-link article" href="#art_31" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="The competent authorities may authorise the limits laid down in Articles 111 to 117 of Directive 2006/48 to be exceeded if the following conditions are met:" data-bs-placement="top" >31to 832unknown" class="internal-link article" href="#art_5" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="An investment firm that does not deal in any financial instruments for its own account or underwrite issues of financial instruments on a firm commitment basis, but which holds clients' money and/or securities and which offers one or more of the following services, shall have initial capital of EUR 125 000:" data-bs-placement="top" >5 to 8e="unknown" class="internal-link article" href="#art_31" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="The competent authorities may authorise the limits laid down in Articles 111 to 117 of Directive 2006/48 to be exceeded if the following conditions are met:" data-bs-placement="top" >31to 832unknown" class="internal-link article" href="#art_5" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="An investment firm that does not deal in any financial instruments for its own account or underwrite issues of financial instruments on a firm commitment basis, but which holds clients' money and/or securities and which offers one or more of the following services, shall have initial capital of EUR 125 000:" data-bs-placement="top" >5 to 8e="unknown" class="internal-link article" href="#art_31" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="The competent authorities may authorise the limits laid down in Articles 111 to 117 of Directive 2006/48 to be exceeded if the following conditions are met:" data-bs-placement="top" >31to 832unknown" class="internal-link article" href="#art_5" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="An investment firm that does not deal in any financial instruments for its own account or underwrite issues of financial instruments on a firm commitment basis, but which holds clients' money and/or securities and which offers one or more of the following services, shall have initial capital of EUR 125 000:" data-bs-placement="top" >5 to 8e="unknown" class="internal-link article" href="#art_31" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="The competent authorities may authorise the limits laid down in Articles 111 to 117 of Directive 2006/48 to be exceeded if the following conditions are met:" data-bs-placement="top" >31to 832unknown" class="internal-link article" href="#art_5" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="An investment firm that does not deal in any financial instruments for its own account or underwrite issues of financial instruments on a firm commitment basis, but which holds clients' money and/or securities and which offers one or more of the following services, shall have initial capital of EUR 125 000:" data-bs-placement="top" >5 to 8 shall have initial capital of EUR 730 000." data-bs-placement="top" >9. Nevertheless, during any period when the level specified in Articles 5(1), 5(3), 6 and 5(1) 85(3)ype="unknown" class="internal-link article" href="#art_6" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="Local firms shall have initial capital of EUR 50 000 insofar as they benefit from the freedom of establishment or to provide services specified in Articles 31 and 32 of MIFID." data-bs-placement="top" >6="unknown" class="internal-link article" href="#art_9" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="All investment firms other than those referred to in Articles 5 to 8 shall have initial capital of EUR 730 000." data-bs-placement="top" >9lass="internal-link article" href="#art_5.1" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="No text available" data-bs-placement="top" >5(1) 85(3)ype="unknown" class="internal-link article" href="#art_6" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="Local firms shall have initial capital of EUR 50 000 insofar as they benefit from the freedom of establishment or to provide services specified in Articles 31 and 32 of MIFID." data-bs-placement="top" >6="unknown" class="internal-link article" href="#art_9" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="All investment firms other than those referred to in Articles 5 to 8 shall have initial capital of EUR 730 000." data-bs-placement="top" >9lass="internal-link article" href="#art_31" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="The competent authorities may authorise the limits laid down in Articles 111 to 117 of Directive 2006/48 to be exceeded if the following conditions are met:" data-bs-placement="top" >31to 832unknown" class="internal-link article" href="#art_5" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="An investment firm that does not deal in any financial instruments for its own account or underwrite issues of financial instruments on a firm commitment basis, but which holds clients' money and/or securities and which offers one or more of the following services, shall have initial capital of EUR 125 000:" data-bs-placement="top" >5 to 8e="unknown" class="internal-link article" href="#art_31" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="The competent authorities may authorise the limits laid down in Articles 111 to 117 of Directive 2006/48 to be exceeded if the following conditions are met:" data-bs-placement="top" >31to 832unknown" class="internal-link article" href="#art_5" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="An investment firm that does not deal in any financial instruments for its own account or underwrite issues of financial instruments on a firm commitment basis, but which holds clients' money and/or securities and which offers one or more of the following services, shall have initial capital of EUR 125 000:" data-bs-placement="top" >5 to 8e="unknown" class="internal-link article" href="#art_31" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="The competent authorities may authorise the limits laid down in Articles 111 to 117 of Directive 2006/48 to be exceeded if the following conditions are met:" data-bs-placement="top" >31to 832unknown" class="internal-link article" href="#art_5" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="An investment firm that does not deal in any financial instruments for its own account or underwrite issues of financial instruments on a firm commitment basis, but which holds clients' money and/or securities and which offers one or more of the following services, shall have initial capital of EUR 125 000:" data-bs-placement="top" >5 to 8e="unknown" class="internal-link article" href="#art_31" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="The competent authorities may authorise the limits laid down in Articles 111 to 117 of Directive 2006/48 to be exceeded if the following conditions are met:" data-bs-placement="top" >31to 832unknown" class="internal-link article" href="#art_5" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="An investment firm that does not deal in any financial instruments for its own account or underwrite issues of financial instruments on a firm commitment basis, but which holds clients' money and/or securities and which offers one or more of the following services, shall have initial capital of EUR 125 000:" data-bs-placement="top" >5 to 8 shall have initial capital of EUR 730 000." data-bs-placement="top" >9lass="internal-link article" href="#art_5.1" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="No text available" data-bs-placement="top" >5(1), 5(3), 6 and 5(1) 85(3)ype="unknown" class="internal-link article" href="#art_6" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="Local firms shall have initial capital of EUR 50 000 insofar as they benefit from the freedom of establishment or to provide services specified in Articles 31 and 32 of MIFID." data-bs-placement="top" >6="unknown" class="internal-link article" href="#art_9" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="All investment firms other than those referred to in Articles 5 to 8 shall have initial capital of EUR 730 000." data-bs-placement="top" >9lass="internal-link article" href="#art_5.1" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="No text available" data-bs-placement="top" >5(1) 85(3)ype="unknown" class="internal-link article" href="#art_6" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="Local firms shall have initial capital of EUR 50 000 insofar as they benefit from the freedom of establishment or to provide services specified in Articles 31 and 32 of MIFID." data-bs-placement="top" >6="unknown" class="internal-link article" href="#art_9" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="All investment firms other than those referred to in Articles 5 to 8 shall have initial capital of EUR 730 000." data-bs-placement="top" >9lass="internal-link article" href="#art_31" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="The competent authorities may authorise the limits laid down in Articles 111 to 117 of Directive 2006/48 to be exceeded if the following conditions are met:" data-bs-placement="top" >31to 832unknown" class="internal-link article" href="#art_5" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="An investment firm that does not deal in any financial instruments for its own account or underwrite issues of financial instruments on a firm commitment basis, but which holds clients' money and/or securities and which offers one or more of the following services, shall have initial capital of EUR 125 000:" data-bs-placement="top" >5 to 8e="unknown" class="internal-link article" href="#art_31" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="The competent authorities may authorise the limits laid down in Articles 111 to 117 of Directive 2006/48 to be exceeded if the following conditions are met:" data-bs-placement="top" >31to 832unknown" class="internal-link article" href="#art_5" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="An investment firm that does not deal in any financial instruments for its own account or underwrite issues of financial instruments on a firm commitment basis, but which holds clients' money and/or securities and which offers one or more of the following services, shall have initial capital of EUR 125 000:" data-bs-placement="top" >5 to 8e="unknown" class="internal-link article" href="#art_31" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="The competent authorities may authorise the limits laid down in Articles 111 to 117 of Directive 2006/48 to be exceeded if the following conditions are met:" data-bs-placement="top" >31to 832unknown" class="internal-link article" href="#art_5" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="An investment firm that does not deal in any financial instruments for its own account or underwrite issues of financial instruments on a firm commitment basis, but which holds clients' money and/or securities and which offers one or more of the following services, shall have initial capital of EUR 125 000:" data-bs-placement="top" >5 to 8e="unknown" class="internal-link article" href="#art_31" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="The competent authorities may authorise the limits laid down in Articles 111 to 117 of Directive 2006/48 to be exceeded if the following conditions are met:" data-bs-placement="top" >31to 832unknown" class="internal-link article" href="#art_5" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="An investment firm that does not deal in any financial instruments for its own account or underwrite issues of financial instruments on a firm commitment basis, but which holds clients' money and/or securities and which offers one or more of the following services, shall have initial capital of EUR 125 000:" data-bs-placement="top" >5 to 8 shall have initial capital of EUR 730 000." data-bs-placement="top" >9 has not been attained, the own funds of the new firm may not fall below the merged firms' total own funds at the time of the merger.
4
In the event that the own funds of such firms and investment firms fall below that level, the competent authorities may, where the circumstances justify it, allow such firms a limited period in which to rectify their situations or cease their activities.
Article 11: The trading book of an institution shall consist of all positions in financial instruments and commodities held either with trading intent or in order to hedge other elements of the trading book and which are either free of any restrictive covenants on their tradability or able to be hedged.
2
Positions held with trading intent are those held intentionally for short-term resale and/or with the intention of benefiting from actual or expected short-term price differences between buying and selling prices or from other price or interest rate variations. The term ‘positions’ shall include proprietary positions and positions arising from client servicing and market making.
3
Trading intent shall be evidenced on the basis of the strategies, policies and procedures set up by the institution to manage the position or portfolio in accordance with Part A of Annex VII.
4
Institutions shall establish and maintain systems and controls to manage their trading book in accordance with Parts B and D of Annex VII.
5
Internal hedges may be included in the trading book, in which case Part C of Annex VII shall apply.
Article 12: ‘Original own funds’ means the sum of points (a) to (c), less the sum of points (i) to (k) of Article 57 of Directive 2006/48/EC.
The Commission shall, by 1 January 2009,,submit an appropriate proposal to the European Parliament and to the Council for amendment of this Chapter.
Article 13: Subject to paragraphs 2 to 5 of this Article and Articles 14 to 17, the own funds of investment firms and credit institutions shall be determined in accordance with Directive 2006/48/EC.
2
By way of derogation from paragraph 1, the competent authorities may permit those institutions which are obliged to meet the capital requirements calculated in accordance with Articles 21 and 28 to 32 and Annexes I and III to VI to use, for that purpose only, an alternative determination of own funds. No part of the own funds used for that purpose may be used simultaneously to meet other capital requirements.
Such an alternative determination shall be the sum of the items set out in points (a) to (c) of this subparagraph, minus the item set out in point (d), with the deduction of that last item being left to the discretion of the competent authorities:
a
own funds as defined in Directive 2006/48 , excluding only points (l) to (p) of Article 57 of that Directive for those investment firms which are required to deduct item (d) of this paragraph from the total of items (a) to (c);
b
an institution's net trading-book profits net of any foreseeable charges or dividends, less net losses on its other business, provided that none of those amounts has already been included in item (a) of this paragraph as one of the items set out in points (b) or (k) of Article 57 of Directive 2006/48;
c
subordinated loan capital and/or the items referred to in paragraph 5 of this Article, subject to the conditions set out in paragraphs 3 and 4 of this Article and in Article 14; and
d
illiquid assets as specified in Article 15.
3
The subordinated loan capital referred to in point (c) of the second subparagraph of paragraph 2 shall have an initial maturity of at least two years. It shall be fully paid up and the loan agreement shall not include any clause providing that in specified circumstances, other than the winding up of the institution, the debt will become repayable before the agreed repayment date, unless the competent authorities approve the repayment. Neither the principal nor the interest on such subordinated loan capital may be repaid if such repayment would mean that the own funds of the institution in question would then amount to less than 100 % of that institution's overall capital requirements.
In addition, an institution shall notify the competent authorities of all repayments on such subordinated loan capital as soon as its own funds fall below 120 % of its overall capital requirements.
4
The subordinated loan capital referred to in point (c) of the second subparagraph of paragraph 2 may not exceed a maximum of 150 % of the original own funds left to meet the requirements calculated in accordance with Articles 21 and 28 to 32 and Annexes I to VI and may approach that maximum only in particular circumstances acceptable to the competent authorities.
5
The competent authorities may permit institutions to replace the subordinated loan capital referred to in point (c) of the second subparagraph of paragraph 2 with points (d) to (h) of Article 57 of Directive 2006/48.
Article 14: The competent authorities may permit investment firms to exceed the ceiling for subordinated loan capital set out in Article 13(4) if they judge it prudentially adequate and provided that the total of such subordinated loan capital and the items referred to in Article 13(5) does not exceed 200 % of the original own funds left to meet the requirements calculated in accordance with Articles 21 and 28 to 32 and Annexes I and III to VI, or 250 % of the same amount where investment firms deduct the item set out in Article 13(2)(d) when calculating own funds.
2
The competent authorities may permit the ceiling for subordinated loan capital set out in Article 13(4) to be exceeded by a credit institution if they judge it prudentially adequate and provided that the total of such subordinated loan capital and points (d) to (h) of Article 57 of Directive 2006/48 does not exceed 250 % of the original own funds left to meet the requirements calculated in accordance with Articles 28 to 32 and Annexes I and III to VI to this Directive.
Article 15: Illiquid assets as referred to in point (d) of the second subparagraph of Article 13(2) shall include the following:
a
tangible fixed assets, except to the extent that land and buildings may be allowed to count against the loans which they are securing;
b
holdings in, including subordinated claims on, credit or financial institutions which may be included in the own funds of those institutions, unless they have been deducted under points (l) to (p) of Article 57 of Directive 2006/48 or under Article 16(d) of this Directive;
c
holdings and other investments in undertakings other than credit or financial institutions, which are not readily marketable;
d
deficiencies in subsidiaries;
e
deposits made, other than those which are available for repayment within 90 days, and also excluding payments in connection with margined futures or options contracts;
f
loans and other amounts due, other than those due to be repaid within 90 days; and
g
For the purposes of point (b), where shares in a credit or financial institution are held temporarily for the purpose of a financial assistance operation designed to reorganise and save that institution, the competent authorities may waive the application of this Article. They may also waive it in respect of those shares which are included in an investment firm's trading book.
Article 16: Investment firms included in a group which has been granted the waiver provided for in Article 22 shall calculate their own funds in accordance with Articles 13 to 15, subject to the following:
a
the illiquid assets referred to in Article 13(2)(d) shall be deducted;
b
the exclusion referred to in point (a) of Article 13(2) shall not cover those components of points (l) to (p) of Article 57 of Directive 2006/48 which an investment firm holds in respect of undertakings included in the scope of consolidation as defined in Article 2(1) of this Directive;
c
the limits referred to in points (a) and (b) of Article 66(1) of Directive 2006/48 shall be calculated with reference to the original own funds less the components of points (l) to (p) of Article 57 of that Directive as referred to in point (b) of this Article which are elements of the original own funds of those undertakings; and
d
the components of points (l) to (p) of Article 57 of Directive 2006/48 referred to in point (c) of this Article shall be deducted from the original own funds rather than from the total of all items as laid down in Article 66(2) of that Directive for the purposes in particular of Articles 13(4), 13(5) and 14 of this Directive.
Article 17: Where an institution calculates risk-weighted exposure amounts for the purposes of Annex II to this Directive in accordance with Articles 84 to 89 of Directive 2006/48/EC, then for the purposes of the calculation provided for in point 4 of Part 1 of Annex VII to Directive 2006/48/EC, the following shall apply:
2
For the purposes of this Article, Article 153 and 154 of Directive 2006/48 shall apply.
Article 18: Institutions shall have own funds which are always more than or equal to the sum of the following:
2
By way of derogation from paragraph 1, the competent authorities may allow institutions to calculate the capital requirements for their trading book business in accordance with Article 75(a) of Directive 2006/48 and points 6, 7, and 9 of Annex II to this Directive, where the size of the trading book business meets the following requirements:
a
the trading-book business of such institutions does not normally exceed 5 % of their total business;
b
their total trading-book positions do not normally exceed EUR 15 million; and
c
the trading-book business of such institutions never exceeds 6 % of their total business and their total trading-book positions never exceed EUR 20 million.
3
In order to calculate the proportion that trading-book business bears to total business for the purposes of points (a) and (c) of paragraph 2, the competent authorities may refer either to the size of the combined on- and off-balance-sheet business, to the profit and loss account or to the own funds of the institutions in question, or to a combination of those measures. When the size of on- and off-balance-sheet business is assessed, debt instruments shall be valued at their market prices or their principal values, equities at their market prices and derivatives according to the nominal or market values of the instruments underlying them. Long positions and short positions shall be summed regardless of their signs.
4
If an institution should happen for more than a short period to exceed either or both of the limits imposed in paragraph 2(a) and (b) or either or both of the limits imposed in paragraph 2(c), it shall be required to meet the requirements imposed in paragraph 1(a) in respect of its trading-book business and to notify the competent authority thereof.
Article 19: For the purposes of point 14 of Annex I, subject to the discretion of the national authorities, a 0 % weighting can be assigned to debt securities issued by the entities listed in Table 1 of Annex I, where these debt securities are denominated and funded in domestic currency.
2
By way of derogation from points 13 and 14 of Annex I, Member States may set a specific risk requirement for any bonds falling within points 68 to 70 of Part 1 of Annex VI to Directive 2006/48 which shall be equal to the specific risk requirement for a qualifying item with the same residual maturity as such bonds and reduced in accordance with the percentages given in point 71 of Part 1 to Annex VI to that Directive.
3
If, as set out in point 52 of Annex I, a competent authority approves a third country's collective investment undertaking (CIU) as eligible, a competent authority in another Member State may make use of this approval without conducting its own assessment.
Article 20: Subject to paragraphs 2, 3 and 4 of this Article, and Article 34 of this Directive, the requirements in Article 75 of Directive 2006/48/EC shall apply to investment firms.
2
By way of derogation from paragraph 1, competent authorities may allow investment firms that are not authorised to provide the investment services listed in points 3 and 6 of Section A of Annex I to MIFID to provide own funds which are always more than or equal to the higher of the following:
a
the sum of the capital requirements contained in points (a) to (c) of Article 75 of Directive 2006/48; and
b
the amount laid down in Article 21 of this Directive.
3
By way of derogation from paragraph 1, competent authorities may allow investment firms which hold initial capital as set out in Article 9, but which fall within the following categories, to provide own funds which are always more than or equal to the sum of the capital requirements calculated in accordance with the requirements contained in points (a) to (c) of Article 75 of Directive 2006/48 and the amount laid down in Article 21 of this Directive:
a
investment firms that deal on own account only for the purpose of fulfilling or executing a client order or for the purpose of gaining entrance to a clearing and settlement system or a recognised exchange when acting in an agency capacity or executing a client order; and
b
investment firms:
i
that do not hold client money or securities;
ii
that undertake only dealing on own account;
iii
that have no external customers;
iv
the execution and settlement of whose transactions takes place under the responsibility of a clearing institution and are guaranteed by that clearing institution.
4
Investment firms referred to in paragraphs 2 and 3 shall remain subject to all other provisions regarding operational risk set out in Annex V of Directive 2006/48.
5
Article 21 shall apply only to investment firms to which paragraphs (2) or (3) or Article 46 apply and in the manner specified therein.
Article 21: Investment firms shall be required to hold own funds equivalent to one quarter of their preceding year's fixed overheads.
The competent authorities may adjust that requirement in the event of a material change in a firm's business since the preceding year.
Where a firm has not completed a year's business, starting from the day it starts up, the requirement shall be a quarter of the fixed overheads projected in its business plan, unless an adjustment to that plan is required by the competent authorities.
Article 22: The competent authorities required or mandated to exercise supervision of groups covered by Article 2 on a consolidated basis may waive, on a case-by-case basis, the application of capital requirements on a consolidated basis provided that:
2
By way of derogation from paragraph 1, competent authorities may permit financial holding companies which are the parent financial holding company in a Member State of an investment firm in such a group to use a value lower than the value calculated under paragraph 1(d), but no lower than the sum of the requirements imposed in Articles 18 and 20 on an individual basis to investment firms, financial institutions, asset management companies and ancillary services undertakings which would otherwise be consolidated and the total amount of any contingent liability in favour of investment firms, financial institutions, asset management companies and ancillary services undertakings which would otherwise be consolidated. For the purposes of this paragraph, the capital requirement for investment undertakings of third countries, financial institutions, asset management companies and ancillary services undertakings is a notional capital requirement.
Article 23: The competent authorities shall require investment firms in a group which has been granted the waiver provided for in Article 22 to notify them of the risks which could undermine their financial positions, including those associated with the composition and sources of their capital and funding. If the competent authorities then consider that the financial positions of those investment firms is not adequately protected, they shall require them to take measures including, if necessary, limitations on the transfer of capital from such firms to group entities.
Where the competent authorities waive the obligation of supervision on a consolidated basis provided for in Article 22, they shall take other appropriate measures to monitor the risks, namely large exposures, of the whole group, including any undertakings not located in a Member State.
Where the competent authorities waive the application of capital requirements on a consolidated basis provided for in Article 22, the requirements of Article 123 and Chapter 5 of Title V of Directive 2006/48 shall apply on an individual basis, and the requirements of Article 124 of that Directive shall apply to the supervision of investment firms on an individual basis.
Article 24: By way of derogation from Article 2(2), competent authorities may exempt investment firms from the consolidated capital requirement established in that Article, provided that all the investment firms in the group are covered by Article 20(2) and the group does not include credit institutions.
2
Where the requirements of paragraph 1 are met, a parent investment firm in a Member State shall be required to provide own funds at a consolidated level which are always more than or equal to the higher of the following two amounts, calculated on the basis of the parent investment firm's consolidated financial position and in compliance with Section 3 of this Chapter:
a
the sum of the capital requirements contained in points (a) to (c) of Article 75 of Directive 2006/48; and
b
the amount prescribed in Article 21 of this Directive.
3
Where the requirements of paragraph 1 are met, an investment firm controlled by a financial holding company shall be required to provide own funds at a consolidated level which are always more than or equal to the higher of the following two amounts, calculated on the basis of the financial holding company's consolidated financial position and in compliance with Section 3 of this Chapter:
a
the sum of the capital requirements contained in points (a) to (c) of Article 75 of Directive 2006/48; and
b
the amount prescribed in Article 21 of this Directive.
Article 25: By way of derogation from Article 2(2), competent authorities may exempt investment firms from the consolidated capital requirement established in that Article, provided that all the investment firms in the group fall within the investment firms referred to in Article 20(2) and (3), and the group does not include credit institutions.
Where the requirements of the first paragraph are met, a parent investment firm in a Member State shall be required to provide own funds at a consolidated level which are always more than or equal to the sum of the requirements contained in points (a) to (c) of Article 75 of Directive 2006/48 and the amount prescribed in Article 21 of this Directive, calculated on the basis of the parent investment firm's consolidated financial position and in compliance with Section 3 of this Chapter.
Where the requirements of the first paragraph are met, an investment firm controlled by a financial holding company shall be required to provide own funds at a consolidated level which are always more than or equal to the sum of the requirements contained in points (a) to (c) of Article 75 of Directive 2006/48 and the amount prescribed in Article 21 of this Directive, calculated on the basis of the financial holding company's consolidated financial position and in compliance with Section 3 of this Chapter.
Article 26: Where the waiver provided for in Article 22 is not exercised, the competent authorities may, for the purpose of calculating the capital requirements set out in Annexes I and V and the exposures to clients set out in Articles 28 to 32 and Annex VI on a consolidated basis, permit positions in the trading book of one institution to offset positions in the trading book of another institution according to the rules set out in Articles 28 to 32 Annexes I, V and VI.
2
The competent authorities may permit offsetting of the trading book and of the foreign-exchange and commodities positions, respectively, of undertakings located in third countries, subject to the simultaneous fulfilment of the following conditions:
a
such undertakings have been authorised in a third country and either satisfy the definition of credit institution set out in Article 4(1) of Directive 2006/48 or are recognised third-country investment firms;
b
such undertakings comply, on an individual basis, with capital adequacy rules equivalent to those laid down in this Directive; and
c
no regulations exist in the third countries in question which might significantly affect the transfer of funds within the group.
3
The competent authorities may also allow the offsetting provided for in paragraph 1 between institutions within a group that have been authorised in the Member State in question, provided that:
a
there is a satisfactory allocation of capital within the group; and
b
the regulatory, legal or contractual framework in which the institutions operate is such as to guarantee mutual financial support within the group.
4
Furthermore, the competent authorities may allow the offsetting provided for in paragraph 1 between institutions within a group that fulfil the conditions imposed in paragraph 3 and any institution included in the same group which has been authorised in another Member State provided that that institution is obliged to fulfil the capital requirements imposed in Articles 18, 20 and 28 on an individual basis.
Article 27: In the calculation of own funds on a consolidated basis Article 65 of Directive 2006/48/EC shall apply.
2
The competent authorities responsible for exercising supervision on a consolidated basis may recognise the validity of the specific own-funds definitions applicable to the institutions concerned under Chapter IV in the calculation of their consolidated own funds.
Article 28: Institutions shall monitor and control their large exposures in accordance with Articles 106 to 118 of Directive 2006/48/EC.
2
By way of derogation from paragraph 1, institutions which calculate the capital requirements for their trading-book business in accordance with Annexes I and II, and, as appropriate, Annex V to this Directive, shall monitor and control their large exposures in accordance with Articles 106 to 118 of Directive 2006/48 subject to the amendments laid down in Articles 106to 3118nknown" class="internal-link article" href="#art_29" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="The exposures to individual clients which arise on the trading book shall be calculated by summing the following items:" data-bs-placement="top" >29 to 32 of this Directive.
3
By 31 December 2007, the Commission shall submit to the European Parliament and to the Council a report on the functioning of this Section, together with any appropriate proposals.
Article 29: The exposures to individual clients which arise on the trading book shall be calculated by summing the following items:
2
The exposures to groups of connected clients on the trading book shall be calculated by summing the exposures to individual clients in a group, as calculated in paragraph 1.
Article 30: The overall exposures to individual clients or groups of connected clients shall be calculated by summing the exposures which arise on the trading book and the exposures which arise on the non-trading book, taking into account Article 112 to 117 of Directive 2006/48/EC.
2
Institutions' overall exposures to individual clients and groups of connected clients calculated in accordance with paragraph 4 shall be reported in accordance with Article 110 of Directive 2006/48.
Other than in relation to repurchase transactions, securities or commodities lending or borrowing transactions, the calculation of large exposures to individual clients and groups of connected clients for reporting purposes shall not include the recognition of credit risk mitigation.
3
The sum of the exposures to an individual client or group of connected clients in paragraph 1 shall be limited in accordance with Articles 111 to 117 of Directive 2006/48.
4
By derogation from paragraph 3 competent authorities may allow assets constituting claims and other exposures on recognised third-country investment firms and recognised clearing houses and exchanges in financial instruments to be subject to the same treatment accorded to those on institutions laid out in Articles 113(3)(i), 115(2) and 116 of Directive 2006/48.
Article 31: The competent authorities may authorise the limits laid down in Articles 111 to 117 of Directive 2006/48/EC to be exceeded if the following conditions are met:
a
the exposure on the non-trading book to the client or group of clients in question does not exceed the limits laid down in Articles 111 to 117 of Directive 2006/48, those limits being calculated with reference to own funds as specified in that Directive, so that the excess arises entirely on the trading book;
b
the institution meets an additional capital requirement on the excess in respect of the limits laid down in Article 111(1) and (2) of Directive 2006/48, that additional capital requirement being calculated in accordance with Annex VI to that Directive;
c
where 10 days or less has elapsed since the excess occurred, the trading-book exposure to the client or group of connected clients in question shall not exceed 500 % of the institution's own funds;
d
any excesses that have persisted for more than 10 days must not, in aggregate, exceed 600 % of the institution's own funds; and
e
institutions shall report to the competent authorities every three months all cases where the limits laid down in Article 111(1) and (2) of Directive 2006/48 have been exceeded during the preceding three months.
In relation to point (e), in each case in which the limits have been exceeded the amount of the excess and the name of the client concerned shall be reported.
Article 32: The competent authorities shall establish procedures to prevent institutions from deliberately avoiding the additional capital requirements that they would otherwise incur, on exposures exceeding the limits laid down in Article 111(1) and (2) of Directive 2006/48/EC once those exposures have been maintained for more than 10 days, by means of temporarily transferring the exposures in question to another company, whether within the same group or not, and/or by undertaking artificial transactions to close out the exposure during the 10-day period and create a new exposure.
2
The competent authorities may permit institutions which are allowed to use the alternative determination of own funds under Article 13(2) to use that determination for the purposes of Articles 30(2), 30(3) and 31 provided that the institutions concerned are required to meet all of the obligations set out in Articles 30(2)o 30(3) type="unknown" class="internal-link article" href="#art_31" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="The competent authorities may authorise the limits laid down in Articles 111 to 117 of Directive 2006/48 to be exceeded if the following conditions are met:" data-bs-placement="top" >31lass="internal-link article" href="#art_110" data-bs-toggle="popover" data-bs-trigger="hover focus" data-bs-content="No text available" data-bs-placement="top" >110 to 117 of Directive 2006/48, in respect of the exposures which arise outside their trading books by using own funds as defined in that Directive.
Article 33: All trading book positions shall be subject to prudent valuation rules as specified in Annex VII, Part B. These rules shall require institutions to ensure that the value applied to each of its trading book positions appropriately reflects the current market value. The former value shall contain an appropriate degree of certainty having regard to the dynamic nature of trading book positions, the demands of prudential soundness and the mode of operation and purpose of capital requirements in respect of trading book positions.
2
Trading book positions shall be re-valued at least daily.
3
In the absence of readily available market prices, the competent authorities may waive the requirement imposed in paragraphs 1 and 2 and shall require institutions to use alternative methods of valuation provided that those methods are sufficiently prudent and have been approved by competent authorities.
Article 34: Competent authorities shall require that every investment firm, as well as meeting the requirements set out in Article 13 of Directive 2004/39/EC, shall meet the requirements set out in Articles 22 and 123 of Directive 2006/48/EC, subject to the provisions on level of application set out in Articles 68 to 73 of that Directive.
Article 35: Member States shall require that investment firms and credit institutions provide the competent authorities of their home Member States with all the information necessary for the assessment of their compliance with the rules adopted in accordance with this Directive. Member States shall also ensure that internal control mechanisms and administrative and accounting procedures of the institutions permit the verification of their compliance with such rules at all times.
2
Investment firms shall report to the competent authorities in the manner specified by the latter at least once every month in the case of firms covered by Article 9, at least once every three months in the case of firms covered by Article 5(1) and at least once every six months in the case of firms covered by Article 5(3).
3
4
Credit institutions shall be obliged to report in the manner specified by the competent authorities as often as they are obliged to report under Directive 2006/48.
5
The competent authorities shall oblige institutions to report to them immediately any case in which their counter parties in repurchase and reverse repurchase agreements or securities and commodities-lending and securities and commodities-borrowing transactions default on their obligations.
Article 36: Member States shall designate the authorities which are competent to carry out the duties provided for in this Directive. They shall inform the Commission thereof, indicating any division of duties.
2
The competent authorities shall be public authorities or bodies officially recognized by national law or by public authorities as part of the supervisory system in operation in the Member State concerned.
3
The competent authorities shall be granted all the powers necessary for the performance of their tasks, and in particular that of overseeing the constitution of trading books.
Article 37: Chapter 4 of Title V of Directive 2006/48/EC shall apply mutatis mutandis to the supervision of investment firms in accordance with the following:
2
Article 129(2) of Directive 2006/48 shall also apply to the recognition of internal models of institutions under Annex V to this Directive where the application is submitted by an EU parent credit institution and its subsidiaries or an EU parent investment firm and its subsidiaries, or jointly by the subsidiaries of an EU parent financial holding company.
The period for the recognition referred to in the first sub-paragraph shall be six months.
Article 38: The competent authorities of the Member States shall cooperate closely in the performance of the duties provided for in this Directive, particularly where investment services are provided on the basis of the freedom to provide services or through the establishment of branches.
2
Any exchange of information between competent authorities which is provided for in this Directive shall be subject to the following obligations of professional secrecy:
a
for investment firms, those imposed in Article 54 and 58 of MIFID; and
b
for credit institutions, those imposed in Articles 44 to 52 of Directive 2006/48.
Article 39: The requirements set out in Title V, Chapter 5 of Directive 2006/48/EC shall apply to investment firms.
Article 40: For the purposes of the calculation of minimum capital requirements for counterparty risk under this Directive, and for the calculation of minimum capital requirements for credit risk under Directive 2006/48/EC, and without prejudice to the provisions of Part 2, point 6 of Annex III to that Directive, exposures to recognised third-country investment firms and exposures to recognised clearing houses and exchanges shall be treated as exposures to institutions.
Article 22: The Commission shall decide on any technical adaptations in the following areas in accordance with the procedure referred to in Article 42(2):
2
None of the implementing measures enacted may change the essential provisions of this Directive
Article 42: The Commission shall be assisted by the European Banking Committee established by Commission Decision 2004/10/EC ( 12 ) of 5 November 2003 (hereinafter referred to as ‘the Committee’).
2
Where reference is made to this paragraph, the procedure laid down in Article 5 of Decision 1999/468/EC shall apply, having regard to the provisions of Article 7(3) and 8 thereof.
The period laid down in Article 5(6) of Decision 1999/468/EC shall be three months.
3
Without prejudice to the implementing measures already adopted, upon expiry of a two-year period following the adoption of this Directive, and by 1 April 2008, the application of the provisions of this Directive requiring the adoption of technical rules, amendments and decisions in accordance with paragraph 2 shall be suspended. Acting on a proposal from the Commission and in accordance with the procedure laid down in Article 251 of the Treaty, the Parliament and the Council may renew those provisions and, to that end, shall review them prior to the expiry of the period or by the date referred to in this paragraph, whichever the earlier.
4
The Committee shall adopt its Rules of Procedure
Article 43: Article 152(1) to (7) of Directive 2006/48/EC shall apply, in accordance with Article 2 and Chapter V, Sections 2 and 3 of this Directive, to investment firms calculating risk-weighted exposure amounts, for the purposes of Annex II to this Directive, in accordance with Articles 84 to 89 of Directive 2006/48/EC, or using the Advanced Measurement Approach as specified in Article 105 of that Directive for the calculation of their capital requirements for operational risk.
Article 44: Until 31 December 2012, for investment firms the relevant indicator for the trading and sales business line of which represents at least 50 % of the total of relevant indicators for all of their business lines calculated in accordance with Article 20 of this Directive and points 1 to 4 of Part 2 of Annex X to Directive 2006/48/EC, Member States may apply a percentage of 15 % to the business line ‘trading and sales’.
Article 45: Competent authorities may permit investment firms to exceed the limits concerning large exposures set out in Article 111 of Directive 2006/48/EC. Investment firms need not include any excesses in their calculation of capital requirements exceeding such limits, as set out in Article 75(b) of that Directive. This discretion is available until 31 December 2010 or the date of entry into force of any modifications consequent to the treatment of large exposures pursuant to Article 119 of Directive 2006/48/EC, whichever is the earlier. For this discretion to be exercised, the following conditions shall be met:
2
Where an investment firm exceeds the internal limits set according to the strategy referred to in point (d) of paragraph 1, it shall notify the competent authority without delay of the size and nature of the excess and of the counterparty.
Article 46: By way of derogation from Article 20(1), until 31 December 2011 competent authorities may choose, on a case-by-case basis, not to apply the capital requirements arising from point (d) of Article 75 of Directive 2006/48/EC in respect of investment firms to which Article 20(2) and (3) do not apply, whose total trading book positions never exceed EUR 50 million and whose average number of relevant employees during the financial year does not exceed 100.
Instead, the capital requirement in relation to those investment firms shall be at least the lower of:
a
the capital requirements arising from point (d) of Article 75 of Directive 2006/48; and
b
12/88 of the higher of the following:
i
the sum of the capital requirements contained in points (a) to (c) of Article 75 of Directive 2006/48; and
ii
the amount laid down in Article 21 of this Directive, notwithstanding Article 20(5).
If point (b) applies, an incremental increase shall be applied on at least an annual basis.
Applying this derogation shall not result in a reduction in the overall level of capital requirements for an investment firm, in comparison to the requirements as at 31 December 2006, unless such a reduction is prudentially justified by a reduction in the size of the investment firm's business.
Article 47: Until 31 December 2009 or any earlier date specified by the competent authorities on a case-by-case basis, institutions that have received specific risk model recognition prior to 1 January 2007 in accordance with point 1 of Annex V may, for that existing recognition, treat points 4 and 8 of Annex V to Directive 93/6/EEC as those points stood prior to 1 January 2007.
Article 48: The provisions on capital requirements as laid down in this Directive and Directive 2006/48/EC shall not apply to investment firms whose main business consists exclusively of the provision of investment services or activities in relation to the financial instruments set out in points 5, 6, 7, 9 and 10 of Section C of Annex I to Directive 2004/39/EC and to whom Directive 93/22/EEC ( 13 ) did not apply on 31 December 2006. This exemption is available until 31 December 2010 or the date of entry into force of any modifications pursuant to paragraphs 2 and 3, whichever is the earlier.
2
As part of the review required by Article 65(3) of MIFID, the Commission shall, on the basis of public consultations and in the light of discussions with the competent authorities, report to the Parliament and the Council on:
a
an appropriate regime for the prudential supervision of investment firms whose main business consists exclusively of the provision of investment services or activities in relation to the commodity derivatives or derivatives contracts set out in points 5, 6, 7, 9 and 10 of Section C of Annex I to MIFID; and
b
the desirability of amending MIFID to create a further category of investment firm whose main business consists exclusively of the provision of investment services or activities in relation to the financial instruments set out in points 5, 6, 7, 9 and 10 of Section C of Annex I to MIFID relating to energy supplies (including electricity, coal, gas and oil).
3
On the basis of the report referred to in paragraph 2, the Commission may submit proposals for amendments to this Directive and to Directive 2006/48
Article 49: Member States shall adopt and publish, by 31 December 2006, the laws, regulations and administrative provisions necessary to comply with Articles 2, 3, 11, 13, 17, 18, 19, 20, 22, 23, 24, 25, 29, 30, 33, 34, 35, 37, 39, 40, 41, 43, 44, 50 and the Annexes I, II, III, V, VII. They shall forthwith communicate to the Commission the text of those provisions and a correlation table between those provisions and this Directive.
2
Member States shall communicate to the Commission the text of the main provisions of national law which they adopt in the field covered by this Directive.
Article 50: Article 152(8) to (14) of Directive 2006/48/EC shall apply mutatis mutandis for the purposes of this Directive subject to the following provisions which shall apply where the discretion referred to in Article 152(8) of Directive 2006/48/EC is exercised:
2
Article 157(3) of Directive 2006/48 shall apply mutatis mutandis for the purposes of Articles 18 and 20 of this Directive.
Article 51: By 1 January 2011, the Commission shall review and report on the application of this Directive and submit its report to the Parliament and the Council together with any appropriate proposals for amendment.
Article 52: Directive 93/6/EEC, as amended by the Directives listed in Annex VIII, Part A, is repealed, without prejudice to the obligations of the Member States relating to the time-limits for transposition into national law of the Directives set out in Annex VIII, Part B.
References made to the repealed directives shall be construed as being made to this Directive and should be read in accordance with the correspondence table set out in Annex IX.
Article 53: This Directive shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.
Article 54: This Directive is addressed to the Member States.
Recitals
Recital 1
Council Directive 1993/6 of 15 March 1993 on the capital adequacy of investment firms and credit institutions ( 4 ) has been significantly amended on several occasions. Now that new amendments are being made to the said Directive, it is desirable, in order to clarify matters, that it should be recast.
Recital 2
One of the objectives of MIFID of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments ( 5 ) is to allow investment firms authorised by the competent authorities of their home Member State and supervised by the same authorities to establish branches and provide services freely in other Member States. That Directive accordingly provides for the coordination of the rules governing the authorisation and pursuit of the business of investment firms.
Recital 3
MIFID does not, however, establish common standards for the own funds of investment firms nor indeed does it establish the amounts of the initial capital of such firms or a common framework for monitoring the risks incurred by them.
Recital 4
It is appropriate to effect only the essential harmonisation that is necessary and sufficient to secure the mutual recognition of authorisation and of prudential supervision systems; in order to achieve mutual recognition within the framework of the internal financial market, measures should be laid down to coordinate the definition of the own funds of investment firms, the establishment of the amounts of their initial capital and the establishment of a common framework for monitoring the risks incurred by investment firms.
Recital 5
Since the objectives of this Directive, namely the establishment of the capital adequacy requirements applying to investment firms and credit institutions, the rules for their calculation and the rules for their prudential supervision, cannot be sufficiently achieved by the Member States and can therefore, by reason of the scale and the effects of the proposed action, be better achieved at Community level, the Community may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty. In accordance with the principle of proportionality, as set out in that Article, this Directive does not go beyond what is necessary in order to achieve its objectives.
Recital 6
It is appropriate to establish different amounts of initial capital depending on the range of activities that investment firms are authorised to undertake.
Recital 7
Existing investment firms should be permitted, under certain conditions, to continue their business even if they do not comply with the minimum amount of initial capital fixed for new investment firms.
Recital 8
Member States should be able to establish rules stricter than those provided for in this Directive.
Recital 9
The smooth operation of the internal market requires not only legal rules but also close and regular cooperation and significantly enhanced convergence of regulatory and supervisory practices between the competent authorities of the Member States.
Recital 10
The Commission Communication of 11 May 1999 entitled ‘Implementing the framework for financial markets: Action Plan’ listed a number of goals that need to be achieved in order to complete the internal market in financial services. The Lisbon European Council of 23 and 24 March 2000 set the goal of implementing the action plan by 2005. Recasting of the provisions on own funds is a key element of the action plan.
Recital 11
Since investment firms face in respect of their trading book business the same risks as credit institutions, it is appropriate for the pertinent provisions of Directive 2006/48 of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions ( 6 ) to apply equally to investment firms.
Recital 12
The own funds of investment firms or credit institutions (hereinafter referred to collectively as ‘institutions’) can serve to absorb losses which are not matched by a sufficient volume of profits, to ensure the continuity of institutions and to protect investors. The own funds also serve as an important yardstick for the competent authorities, in particular for the assessment of the solvency of institutions and for other prudential purposes. Furthermore, institutions, engage in direct competition with each other in the internal market. Therefore, in order to strengthen the Community financial system and to prevent distortions of competition, it is appropriate to lay down common basic standards for own funds.
Recital 13
For the purposes of recital (12), it is appropriate for the definition of own funds as laid down in Directive 2006/48 to serve as a basis, and to provide for supplementary specific rules which take into account the different scope of market risk related capital requirements.
Recital 14
As regards credit institutions, common standards have already been established for the supervision and monitoring of different types of risks by Directive 2000/12.
Recital 15
In that respect, the provisions on minimum capital requirements should be considered in conjunction with other specific instruments which also harmonise the fundamental techniques of the supervision of institutions.
Recital 16
It is necessary to develop common standards for market risks incurred by credit institutions and provide a complementary framework for the supervision of the risks incurred by institutions, in particular market risks, and more especially position risks, counterparty/settlement risks and foreign-exchange risks.
Recital 17
It is necessary to provide for the concept of a ‘trading book’ comprising positions in securities and other financial instruments which are held for trading purposes and which are subject mainly to market risks and exposures relating to certain financial services provided to customers.
Recital 18
With a view to reducing the administrative burden for institutions with negligible trading-book business in both absolute and relative terms, such institutions should be able to apply Directive 2006/48, rather than the requirements laid down in Annexes I and II to this Directive.
Recital 19
It is important that monitoring of settlement/delivery risks should take account of the existence of systems offering adequate protection reducing those risks.
Recital 20
In any case, institutions should comply with this Directive as regards the coverage of the foreign-exchange risks on their overall business. Lower capital requirements should be imposed for positions in closely correlated currencies, whether statistically confirmed or arising out of binding intergovernmental agreements.
Recital 21
The capital requirements for commodity dealers, including those dealers currently exempt from the requirements of MIFID, will be reviewed as appropriate in conjunction with the review of that exemption as set out in Article 65(3) of that Directive.
Recital 22
The goal of liberalisation of gas and electricity markets is both economically and politically important for the Community. With this in mind, the capital requirements and other prudential rules to be applied to firms active in those markets should be proportionate and should not unduly interfere with achievement of the goal of liberalisation. This goal should, in particular, be kept in mind when the reviews referred to in recital 21 are carried out.
Recital 23
The existence of internal systems for monitoring and controlling interest-rate risks on all business of institutions is a particularly important way of minimising such risks. Consequently, such systems should be supervised by the competent authorities.
Recital 24
Since Directive 2006/48 does not establish common rules for the monitoring and control of large exposures in activities which are principally subject to market risks, it is therefore appropriate to provide for such rules.
Recital 25
Operational risk is a significant risk faced by institutions and requires coverage by own funds. It is essential to take account of the diversity of institutions in the EU by providing alternative approaches.
Recital 26
Directive 2006/48 states the principle of consolidation. It does not establish common rules for the consolidation of financial institutions which are involved in activities principally subject to market risks.
Recital 27
In order to ensure adequate solvency of institutions within a group, it is essential that the minimum capital requirements apply on the basis of the consolidated financial situation of the group. In order to ensure that own funds are appropriately distributed within the group and are available to protect investments where needed, the minimum capital requirements should apply to individual institutions within a group, unless this objective can be effectively achieved by other means.
Recital 28
Directive 2006/48 does not apply to groups which include one or more investment firms but no credit institutions. A common framework for the introduction of the supervision of investment firms on a consolidated basis should therefore be provided for.
Recital 29
Institutions should ensure that they have internal capital which, having regard to the risks to which they are or might be exposed, is adequate in quantity, quality and distribution. Accordingly, institutions should have strategies and processes in place for assessing and maintaining the adequacy of their internal capital.
Recital 30
Competent authorities should evaluate the adequacy of own funds of institutions, having regard to the risks to which the latter are exposed.
Recital 31
In order for the internal banking market to operate effectively, the Committee of European Banking Supervisors should contribute to the consistent application of this Directive and to the convergence of supervisory practices throughout the Community, and should report on a yearly basis to the Community Institutions on progress made.
Recital 32
In order for the internal market to operate with increasing effectiveness it is essential that there should be significantly enhanced convergence in the implementation and application of the provisions of harmonising Community legislation.
Recital 33
For the same reason, and to ensure that Community institutions which are active in several Member States are not disproportionately burdened as a result of the continued responsibilities of individual Member State competent authorities for authorisation and supervision, it is essential significantly to enhance the cooperation between competent authorities. In this context the role of the consolidating supervisor should be strengthened.
Recital 34
In order for the internal market to operate with increasing effectiveness and for citizens of the Union to be afforded adequate levels of transparency, it is necessary that competent authorities disclose publicly and in a way which allows for meaningful comparison the manner in which the requirements of this Directive are implemented.
Recital 35
In order to strengthen market discipline and stimulate institutions to improve their market strategy, risk control and internal management organisation, appropriate public disclosures by institutions should be provided for.
Recital 36
The measures necessary for the implementation of this Directive should be adopted in accordance with Council Decision 1999/468/EC of 28 June 1999 laying down the procedures for the exercise of implementing powers conferred on the Commission ( 7 ) .
Recital 37
In its Resolution of 5 February 2002 on the implementation of financial services legislation ( 8 ) , the Parliament requested that the Parliament and the Council should have an equal role in supervising the way in which the Commission exercises its executive role in order to reflect the legislative powers of Parliament under Article 251 of the Treaty. In the solemn declaration made before the Parliament the same day, by its President, the Commission supported this request. On 11 December 2002, the Commission proposed amendments to Decision 1999/468/EC and then submitted an amended proposal on 22 April 2004. The Parliament considers that this proposal does not preserve its legislative prerogatives. In the Parliament's view, the Parliament and the Council should have the opportunity of evaluating the conferral of implementing powers on the Commission within a determined period. It is therefore appropriate to limit the period during which the Commission may adopt implementing measures.
Recital 38
The Parliament should be given a period of three months from the first transmission of draft amendments and implementing measures to allow it to examine them and to give its opinion. However, in urgent and duly justified cases, it should be possible to shorten this period. If, within that period, a resolution is adopted by the Parliament, the Commission should re-examine the draft amendments or measures.
Recital 39
In order to avoid disruption to markets and to ensure continuity in overall levels of own funds, it is appropriate to provide for specific transitional arrangements.
Recital 40
This Directive respects fundamental rights and observes the principles recognised in particular by the Charter of Fundamental Rights of the European Union as general principles of Community law.
Recital 41
The obligation to transpose this Directive into national law should be confined to those provisions that represent a substantive change compared to earlier directives. The obligation to transpose the provisions that remain unchanged exists under the earlier directives.
Recital 42
This Directive should be without prejudice to the obligations of the Member States relating to the time-limits for transposition into national law of the Directives set out in Part B of Annex VIII,
Footnote p0: Done at Strasbourg, 14 June 2006.