| DNB PUBLIC |

IFR/IFD

Prudential Regulation for Investment Firms

De Nederlandsche Bank EUROSYSTEM

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| DNB PUBLIC |

IFD stands for Investment Firm Directive, EU Directive for investment firms (Directive on the prudential supervision of investment firms)

IFR stands for Investment Firm Regulation, EU Regulation for investment firms (Regulation on the prudential requirements of investment firms)

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| DNB PUBLIC |

Scope and Supervision

Scope

• Investment firms (MiFID)
• Managers with MiFID services

Division of Roles in Supervision

• AFM is the licensing authority and primary supervisor
• DNB conducts prudential supervision based on IFR/IFD/Wft
• Remuneration and governance provisions in IFD/IFR fall largely within the AFM mandate

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| DNB PUBLIC |

Class Classification

Class 1 (CRR/CRD)

• Only for proprietary trading

• € 30 billion assets (apply for bank license and ECB/SSM supervision)

• € 15 billion assets (MiFID license, but prudential requirements under CRR/CRD apply = largely the current situation)

• Discretion for > € 5 billion assets

Class 3 (small investment firms, much proportionality in application of IFR/IFD)

• Among others:
• < € 1.2 billion assets under management/advice
• No proprietary trading
• < € 100 million assets
• No own investor clearing

Class 2 (full application of IFR/IFD)

• All institutions that are not Class 1 or Class 3

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| DNB PUBLIC |

Capital Requirements (I)

Class 2 Highest of 3:

1. Minimum own funds
2. Fixed overheads requirement
3. K-factors

Class 3 Highest of 2:

1. Minimum own funds
2. Fixed overheads requirement

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| DNB PUBLIC |

Capital Requirements (II)

Minimum own funds

• € 75,000: investment advisors and wealth managers (provided no client funds or financial instruments of clients)

• Previously: € 50,000

• € 150,000: other categories

• Previously € 125,000

• € 750,000: MiFID license for proprietary trading, underwriting, placement with guarantee

• Previously € 730,000

• Transitional arrangement, 5 years, when capital requirements more than double

Fixed overheads requirement

• 25% of fixed costs of the previous year
• New RTS by EBA on calculation method (see appendix): starting point is the existing system

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| DNB PUBLIC |

Capital Requirements (III)

Risk to customer

• K-AUM = Assets under management
• K-CMH = Client money held
• K-ASA = Assets safeguarded and administered
• K-COH = Client orders handled

Risk to market

• K-NPR = Net position risk or
• K-CMG = Clearing margin given

Risk to firm

• K-TCD = Trading counterparty default
• K-CON = Concentration risk
• K-DTF = Daily trading flow

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| DNB PUBLIC |

Liquidity Requirements

1/3 of the fixed overheads requirement = costs for one month

Hold in "highly liquid assets"

• Cash / deposits at a bank
• Certain trade receivables and 'receivables'

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| DNB PUBLIC |

Consolidated Supervision

Consolidated supervision means prudential supervision at the holding level

For whom?

• EU parent investment firm = holding that also has a license as an investment firm;
• EU parent investment holding = an investment holding that is part of an investment firm group (a group with at least one investment firm);
• Mixed financial EU parent holding.
• Further elaboration via EBA RTS on Prudential consolidation

Requirements:

• Capital requirements (minimum own funds, fixed overheads requirement, K-factors)
• Liquidity requirements
• Reporting obligations and disclosure obligations
• Assessment of suitability of policy makers

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| DNB PUBLIC |

ICARAP / SREP

ICARAP (by institutions)

• ICARAP = Internal capital adequacy assessment process and internal risk assessment process
• "Solid, effective and comprehensive arrangements, strategies and processes for the permanent evaluation and maintenance of the amounts, composition and distribution of the internal capital and liquid assets that they deem sufficient to cover the nature and extent of the risks they may hold for others and to which investment firms themselves are or may be exposed"

SREP (by DNB)

• SREP = supervisory review and evaluation process
• Assessment of ICARAP document and evaluation of risk management and capital
• Possible Pillar 2 capital or liquidity add-on
• Other SREP measures

EBA & ESMA SREP guidelines apply

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| DNB PUBLIC |

Reporting

Frequency

• In principle on a quarterly basis (IFREP Class 3 in principle on an annual basis)

FINREP

• Balance sheet
• Income statement

IFREP

• Eligible capital
• Capital requirements (including ratios/K-factors)
• Liquidity requirements

Consolidated supervision (if applicable)

• FINREP & IFREP

Format

• Reporting templates will be adapted to IFR/IFD and communicated in time
• XBRL (standard)
• Excel (alternative)

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| DNB PUBLIC |

Other Requirements in IFD/IFR

Governance

Remuneration Policy

Disclosure Requirements

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Disclaimer

The materials on IFR/IFD on the OBT page are a guide from DNB to the sector to make IFR/IFD more accessible on certain selected topics. DNB emphasizes that these documents do not include normative interpretation or policy statements

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