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The investment firms regulation and directive, due to be published in the Official Journal later this year, will have a particularly significant impact on asset managers.

Many asset managers will face higher capital requirements and more stringent remuneration rules under the new regime, so should assess the impacts of the new regime now. The new regime is expected to apply from Q2 2021, with new capital requirements being phased in by 2026.

Our note provides a concise summary of the new prudential regime and identifies the key areas of impact for asset managers


Key impacts

1

The prudential treatment of investment firms is changing from being mainly based on regulatory licences held, to being heavily influenced by firm size and volume of activity.
2

Most MiFID asset managers are BIPRU firms today, or in some cases Exempt CAD firms subject to lighter standards - under the new rules many of these firms will fall within the more stringent "Class 2" categorisation rather than the less onerous "Class 3" categorisation.
3

Class 2 categorisation imposes more onerous capital, monitoring and public disclosure requirements.
4

Class 2 firms are also subject to much stricter remuneration rules than Class 3 firms, which will require significant changes to how many asset managers remunerate high earners and material risk takers.