The Investment Firms Regulation and Directive (IFR/IFD) prudential regime began to apply to investment firms in the EU from June 2021. The new regime covers investment firms functioning under the Markets in Financial Instruments Directive II (MiFID II) and revises capital composition, liquidity, governance, remuneration, and supervision requirements for the firms based on the ‘Class’ or category to which they belong.
Until June 2021, all EU investment firms were subject to CRD IV/CRR requirements. However, since the Capital Requirements Directive (CRD) and Capital Requirements Regulation (CRR) were primarily designed to cover credit institutions like banks, they were thought to only partially cover the risks associated with investment firm services. Hence, the need for a new prudential regime.
Systemically important investment firms – which are categorized as Class 1, 1a, and 1b firms – will continue to comply with the existing CRD IV/CRR requirements. They have been placed in the same class as deposit-taking credit institutions. ‘Non-systemic’ investment firms categorized under Class 2 and Class 3 will have to comply with new IFR/IFD reporting requirements.
To comply with the IFR/IFD regime, investment firms need to assess the classification applicable to them – whether they belong under Class 2 or 3. They also need to evaluate the reporting obligations specific to their class, ensure processes and controls are in place to capture the necessary data, and convert the same into XBRL.
Under IFR/IFD, the reporting obligation for Class 2 firms is quarterly, while that for Class 3 firms is annual. To comply with the IFR/IFD regime, firms need to use software that integrates with automated reporting frameworks, facilitates data extraction and XBRL instance generation, and provides modularity to incorporate future changes in business rules or taxonomies.
Apart from IFR/IFD prudential reporting, we help companies with ESEF/UKSEF iXBRL reporting in the EU and UK. In the US, we facilitate iXBRL reporting with the SEC and XBRL reporting with the energy regulator FERC. We also help South African companies comply with the CIPC’s iXBRL mandate.