The Investment Firms Regulation (IFR) alongside Directive (EU) 2019/2034 (IFD) is a CRR2 derivative regulatory regime, specifically designed to better address the capital requirements of Investment Firms.
They have entered into force in December 2019 with expected application date June of 2021 in EU and January of 2022 in UK (IFPR) , almost completely changing the way capital requirements will be calculated for Investment Firms.
The new regulatory regime applies to ALL Investment Firms authorised and supervised under the MiFID II.
It introduces new prudential classifications with different reporting requirements.
It is expected that the vast majority of Investment Firms will fall within Class 2 which will be subject to the full reporting obligations under IFR and in particular to the new methodology, K-Factors.
Class 3 will only capture small and non-interconnected investment firms that fall below the K-Factor thresholds.
Very large Investment Firms will be categorised as Class 1 Firms and will remain under CRR2 and be treated like Banks and will be reporting to SSM.
The K-Factor methodology introduces an array of metrics focused on the Firm’s investment and trading activities, require historical data and early tests show that will increase the capital requirements in contrast with CRR.