FIA EPTA welcomes the opportunity to respond to the EBA Consultation Paper on the Draft Guidelines on common procedures and methodologies for the supervisory review and evaluation process (SREP) under IFD. FIA EPTA members believe that the overarching principle of proportionality, which stems from the Level 1 legislation, should be applied across all topics covered in the Draft Guidelines and the elaboration of that principle in the regulation should be guaranteed. More specifically, in relation to Section 4 on the Business Model Analysis, proportionality should be applied across all elements and levels of assessments to be performed by the national competent authority. In addition, the overall aim of IFR/D was to increase proportionality and risk sensitivity compared to the CRR/D framework. Using the SREP-methodology from the banking sector for the investment firms sector seems to run counter to that goal. The banking prudential regulation might be appropriate and balanced and accepts certain market practices that are appropriate for banks. This is not the case for the regulatory framework applicable to investments firms and in particular proprietary trading firms. Investment firms dealing on own account typically have a low-risk profile: businesses are non-complex but at the same time operate in highly competitive markets, portfolios are fully hedged, and risk windows are short. The risk of a single proprietary trading firm to the market, therefore, is limited and lower in respect to the market risk of the financial sector overall.
- Prudential Regulation