On February 26, the EU Council and Parliament, following Trialogue (Council, Parliament and Commission), announced agreement, subject to further agreement by EU Ambassadors, of the new Prudential Regime for Investment Firms. Unexpectedly, the announcement states that MiFID Investment Firms permitted to deal on own account and/or underwrite financial instruments with balance sheets exceeding €15bn, not the expected €30bn, will remain subject to the existing Banking Prudential Regime (CRDIV/CRR) and will be reclassified as Credit Institutions. Furthermore, Member State Competent Authorities will have the power to apply the CRDIV/CRR's Banking Prudential Regime on MiFID Investment Firms with balance sheets between €5bn and €15bn where they believe the Firm is systemic. Therefore, only Investment Firms with balance sheets of less than €5bn can be confident the more appropriate Investment Firms Prudential Regime will apply to them.

Even though the UK may not be an EU Member State by the time these new Investment Firm measures are in place, one of the key initiatives of the EU's Capital Markets Union is to create equivalence across EU Member State Investment Firms and incoming Third Country Investment Firms, which the UK is likely to become. Provisions within MiFID II, for example, already contemplate Third Country Investment Firms being able to provide, in due course, services similar to those permitted by, for example EU Member State Investment Firms, a MiFID Passport. The UK will likely implement its own equivalent Prudential Regime for Investment Firms.

A significant question is what the UK will decide to do regarding UK Investment Firms permitted to deal on own account and/or underwrite financial instruments, with balance sheets of greater than €15bn. Will the UK insist they become Credit Institutions and, consequently, become Dual Regulated Firms with the PRA supervising them in regard to regulatory capital and the FCA then being the Conduct Supervisor? Dual Regulated Firms, including some Investment Firms, are currently Credit Institutions, Insurance Undertakings and Full Scope Investment Firms with Balance Sheets of more than £50bn.

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