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EU proposes tighter rules for UK-based investment firms

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EU proposes tighter rules for UK-based investment firms

The European Union moved closer to tightening rules for investment firms based in the U.K., tweaking regulations that allow such companies to operate in the European Economic Area.

At present, investment companies are subject to the same capital, liquidity and risk management rules as banks. If the new rules are approved, companies would still be subject to the same rules but the set of requirements they need to comply with would depend on their size, nature and complexity.

The new rules would require U.K.-based firms seeking to operate in the eurozone to set up branches in the bloc to offer a full range of services, Reuters noted.

Larger companies, or Class 1, would be subject to the full banking prudential regime and would be regulated as credit institutions. Class 1 companies are those that offer bank-like services, with consolidated assets over €15 billion. Companies with "bank-like" operations and assets between €5 billion and €15 billion could also apply to be considered Class 1, if their size would involve risks to financial stability.

Meanwhile, smaller companies would have to comply with "a new bespoke regime with dedicated prudential requirements." Companies would also be given a five-year transition period to comply with the new rules.

The council noted that discussions between the European Council and the European Parliament on the proposals are set to begin.