The largest investment firms will be as “systemically important” when it comes to capital requirements under proposals from the European Commission.
This brings the largest investment firms into line with the regulations currently placed on banks.
The Commision, as part of its Capital Markets Union work, said it will divide investment firms into two groups.
Those which perform “bank-like” functions, such as dealing on their own account, namely putting their own capital into investments as well as client capital, or engage in underwriting investments, and have assets of more than £26.6bn, will be classed as systemically important, and so required to hold more capital.
Holding more capital might be expected to dent the profits those companies can achieve - for their shareholders, rather than the investment returns for clients - because the capital is retained as cash or invested in very liquid assets such as short dated government bonds.
The yields on such lower risk liquid assets have tumbled in recent years, and would usually be expected to be lower than the investment returns that could be achieved if the capital were allowed to be deployed into other assets.
The European Commision said the rules should mean smaller firms are not overburdened with administration costs, while also maintaining financial stability.
David.Thorpe@ft.com
