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EU Rolls Out Strict Rules for Foreign-based Investment Managers

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Per a Reuters report, recently, European Union (EU) governments and lawmakers finalized a deal per which foreign-based investment managers operating in the eurozone will be under strict supervision. These firms include investment firms offering "bank-like" services, together with proprietary trading and underwriting of financial instruments.

The agreement, earlier, was entered into this January by EU states. Therefore, the final deal will augment the European Commission's powers in finalizing the firms to be given access to EU clients, along with more control over London-based financial firms after Britain exits the EU.

The revamping of rules also imposed stricter liquidity and capital requirements to large EU investment firms, which tightened an initial proposal initiated by the European Commission in December 2017.

“The agreement further strengthens the equivalence regime that would apply to third country investment firms,” the EU noted in a statement. The Commission will also be empowered to evaluate the compatibility of foreign rules with EU regulations.

About 3,000 European investment firms that are based in Britain, such as Goldman Sachs (GS - Free Report) and JPMorgan (JPM - Free Report) , will be affected by this move.

“In particular, the commission is charged with assessing capital requirements applicable to firms providing bank-like services,” according to a statement from the Council of the EU, which represents national governments. The toughest requirements apply when activities “are likely to be of systemic importance,” it stated.

EU states have agreed to apply the strictest capital and liquidity rules to firms with assets above €30 billion. Thus, investment firms with assets of €15 billion or more would be exposed to the same requirements as large banks, while firms having assets between €5 billion and €15 billion will face lighter regulations unless their activities are seen to pose risks to financial stability.

Notably, firms including Barclays Capital Securities Limited, a subsidiary of Barclays PLC (BCS - Free Report) , Goldman Sachs International, Merrill Lynch International, a unit of Bank of America Corporation (BAC - Free Report) and Morgan Stanley International would come under the purview of the latest stringent rules, along with European Central Bank’s supervision like large banks.

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