Title I – proportionality

Where applying these guidelines, competent authorities and investment firms should have regard to the principle of proportionality as set out in Article 26(3) of Directive (EU) 2019/2034 and specified further in Title I of these guidelines with a view to ensuring that the internal governance arrangements established by investment firms, including within the context of investment firm groups, are consistent with the individual risk profile of the firm and the group, commensurate with their size and internal organisation, relevant to their business model, suitable for the nature, scale and complexity of their activities and sufficient to effectively achieve the objectives of the relevant regulatory requirements and provisions.

For the purposes of the previous paragraph, account should be taken of the variety of different business models under which investment firms and investment firm groups operate, indicatively as investment advisors, portfolio managers, trading venues, custodians, execution or wholesale brokers, trading firms, and others. Accordingly, for the internal governance arrangements to be deemed to be consistent with the individual risk profile of the firm and the group, commensurate with their size and internal organisation, relevant to their business model, suitable for the nature, scale and complexity of their activities and sufficient to effectively achieve the objectives of the relevant regulatory requirements and provisions, it should be ensured that investment firms with a more complex organisation or with a larger scale should have more sophisticated governance arrangements, while investment firms with a simpler organisation or with a smaller scale may implement simpler governance arrangements. Investment firms should, however, note that the size or systemic importance of an investment firm may not, in itself, be indicative of the extent to which an investment firm is exposed to risks.

Where applying the principle of proportionality as set out in Article 26 (3) of Directive (EU) 2019/2034 and specified further in paragraph 20 of these guidelines, competent authorities and investment firms should ensure that such application does not result in the regulatory requirements being waived for investment firms or being applied in a way that means robust governance arrangements, a clear organisational structure, adequate internal control mechanisms, sound and effective risk management and appropriate remuneration policies are not ensured.

For the purpose of the application of the principle of proportionality and in order to ensure the appropriate implementation of the regulatory requirements and of these guidelines, the following aspects should be taken into account by investment firms and competent authorities:

• a. the size in terms of the balance sheet of the investment firm and its subsidiaries within the scope of prudential consolidation;
• b. whether the value of the investment firm’s on and off -balance sheet assets is on average equal to or less than EUR 100 million over the four-year period immediately preceding the given financial year in accordance with the criteria set out in point (a) of Article 32(4) of Directive (EU) 2019/2034;
• c. the assets under management;
• d. whether the investment firm is authorised to hold client money or assets;
• e. the assets safeguarded and administered;
• f. the volume of client orders handled;
• g. the volume of daily trading flows;
• h. the geographical presence of the investment firm and the size of its operations in each jurisdiction, including in third-country jurisdictions;
• i. the legal form of the investment firm, including whether the investment firm is part of a group and, if so, the proportionality assessment for the group;
• j. whether it is a listed investment firm;
• k. whether the investment firm is authorised to use internal models for the measurement of capital requirements (e.g. the Internal Ratings Based Approach);
• l. the type of authorised activities, the services performed by the investment firm (e.g. Sections A and B of Annex I to Directive 2014/65/EU) and other services (e.g. clearing services) performed by the investment firm;
• m. the underlying business model and strategy; the nature and complexity of the business activities, and the investment firm ’s organisational structure;
• n. the risk strategy, risk appetite and actual risk profile of the investment firm, also taking into account the result of the SREP capital and SREP liquidity assessments;
• o. the ownership and funding structure of the investment firm;
• p. the type of clients;
• q. the complexity of the financial instruments or contracts;
• r. the outsourced functions and distribution channels; and
• s. the existing information technology (IT) systems, including business continuity systems and outsourced functions in this area.

Investment firms that are legal persons managed by a single natural person should have alternative arrangements in place which ensure the sound and prudent management of such investment firms and the adequate consideration of internal governance arrangements.