4.2 Investment firms eligible for the exemption

For the exemption from the liquidity requirements under Article 43(1) of Regulation (EU) 2019/2033, competent authorities should only consider investment firms that provide the following limited set of investment services:

• i) reception and transmission of orders in relation to one or more financial instruments as referred to in Annex I, Section A, point (1) of Directive 2014/65/EU;
• ii) execution of orders on behalf of clients as referred to in Annex I, Section A, point (2) of Directive 2014/65/EU;
• iii) portfolio management as referred to in Annex I, Section A, point (4) of Directive 2014/65/EU;
• iv) investment advice as referred to in Annex I, Section A, point (5) of Directive 2014/65/EU;
• v) placing of financial instruments without a firm commitment basis as referred to in Annex I, Section A, point (7) of Directive 2014/65/EU.

Competent authorities should consider whether ancillary services provided by an investment firm give rise to liquidity risk. An investment firm that engages in activities such as granting credits or loans to an investor is exposed to higher liquidity risk and therefore such an investment firm should not be exempted from liquidity requirements.

Competent authorities should consider whether other services provided by an investment firm give rise to liquidity risk in providing guarantees to clients or third parties, as they are also subject to a higher liquidity requirement in accordance with Article 45 of Regulation (EU) 2019/2033. The same assessment should be performed for an investment firm which engages in securities lending, as an investment firm would be exposed to liquidity risk because the borrower may not be able to return securities in time or on demand to the investment firm.

Competent authorities should consider on and off-balance-sheet positions, including non-trading book derivative positions held for hedging purposes, when exempting an investment firm from liquidity requirements, as an investment firm holding significant amounts of such off-balance-sheet items could be exposed to material liquidity risk.

Competent authorities should not grant an exemption where an investment firm engages at significant scale in transactions in foreign currencies and the investment firm’s ability to swap currencies and its access to the relevant foreign exchange markets may be impaired under stressed conditions.