EAF
The Class 3 firm reporting for the first time
“We are two partners running a small EAF. Nobody explained which prudential templates apply to us or how to calculate the fixed overheads requirement without losing our minds.”
IFR/IFD Prudential Regime for Investment Firms
Regulation (EU) 2019/2033 (IFR) and Directive (EU) 2019/2034 (IFD) replaced a suit cut for banks with a prudential regime tailored to investment firms (ESIs). We help you determine your class, calculate your capital and liquidity requirements and set up reporting that does not trigger requests for information.
Do you know which class your investment firm is in and how much capital it needs?
Tell us which services you provide and your volume of business, and we will guide you on your class, requirements and reporting.
- 50+ entities advised
- Reply within 24 h
- No commitment
- EAF initial capital
- €75,000
- Broker-dealer capital
- €750,000
- Fixed overheads requirement
- 3 months
- Prudential regulation (IFR)
- Reg. (EU) 2019/2033
Services
Your prudential framework, from classification to reporting
Six building blocks that turn IFR/IFD from alphabet soup into a calculated, documented and defensible system.
Capital
Capital and own funds requirements
We calculate and document your requirements: initial capital for your type of firm, the fixed overheads requirement and, if you are Class 2, K-factors. With a methodology report that holds up under supervisory review.
Learn more →
IFROwn fundsK-factorsMethodology
Self-assessment
Proportionate ICAAP and ILAAP
The internal capital and liquidity adequacy assessment process, scaled to your firm: useful for running the business, sufficient for the supervisor and free of red tape copied from a bank.
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ICAAPILAAPProportionalityScenarios
Risks
Risk management function
We design the function, the risk appetite and the internal limits that give real support to your prudential framework.
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AppetiteLimits
Supervision
SREP preparation
We prepare for the supervisory review in advance: documentation, metrics and answers consistent with your ICAAP and your reporting.
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SREPReview
Authorization
Prudential aspects of authorization
A new investment firm’s application must already demonstrate its class, capital and financial projections: we settle all of this from the design stage.
Learn more →
ApplicationCNMV
EAF
Setting up an EAF (Class 3)
EAFs are usually Class 3: €75,000 in capital and a simplified regime. Here is how to plan for it from day one.
Learn more →
€75,000Class 3
Profiles
Who feels the pain of IFR/IFD
The same regime weighs differently depending on the type of firm and its stage: these four situations sum up most of the prudential queries we receive.
Securities broker
Growth that threatens a change of class
“Every year we handle more orders and hold more client balances. We want to know when we will stop being small and non-interconnected, and what moving up to Class 2 will mean.”
Broker-dealer
The Class 2 firm with K-factors
“We deal on own account, and the K-factor calculation has become a critical process. We need a documented methodology and control over the data that feeds it.”
Portfolio manager
The group that has to consolidate
“We are part of a group and were not clear how the individual requirements fit with the consolidated position. We would rather settle our approach before the supervisor asks.”
Prudential mistakes
Three mistakes the supervisor spots right away
The prudential risk of a mid-sized investment firm is rarely insolvency: it is the poorly documented calculation, the unmonitored threshold and inconsistent reporting.
Classifying once and forgetting about it: Class 3 status depends on activity thresholds that must be monitored on an ongoing basis. Growing without tracking them turns commercial success into an unexpected prudential breach.
Confusing initial capital with ongoing own funds: paying up the capital on the day of authorization is not enough. Every day after that, you must cover the highest of your requirements, including the fixed overheads requirement.
Handmade reporting: templates filled in by hand, with no reconciliation to the accounts and no second-line review. Inconsistencies between returns are the classic trigger for CNMV requests for information.
| Class | Who falls into it | Applicable regime |
|---|---|---|
| Class 1 | The largest investment firms with a systemic profile | Treated as credit institutions: banking prudential framework and enhanced supervision |
| Class 2 | The general regime: investment firms above the small and non-interconnected thresholds | Full IFR: own funds based on K-factors, plus full liquidity, remuneration, governance and reporting requirements |
| Class 3 | Small and non-interconnected investment firms below the thresholds — most EAFs | Simplified regime: the higher of initial capital and the fixed overheads requirement, no K-factors and proportionate obligations |
Get your prudential framework in order before the CNMV asks for it
We determine your class with a written analysis, calculate capital, fixed overheads and K-factors, size your liquidity, adapt governance and remuneration to your size and leave your reporting reconciled with your accounts. All documented to withstand a SREP.
Frequently asked questions
IFR/IFD: what investment firms ask
What are the IFR and the IFD?
Regulation (EU) 2019/2033 (IFR) and Directive (EU) 2019/2034 (IFD) make up the specific prudential regime for investment firms: capital, liquidity, remuneration, internal governance and reporting.
The regulation applies directly; the directive reaches Spain through the framework of Law 6/2023 and Royal Decree 813/2023. Its logic is proportionality: requirements based on the size and real risk of each investment firm, instead of applying to all of them the arsenal designed for banks.
How do I know whether my investment firm is Class 1, 2 or 3?
Class 1 covers the largest investment firms with a systemic profile, which are then treated as credit institutions. Class 3 covers “small and non-interconnected” firms that stay below certain activity and balance sheet thresholds; they benefit from the simplified regime. Everything in between is Class 2, the general regime with K-factors.
EAFs are usually Class 3, but the label is not for life: the thresholds are checked on an ongoing basis, and it is advisable to keep the analysis in writing and up to date.
What is the initial capital for each type of firm?
As a guide, under the current prudential regime:
- EAFs and portfolio management companies: €75,000
- Securities brokers (agencias de valores): €150,000
- Broker-dealers (sociedades de valores): €750,000
The EAFN falls outside this scheme because it is not an investment firm: its bar is €50,000 or professional indemnity insurance (or a combination of both). If you are choosing a type of firm, see how to set up an EAF and investment firm authorization.
What own funds must I hold on an ongoing basis?
The ongoing requirement is the highest of several amounts: the permanent minimum capital for your type of firm, the requirement based on fixed overheads—as a general rule, the equivalent of about three months of those overheads—and, only for Class 2, the K-factor requirement.
Hence the usual trap: a firm with high overhead costs may need considerably more than its initial capital. The calculation, its line items and its annual update must be documented; we handle this under regulatory capital.
What are K-factors?
They are the metrics the IFR uses to measure the real risk of a Class 2 investment firm, grouped by whom the activity can harm: the client (assets under management or advice, client money held and assets safeguarded, orders handled), the market or the firm itself (exposures of its proprietary portfolio).
Each service triggers different factors, and the results are added up to form the requirement. The operational key is not the formula but the data: processes that capture the metrics accurately and a written methodology that explains each choice.
What does the IFR require on liquidity?
Holding a minimum buffer of liquid assets, sized by reference to the fixed overheads requirement, on the terms set out in the regulation itself. The rules allow it to be adjusted proportionately depending on the class of firm.
Beyond the minimum, the supervisor expects you to know how much liquidity you really need: buffer composition, an approved policy and periodic monitoring. That analysis is precisely the liquidity part of the ICAAP/ILAAP.
How does the regime affect remuneration and internal governance?
The IFD imposes proportionate remuneration policies and internal governance structures: the most demanding requirements—rules on variable remuneration, specialized committees—are concentrated on Class 2 firms, while Class 3 firms bear a much lighter regime.
Proportionate does not mean non-existent: every investment firm needs governance consistent with its size, a working risk function and a remuneration policy that does not encourage excessive risk-taking. We set this up together with the control and risk function.
What prudential reporting must be filed, and who reviews it?
Investment firms periodically send their prudential returns to the CNMV: own funds and requirements, plus other information depending on their class. Frequency and detail are proportionate, but the quality standard is the same for everyone: consistency with the accounts and between periods.
The supervisor builds its review on that information—the SREP—and tests your ICAAP against it. Industrialized reporting, with reconciliations and second-line review, is the best vaccine against requests for information.
Practical guide
Put IFR/IFD into practice in your firm, without bank-style translations
The right sequence runs from classification to reporting, by way of calculation and governance. Skipping steps is costly: each piece feeds into the next.
Classification and calculation
We determine your class with a written analysis of the thresholds, verify the initial capital for your type of firm and calculate the ongoing requirement: fixed overheads and, where applicable, K-factors. With a methodology report ready to sign.
Internal framework
Liquidity policy, risk appetite, governance and remuneration tailored to your class, and a proportionate ICAAP with your own scenarios. The goal: a framework that helps you run the firm, not just one to show off.
Reporting and supervision
Templates reconciled with the accounts, a submission calendar, second-line review and ongoing monitoring of thresholds. When the SREP comes, the answers will already be written.
Your IFR/IFD prudential framework in 10 steps
- Classify your firm: determine whether you are Class 2 or 3 by reviewing the activity and balance sheet thresholds, and keep the analysis signed and dated.
- Check the initial capital: €75,000 for EAFs and portfolio management companies, €150,000 for securities brokers and €750,000 for broker-dealers.
- Calculate the fixed overheads requirement: start from the fixed overheads for the year and document which items you include, which you exclude and why.
- Apply K-factors if you are Class 2: identify which factors your services trigger and set up the calculation process with data controlled at source.
- Set the ongoing requirement: your own funds requirement is the highest of the above; compare it with your resources and keep a management buffer.
- Size your liquidity: build the liquid asset buffer required by the IFR and govern it through a policy approved by the management body.
- Adapt governance and remuneration: fit your structure, committees and remuneration policy to what your class requires, without copying banking models.
- Build the ICAAP: self-assess capital and liquidity with scenarios from your real business; it is your main defense in the supervisory review.
- Industrialize reporting: templates reconciled with the accounts, a submission calendar and second-line review before each filing.
- Monitor thresholds and plan capital: track the metrics that determine your class on an ongoing basis and anticipate the needs of your growth plan.
Need the calculation done and defended? Start with regulatory capital and complete the cycle with the ICAAP/ILAAP and SREP preparation.
Free resource · PDF
Download the MiFID II Checklist
The 10 conduct controls the CNMV expects to see working in an EAF or investment firm, with the typical evidence for each. Ideal as a quarterly self-assessment with your team.
- The 10 essential conduct controls
- The evidence expected for each control
- 5 signs that a control exists only on paper
- Professional PDF · 5 pages · 11 KB
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Working glossary
IFR/IFD in nine concepts
With these nine terms you can follow any prudential conversation: with your auditor, with your reporting consultant and, above all, with the CNMV.
IFRLegislation
Regulation (EU) 2019/2033
The regulation on the prudential requirements of investment firms: own funds, K-factors, liquidity and reporting. Directly applicable.
Investment Firms Regulation.
IFDLegislation
Directive (EU) 2019/2034
The twin directive: supervision, internal governance, remuneration and supervisory powers. It applies through transposition.
In Spain, the Law 6/2023 and Royal Decree 813/2023 framework.
Class 3Classification
Small and non-interconnected
An investment firm below the activity and balance sheet thresholds: simplified regime with no K-factors and proportionate obligations.
This is the usual situation for EAFs.
K-factorsClass 2
Risk turned into metrics
Activity indicators—assets under management, orders, custody, own exposure—that quantify the Class 2 requirement.
Grouped into risk to client, risk to market and risk to firm.
Fixed overheadsCalculation
The floor of your requirement
Own funds requirement linked to fixed overheads: broadly, the equivalent of about three months.
The bigger the structure, the more capital required.
Initial capitalEntry
The entry ticket for each type of firm
€75,000 for EAFs and portfolio management companies, €150,000 for securities brokers, €750,000 for broker-dealers.
Demonstrated at authorization and maintained thereafter.
Own fundsOngoing
What you cover every day
The live requirement: the highest of initial capital, fixed overheads and, for Class 2, K-factors. Monitored continuously, not once a year.
Hovering at the minimum without a plan is a red flag.
ICAAPSelf-assessment
Your own capital test
Internal process for assessing the adequacy of capital and liquidity with scenarios from the real business, proportionate to size.
Together with the ILAAP, a core input to the SREP.
SREPSupervision
The supervisor’s review
Supervisory review and evaluation process: it tests your risk profile, your ICAAP and your reporting, and can require additional measures.
Better to arrive with the answers already written.
Prudential playbook
The five blocks the supervisor will review
Classification and thresholds
A written, up-to-date analysis of the firm’s class, with ongoing monitoring of the metrics that determine it.
Classification report, threshold table with periodic monitoring and defined alerts.
Own funds
A correctly calculated ongoing requirement (initial capital, fixed overheads, K-factors for Class 2), covered with a managed buffer.
Calculation methodology, reconciliation with the audited accounts and a forward-looking capital plan.
Liquidity
A liquid asset buffer in line with the IFR, with a defined composition and effective monitoring.
Approved liquidity policy, inventory of the buffer and documented periodic controls.
Governance and remuneration
Governance structure and remuneration policy proportionate to the class, with no incentives for excessive risk-taking.
Approved remuneration policy, minutes of the management body and description of the control functions.
Prudential reporting
Returns filed on time, consistent with the accounts and stable between periods, with prior quality control.
Submission calendar, accounting reconciliations and evidence of second-line review.
Warning signs of prudential risk in your investment firm
We have heard each of these statements at real firms shortly before a request for information. If they sound familiar, it is time for a review.
- Nobody at the firm could say today, with data, whether you are still Class 3.
- Your own funds are close to the requirement and there is no capital plan for the expected growth.
- The fixed overheads you use in the calculation do not match those in the audited accounts.
- Reporting is prepared by a single person, with no second-line review or documented reconciliation.
- You have launched new services without analyzing their impact on K-factors, liquidity or class.
By type of firm
The same regime, a different bill depending on your license
IFR/IFD weighs very differently on a two-partner EAF and on a broker-dealer with its own proprietary portfolio. These pages help you place your type of firm—or the one you plan to set up—on the prudential map.
EAF
Set up an EAF
The lightest entry point into investment advice: €75,000 in capital and, normally, the simplified Class 3 regime.
See the guide →
€75,000Class 3
AV
Securities broker (agencia de valores)
With €150,000 in capital and order-related services, monitoring thresholds and client balances becomes central.
See this firm type →
€150,000Orders
SV
Broker-dealer (sociedad de valores)
€750,000 in capital and dealing on own account: the profile that concentrates K-factors, market requirements and full reporting.
See this firm type →
€750,000Own account
Class 1
The move to the banking framework
When its size makes an investment firm Class 1, it is treated as a credit institution.
See the regime →
SystemicBanking
For the calculation and how to defend it, start with regulatory capital; for the internal process, the ICAAP/ILAAP; and for dealing with the supervisor, SREP preparation. If your firm does not exist yet, start with investment firm authorization.
Contact
Book a call
Tell us your type of firm (EAF, securities broker, broker-dealer or portfolio management company), your services and your size, and we will review with you how the IFR/IFD regime applies to you and where your prudential risk lies.
IFR/IFD: how the prudential regime for investment firms works
Until Regulation (EU) 2019/2033 (IFR) and Directive (EU) 2019/2034 (IFD) arrived, investment firms wore a prudential suit cut for banks. The IFR/IFD package gave them a regime of their own, built on a simple idea: an investment firm’s risk lies not in its balance sheet but in its activity—the assets it manages or advises on, the orders it handles, what it holds in custody—and requirements should grow with that risk. In Spain, the framework is integrated with Law 6/2023 and Royal Decree 813/2023, under CNMV supervision.
The three classes: from the large investment firm to the simplified regime
The system rests on a three-tier classification. Class 1—the largest investment firms with systemic relevance—leaves the regime and is treated as a credit institution. Class 2 is the general IFR regime, with K-factor requirements and the full package of liquidity, governance, remuneration and reporting. And Class 3, made up of “small and non-interconnected” firms that stay below certain activity and balance sheet thresholds, benefits from a simplified regime. Most EAFs—and many small portfolio management companies and securities brokers—sit here, but membership is checked on an ongoing basis: growth can take you out of Class 3 without warning if nobody is monitoring the metrics.
Initial capital and the ongoing requirement
The starting point is the initial capital for each type of firm: €75,000 for EAFs and portfolio management companies, €150,000 for securities brokers and €750,000 for broker-dealers (the EAFN, which is not an investment firm, keeps its own scheme of €50,000 or professional indemnity insurance). On that basis, the firm must cover at all times the highest of its requirements: the permanent minimum capital itself, the requirement based on fixed overheads—broadly, the equivalent of about three months of those overheads—and, for Class 2, the K-factor requirement. The practical consequence: a heavy cost structure raises the capital required, and the calculation must be documented and reconciled with the accounts. We cover this in regulatory capital.
K-factors, liquidity and remuneration
K-factors translate Class 2 activity into capital: metrics for risk to client (assets under management or advice, client money held and securities safeguarded, orders handled), risk to market and risk to the firm itself. Their real difficulty is not arithmetic but data: processes that capture the metrics accurately and a written methodology. On liquidity, the IFR requires a minimum buffer of liquid assets set by reference to the fixed overheads requirement. And on remuneration and internal governance, the IFD applies proportionality: the most demanding obligations fall on Class 2, while Class 3 bears a lighter regime that still requires a working risk function and remuneration that does not reward excessive risk-taking.
Reporting, ICAAP and dialogue with the supervisor
The cycle closes with periodic prudential reporting to the CNMV—proportionate in frequency and detail, uncompromising on quality—and with the internal capital and liquidity adequacy assessment process (ICAAP/ILAAP), which the supervisor tests in its review (SREP). Our experience with investment firms of all sizes always points to the same pattern: firms that document their classification, calculations and reconciliations get through supervision smoothly; those that improvise every filing pile up requests for information. If you are setting up the firm, have the prudential framework settled in the application itself: we explain how in investment firm authorization and how to set up an EAF.
Prudential services
For your investment firm
Official sources
Key legislation, linked to the official text:
- Regulation (EU) 2019/2033 of November 27, 2019 on the prudential requirements of investment firmsEUR-Lex · Official Journal of the EU
- Directive (EU) 2019/2034 of November 27, 2019 on the prudential supervision of investment firmsEUR-Lex · Official Journal of the EU
- Law 6/2023 of March 17 on Securities Markets and Investment ServicesBOE · consolidated text
Legislation and links reviewed in .