The European Council and European Parliament reached agreement Tuesday on revising capital requirements for money managers.
As part of efforts to establish a Pan-European capital market, known as the Capital Markets Union, European governments want capital and liquidity requirements to be based on firms' individual circumstances, such as size of assets under management and the extent of services.
Large money managers with assets that exceed €15 billion ($17 billion) will automatically be subject to the full banking requirements and supervised as credit institutions, if they deal in or underwrite financial instruments, the EU said.
Under current regulations, all investment firms are subject to the same capital, liquidity and risk management rules as banks.
To ensure that Europe's key financial-services watchdog, the European Securities Markets Authority, can counter regulatory arbitrage as well as monitor the activities of global firms, the European Commission will be given the power to apply additional conditions on firms' equivalence status, which gives them a passport to manage the assets of European clients, the EU said.
Firms with €5 billion to €15 billion in assets could still be requested to apply capital requirements under the new rules.
"Investment firms play a crucial role in facilitating savings and investment flows in the EU," Romania's Finance Minister Eugen Teodorovici said in a news release. "If they are to play their full part in the Capital Markets Union, it is essential that the rules that apply to them are tailored to meet their specific business requirements and take into account the risks they take."
The decision will now be submitted to EU ambassadors for endorsement and subsequently adopted by the European Council and European Parliament. Firms will have five years to comply.