Fixed overheads - deduction of expenses related to exchange rate differences for money belonging to clients and for which investment firms provide custody services according to MIFID

Can expenses related to exchange rate differences, only for the money (with amounts in foreign currency) belonging to the clients and for which the investment firm provides custody services according to MiFID, also be deducted from the total expenses even though they are included under total expenses in accordance with the relevant accounting framework?

In what is described below, we present the application by Romanian investment firms of the provisions of Regulation (EU) No 2033/2019 regarding fixed overheads. In particular, we have in mind the expenses related to exchange rate differences for money belonging to clients and for which investment firms provide custody services according to MIFID.   According to Article 13 of Regulation (EU) No 2019/2033, the fixed overheads requirement shall amount to at least one quarter of the fixed overheads of the preceding year. Investment firms shall use figures resulting from the applicable accounting framework.   EBA, in consultation with ESMA, shall develop draft regulatory technical standards to supplement the calculation of the requirement referred to in paragraph 1 which includes at least the following items for deduction: (a) staff bonuses and other remuneration, to the extent that they depend on the net profit of the investment firm in the respective year; (b) employees’, directors’ and partners’ shares in profits; (c) other appropriations of profits and other variable remuneration, to the extent that they are fully discretionary; (d) shared commission and fees payable which are directly related to commission and fees receivable, which are included within total revenue, and where the payment of the commission and fees payable is contingent on the actual receipt of the commission and fees receivable; (e) fees to tied agents; (f) non‐recurring expenses from non‐ordinary activities.   In addition, according to article 1 (6) of the Delegated Regulation EU 2022/1455, the items for deduction referred to in Article 13(4) of Regulation (EU) 2019/2033, the following items shall also be deducted from the total expenses, where they are included under total expenses in accordance with the relevant accounting framework: (a) fees, brokerage and other charges paid to central counterparties, exchanges and other trading venues and intermediate brokers for the purposes of executing, registering or clearing transactions, only where they are directly passed on and charged to customers. Those shall not include fees and other charges necessary to maintain membership or otherwise meet loss-sharing financial obligations to central counterparties, exchanges and other trading venues; (b) interest paid to customers on client money, where there is no obligation of any kind to pay such interest; (c) expenditures from taxes where they fall due in relation to the annual profits of the investment firm; (d) losses from trading on own account in financial instruments; (e) payments related to contract-based profit and loss transfer agreements according to which the investment firm is obliged to transfer, following the preparation of its annual financial statements, its annual result to the parent undertaking; (f) payments into a fund for general banking risk in accordance with Article 26(1), point (f), of Regulation (EU) No 575/2013 of the European Parliament and of the Council ( 3 ); (g) expenses related to items that have already been deducted from own funds in accordance with Article 36(1) of Regulation (EU) No 575/2013.   In practice, in the accounting records of investment firms in Romania, a significant weight in the total expenses is held by the expenses related to exchange rate differences. According to the applicable accounting rules, investment firms are obliged to evaluate at least monthly all foreign currency receivables and liabilities, implicitly the cash accounts opened with foreign currency credit institutions as well as the debt to creditor customers (clients money held for which investment firms are provided custody) with amounts in foreign currency.