Investment Firm Licence is the authorisation a company needs to provide investment services such as receiving and executing client orders, managing portfolios, giving investment advice or dealing on its own account. In the EU it is granted under MiFID II (Directive 2014/65/EU) by the regulator of the member state where the firm has its head office, and specifies which services, which instruments and whether client money may be held. Initial capital under the Investment Firms Directive is €75,000 for firms that hold no client assets, €150,000 for most others and €750,000 for own-account dealing or underwriting. The licence can be passported across the EEA. Buying an authorised firm triggers change-of-control review, and extending its scope is effectively a new application.
What services does an investment firm licence cover
MiFID II lists the regulated services in Annex I, Section A: reception and transmission of orders, execution of orders on behalf of clients, dealing on own account, portfolio management, investment advice, underwriting or placing with a firm commitment, placing without a firm commitment, and operating multilateral or organised trading facilities. A licence specifies which of these the firm may provide, for which financial instruments, and whether it may hold client money and securities. Ancillary services, such as safekeeping of instruments and FX connected to investment services, are added to the same licence.
What capital does an investment firm need
The Investment Firms Directive (Directive (EU) 2019/2034, Article 9) ties initial capital to the services authorised:
- €75,000 for reception and transmission, execution, portfolio management, investment advice or placing without a firm commitment, where the firm does not hold client money or securities
- €750,000 for dealing on own account, underwriting or placing with a firm commitment, and for operating an organised trading facility that may deal on own account
- €150,000 for all other investment firms
So a portfolio manager that holds client assets needs €150,000 rather than €75,000, and a broker that wants to trade on its own book needs €750,000. Ongoing own-funds requirements under the Investment Firms Regulation can exceed these amounts as the firm grows.
Passporting
An EU investment firm licence can be passported: once authorised in one member state, the firm can provide the same services across the EEA by notifying its home regulator, either cross-border or through a branch. A robo-advisor licensed in Cyprus can serve clients in Germany or Italy without separate authorisation, which is why the choice of home state matters.
Buying an investment firm instead of applying
Acquiring an authorised firm saves the application and build-out but triggers a change-of-control review of the buyer. The buyer has to check that the target's licence covers the services and instruments in its plan: extending a €75,000 advisory licence to own-account dealing is effectively a new application and requires €750,000 of capital.
A worked example: a crypto company wanting to offer tokenised securities to retail investors buys a firm licensed only for reception and transmission without client money. To custody client assets it needs a licence variation and to raise initial capital from €75,000 to €150,000; to make markets it needs €750,000. Due diligence should map each planned activity to an authorised service before the price is agreed, and compare the target's licence with alternatives such as a broker-dealer licence in other markets.
See also: Broker-Dealer License.