CRD IV / CCR: Agreement reached - 05/03/2013
More than three years after the publication of the final Basel III rules text, the European Commission, Council and Parliament announced on 28 February that provisional agreement on the Capital Requirements Directive IV (CRD IV) package, which will implement the internationally agreed standards on capital and liquidity across the EU, was reached.
Following four public consultations, the European Commission published in July 2011 a proposal to revise the Capital Requirement Directive currently in force (“CRD III”). The proposal divided the current CRD into two legislative instruments: a Directive (Capital Requirement Directive IV – “CRD IV”) governing the access to deposit-taking activities and a Regulation (Capital Requirement Regulation – “CRR”) establishing the prudential requirements institutions need to respect – collectively known as the “CRD IV package”.
While EU Member States will have to transpose the Directive into national law, the Regulation is directly applicable, without the need for any further action on the part of the national authorities. CRR, for example, contains detailed and prescriptive provisions on capital, liquidity, leverage and counterparty credit risk, whilst CRD IV contains requirements relating to sanctions, corporate governance and capital buffers amongst others.
The CRD IV package will implement at the EU level the global regulatory standards on bank capital adequacy and liquidity (“Basel III”) issued by the Basel Committee on Banking Supervision (“BCBS”) in December 2010.
Key points to note
The statement issued by the Irish Presidency in the early hours of 28 February said that provisional agreement has been reached on “new rules that will help make sure that European banks hold enough good quality capital to withstand future economic and financial shocks.” This agreement will have to be approved by EU Member States before it is final. There will also be significant further technical work to complete the details of the legislation.
The CRD IV package sets out rules for the amount and quality of capital that banks need to hold, as well as capital buffers on top of the minimum capital requirements. It introduces a new liquidity coverage ratio and a leverage ratio to limit an excessive build-up of leverage on banks’ balance sheets. In addition, the package also introduces new enhanced governance arrangements for banks, aimed at improving risk management, and remuneration arrangements.
Both the European Parliament and the Council must now officially adopt the provisionally agreed CRD IV package in their respective plenary sessions. These are likely to take place in March – April. Following that, the consolidated legislative texts will have to be checked by technical specialists, before being published in the Official Journal (“OJ”) of the EU (expected in Q2 2013). Firms will then have a transition period lasting up to the implementation date, during which they need to ready themselves for compliance.
Having missed the original 1 January 2013 deadline for implementing Basel III, the overall CRD IV package is now likely to enter into force in the EU on 1 January 2014. In addition, the various provisions in CRR and CRD IV will come into force at different times, i.e. they will be progressively phased-in by 2019.
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