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CRR3 – what to expect in 2025?

Capital Requirements Regulation

On January 1st 2025, an updated version of Capital Requirements Regulation and Capital Adequacy Directive (so called CRR3 and CRD6) will come into force. The goal of the new rules is to finalize the implementation of the outstanding elements of international standards agreed by the Basel Committee for Banking Supervision (specifically the so-called “Basel III reform”) in the European Union law. The reform of the prudential framework for institutions introduces significant changes in the methods of calculating capital requirements for all types of risks, expands the reporting requirements and modifies the rules of prudential consolidation and own funds calculation.

What changes do we expect?
 

CRR3 will introduce changes to the methods of calculating capital requirements for all types of risk.

How will the changes impact banks?


The changes introduced by CRR3 will result in an increase in capital requirements. However, the size of the impact may differ significantly between institutions, as it will depend on the structure of banks’ portfolios and the methods used for calculating capital requirements. It should be noted that the changes’ impact may have different directions – some of the changes will definitely cause an increase in capital requirements, some – decrease, but in case of some changes the impact is uncertain – may be an increase or a decrease depending on different conditions. Therefore, the determination of the final impact of new regulations on the capital position of banks requires a detailed analysis of their portfolios. While analyzing the impact, it is crucial to consider those changes that allow to decrease capital requirements. Such opportunities usually involve extended data requirements, which is why it is important to identify new data requirements early, start gathering the data, take care of the data integrity, completeness and correctness.

CRR3 implementation will require changes in IT systems used for calculating and reporting capital requirements, but additionally it will require a number of other adjustments, including:

  • Explanation of new regulations, their impact on capital requirements and the main drivers of changes to other interested units in the bank;
  • Development of changes in processes and procedures that will address the new requirements;
  • Consideration of the regulatory changes in the strategy, product offering and pricing, stress testing, etc.;
  • Analysis and implementation of changes (if necessary) in the loan origination process – especially considering the requirement to include contractual arrangements offered by an institution, but not yet accepted by the client in RWA calculation. It is necessary to identify – for every product offered – the moment in which it is considered that the offer has been made and ensure that including such positions will not result in significant fluctuations of RWA. This new requirement should also be considered in marketing and sale campaigns in order to avoid instability of capital requirements. Additionally, it will be particularly important to adjust to the new requirements earlier, to enable parallel run of the calculations according to the current and new rules, before CRR3 comes into force. At least 6 months of parallel run will allow to observe the capital requirements value and take corrective actions if necessary.

During the next 2 years we are facing a serious reform of prudential framework for institutions. The changes will result in an increase in capital requirements, which, considering the current capital position, might cause a need to raise additional capital for some of the banks. Moreover, due to a significant scope of introduced changes, there will be a need for process adjustments, considering both calculation and reporting processes, as well as management processes in the area of product offering, financial planning and strategy.

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