CRD IV package
The road ahead
Almost two years have passed since the publication of the European Commission’s proposals for the CRD IV package, which will implement the internationally agreed standards on capital and liquidity – Basel III – in the EU. The legislative process came to an end on 27 June with the publication of the CRD IV package in the Official Journal of the European Union (OJ). However, this is only the beginning of the long road to implementation and compliance.
In July 2011, the European Commission published a proposal to revise the then in force Capital Requirement Directive III (CRD III). The proposal was split into a Directive (Capital Requirement Directive IV (CRD IV Directive)) and a Regulation (Capital Requirement Regulation (CRR)), collectively known as the CRD IV package. Final agreement on the CRD IV package was reached in April and since then it has undergone a detailed legal and linguistic review. The CRD IV package was published in the OJ on 27 June; therefore the date of application is 1 January 2014. The CRR entered into force on 28 June 2013, the day following the publication in the OJ. The CRD IV Directive will enter into force twenty days following the publication in the OJ, and EU Member States will have until 31 December 2013 to transpose it into national legislation.
The CRD IV package contains specific mandates for the European Banking Authority (EBA) to develop Binding Technical Standards (BTS), guidelines and recommendations which will form part of the Single Rulebook. The EBA will need to draft many of these rules during the course of 2013 and 2014. Although the EBA has already completed some work upfront, firms can expect to see many more EBA consultation papers published in the next few months, and should be prepared to respond to these within a limited timeframe. National regulators are also expected to consult on parts of the CRD IV package that allow for national discretion, as well as the CRD IV Directive which needs to be transposed in full, in the coming months.
Key challenges in the next few months
Both the CRR and the CRD IV Directive make a number of references to the “date of entry into force” and “date of application”, and it is important for firms to know if and how they will be affected. Also important for forward planning are those provisions that stipulate action in 2013 and 2014.
Date of entry into force
There are no provisions that apply immediately.
By the end of 2013
The EBA must complete a number of BTSs during 2013 (one set of draft BTSs is due by 30 September whilst other draft BTSs are due by 31 December).
Date of application
Both the CRR and the CRD IV Directive will apply to all credit institutions and certain investment firms as of 1 January 2014. In practice, the CRD IV Directive application may not be uniform. This is due to the fact that transposition depends on national legal systems and not all EU countries will manage to complete the transposition into national law on time. The application of CRR will begin as of 1 January 2014, when it automatically becomes law in all EU countries. Implementation will in the case of most provisions be phased and last up to 2019. Firms should in particular familiarise themselves with CRR Articles 465-499, which outline the requirements as of 1 January 2014 with respect to own funds, unrealised gains and losses measured at fair value, deductions and grandfathering of capital instruments.
By the end of 2014
2014 is looking as busy as 2013 for the EBA, not least because the CRD IV package envisages the EBA drafting over 80 BTSs, of which around 20 are due by 1 January 2014 and will in effect need to be drafted and consulted on during 2013.
The changes ahead will require meticulous planning. Institutions will need to be aware of upcoming consultations on BTSs and be prepared to engage with the EBA on technical details, whilst at the same time keeping an eye on the bigger picture and longer-term implementation.