Changes to the Capital Requirements Framework (CRDV/CRRII)
On June 2019, the European Union published a number of changes to the capital requirements framework following the adoption of Captial Requirements Directive V and Capital Requirements Regulation II.
The package also implements the outstanding elements of Basel III:requirements for the Net Stable Funding Ratio (NSFR) and the Leverage Ratio (LR).
The new CRDV/CRRII texts introduce:
- A leverage ratio requirement for all institutions. A net stable funding requirement. A new market risk framework for reporting purposes. A requirement for third-country institutions having significant activities in the EU to have an EU intermediate parent undertaking. Revised rules on capital requirements for counterparty credit risk and for exposures to central counterparties. A revised Pillar 2 framework. An updated macro-prudential toolkit.
- The exclusion of certain banks from the scope of application of the CRR and the CRD.
- A number of measures aimed at reducing the administrative burden related to reporting and disclosure requirements for small non-complex banks, as well as simplified market risk and liquidity rules for those banks.
- Targeted amendments to the credit risk framework to facilitate the disposal of non-performing loans and to reflect EU specificities.
- Targeted amendments related to the incorporation of environmental, social and governance aspects into prudential rules.
- Enhanced prudential rules in relation to anti-money laundering.
- A new total loss absorbing capacity (TLAC) requirement for global systemically important institutions.
- Enhanced Minimum Requirement for own funds and Eligible Liabilities (MREL) subordination rules for global systemically important institutions (G-SIIs) and other large banks referred to as top-tier banks.
- Restrictions to distributions in case of MREL breaches.
- Home-host related measures.
Legislation was updated to implement CRDV in December 2020.
Banks should be working on implementation of the changes.
The GFSC has set up a working group with industry to consider, implement and operationalise the requirements.
Further information on the Bank Recovery and Resolution Directive can be found here.
Further information on the Investment Firm Directive and Investment Firm Regulation can be found here.