by Richard Bennett, VP Market Management Regulatory Reporting, EMEA, Wolters Kluwer
Published December 8, 2016
Just three years after CRD IV and CRR were finalized, the EU’s banking sector now faces a revised Capital Requirements Directive and Capital Requirements Regulation, CRD V and CRR II. In a 500+ page package these revisions to CRD IV and CRR are likely to stretch significant regulatory change into the next decade.
The proposals include the following key elements:
The proposals incorporate the remaining elements of the regulatory framework agreed recently within the Basel Committee on Banking Supervision (BCBS) and the Financial Stability Board (FSB). They include:
In particular, specific measures are proposed to:
Specific adjustments to the proposed measures are envisaged, in order to:
Commission Vice-President Valdis Dombrovskis, responsible for Financial Stability, Financial Services and Capital Markets Union, said: "Europe needs a strong and diverse banking sector to finance the economy. We need bank lending for companies to invest, remain competitive and sell into bigger markets and for households to plan ahead. Today, we have put forward new risk reduction proposals that build on the agreed global standards while taking into account the specificities of the European banking sector."
Most of this content is driven by the need to adopt various international regulatory standards into EU law. But the Commission has shown a growing willingness to depart from the BCBS and FSB rules to accommodate what it describes, as can be seen from the above text, European ‘specificities’.
Examples of the divergences proposed include:
When you combine the above with the apparently last-minute addition of a requirement for some non-EU banks to house all their European operations under a single intermediate EU parent company, these proposals challenge the increasingly fragile state of international regulatory coordination.
These legislative proposals will now be submitted to the European Parliament and the Council for their consideration and adoption. The proposals discuss being adopted in 2019. The CRD V, CRR II proposals will be among the most important regulatory developments for banks operating in the EU in the coming years and will demand in-depth analysis. For UK banks, Brexit adds an additional layer of complexity. Assuming the UK government proceeds with its plan to trigger Article 50 next year, the UK will be involved, in some form, in most of the EU’s negotiating process for CRD V, CRR II, but will then likely exit the EU just before or after the rules come into force.