CRD IV

EBA Amends Implementing Technical Standards on Benchmarking of Internal Approaches under CRD IV

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On August 4, 2016, the European Banking Authority (EBA) published and submitted to the EU Commission an amended version of its Implementing Technical Standards (ITS) on benchmarking of internal approaches under Article 78(8) of the CRD IV Directive (which can be found in a zip file on the EBA’s website).

The EBA has amended the ITS for the purposes of running the 2017 benchmarking exercise. The amended ITS will assist competent authorities in their 2017 assessment of internal approaches both for credit risk, and for market risk. In a related press release, the EBA explains that, given the type of changes introduced in the instructions and templates, the relevant annexes are replaced in whole so that there is a consolidated version of the updated ITS package.

The EBA plans to annually update the ITS and to maintain them on a regular basis to ensure the success and quality of future benchmarking exercises.

European Commission Calls for Further Technical Advice from EBA on Prudential Regime for Investment Firms under CRD IV

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On July 6, 2016, the EBA published a call for advice, dated June 13, 2016, that it has received from the European Commission relating to the prudential requirements applicable to investment firms under the Capital Requirements Regulation (Regulation 575/2013) (“CRR”) and the CRD IV Directive (2016/36/EU) (together referred to as CRD IV).

The EBA already provided advice on this matter to the Commission in December 2015, in which it broadly concluded that the current prudential regime for investment purposes is not adequate. To better inform the Commission’s decision, it is seeking further technical advice from the EBA on the details of the high level recommendations set out in the December 2015 advice. It has asked the EBA to provide advice on the following:

  • the criteria and thresholds for each of the three proposed classes of investment firm;
  • the design and calibration of all relevant aspects of a new prudential regime for the three proposed classes of investment firm;
  • the application of the CRD IV remuneration requirements to the different proposed classes of investment firm, and if whether the proposed new classes would affect the applicability of the CRD IV corporate governance rules; and
  • any other issues or inconsistencies the EU competent authorities have identified in implementing the rules relating to investment firms.

The EBA is to consult with ESMA when preparing its advice. The deadline for preparing the advice on the analysis relating to class one investment firms is September 31, 2016. The EBA must prepare its final report on the substantive content and calibration of the proposed regimes for the different classes of investment firms to the Commission by June 30, 2017.

EBA Publishes Final Draft Technical Standards and Guidelines on Methodology and Disclosure for G-SIIs

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The European Banking Authority (EBA) has published final draft technical standards and revised guidelines on the further specification of the indicators of global systemic importance and their disclosure. The guidelines have been developed according to Directive 2013/36/EU (the Capital Requirements Directive, CRD IV) and in line with international standards. CRD IV requires G-SIIs to hold higher capital levels in order to contain the risks they pose to the financial system and the impact that their potential failure may have on sovereign finance and taxpayers (so-called “too big to fall”). The draft revised Guidelines stipulate that not only G-SIIs, but also other large institutions with an overall exposure of more than €200 billion and which are potentially systemically relevant, will be subject to the same disclosure requirement as the G-SIIs.

The revision was prompted by a new data template and some minor changes introduced by the Basel Committee on Banking Supervision (BCBS) in January 2015 for the identification of global systemically important banks (G-SIBs). The list of EU G-SIBs identified by the BCBS and the global systematically important institutions (G-SIIs) identified by Member States’ authorities are identical.

The final draft technical standards and revised draft guidelines are set out in three reports (revised technical standards (RTS) report, implementing technical standards (ITS) report, and draft guidelines report). The final RTS and ITS will be presented to the European Commission for endorsement, following which the RTS will be subject to scrutiny by the European Parliament and the Council of the EU before publication in the Official Journal of the EU.

Capital Requirements (Capital Buffers and Macro-prudential Measures) (Amendment) Regulations 2015 Published

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On January 13, 2015, the Capital Requirements (Capital Buffers and Macro-prudential Measures) (Amendment) Regulations 2015 were published.

The Regulations amend the Capital Requirements (Capital Buffers and Macro-prudential Measures) Regulations 2014 to introduce a systemic risk buffer (SRB) that will apply to ring-fenced banks (RFBs) and certain large building societies. This measure implements Articles 133 and 134 of the Capital Requirements Directive IV (CRD IV).

The Financial Policy Committee (FPC) will be responsible for setting out the framework for determining which institutions should hold the buffer and, if so, how large the buffer should be. It will need to publish this methodology by May 31, 2016. The Prudential Regulation Authority (PRA) will be responsible for applying the framework and will have ultimate discretion over which firms must hold the buffer and its size.

The Regulations were made on January 12, 2015 and come into force, unless otherwise stated, on May 31, 2016. The systemic risk buffer is applicable from January 1, 2019.  Regulations.

PRA and FCA Issue Consultation on Data Collection on Remuneration Practices under CRD

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On September 22, the UK Prudential Regulation Authority (PRA) issued a joint consultation paper with the Financial Conduct Authority (FCA) on data collection on remuneration practices under the Capital Requirements Directive (CRD IV) and the Capital Requirements Regulation.

The consultation sets out the PRA and FCA’s proposals to amend their current approach to data collection of remuneration practices and the reporting requirements for banks, building societies, PRA-designated investment firms, IFPRU investment firms and other types of firms to the extent they are to be included in the scope of consolidation of an institution for which data is to be collected in accordance with CRD IV. The proposals concern the remuneration benchmarking information report and the high earners’ report.  Consultation Paper.

FCA Second Consultation on Implementing CRD IV For Investment Firms

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The FCA published a second consultation paper on proposals to implement CRD IV for investment firms (CP13/12).  CRD IV is a package of major reforms to EU legislation on prudential requirements for credit institutions and investment firms.  The effect of the reforms will be to replace the existing CRD with a regulation (the CRR) and a directive (the CRD IV Directive).

In CP13/12, the FCA consults on proposals applying to investment firms that are currently subject to the Capital Requirements Directive (2006/48/EC and 2006/49/EC) (CRD), and to management companies (as defined under the UCITS Directive (2009/65/EC) (UCITS IV) and alternative investment fund managers (AIFMs).  Second Consultation Paper.

ESA Publishes Second Report on Risks Facing the EU Financial System

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On September 5, the Joint Committee of the European Supervisory Authorities (ESAs) published its second twice yearly report on the vulnerabilities of the financial system of the EU.

The report identifies a variety of cross-sector risks and builds upon the findings of the first report published in March 2013.  The report notes that a determined reaction from political sources and the European System of Financial Supervision (including the ESAs) are required to counter these threats.  It notes that despite measures being adopted, including the entry into force of the CRD IV legislative package, the risks identified in the first report continue to threaten the EU’s financial system, along with other ensuing events such as:

  • Concerns over the volatility of longer-term interest rates, together with the future direction of interest rates and the current prevalence of low interest rates;
  • Concerns over the risk of bail-in in future bank resolutions following the bail-out of Cypriot banks, which included a bail-in of deposits of more than the EUR100,000 deposit guarantee limit; and
  • Cyber attacks on the online and mobile banking services of several banks in April and June 2013.

FCA Launches Consultation on Implementation of CRD IV

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On July 31, the UK’s Financial Conduct Authority (FCA) published a consultation paper on proposals for implementing CRD IV for investment firms (CP13/6).

CRD IV is a package of reforms intended to address issues arising during the 2007/8 financial crisis and replaces the existing 2006 Capital Requirements Directive.  The principal aim of CRD IV is to implement the Basel III reforms but the package contains other prudential requirements for credit institutions and investment firms and CP13/6 includes proposals on capital buffers, common reporting, remuneration and existing FCA rule waivers.

The closing date for responses to CP13/6 is September 30.  The Prudential Regulation Authority (PRA) is publishing a separate consultation on CRD IV as it applies to its authorised firms (banks and building societies and designated investment firms).  Consultation Paper.

EBA Report on Impact of CRD IV Proposals on Smes

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The amendments to the Capital Requirements Directive (CRD) proposed in CRD IV will require credit institutions to introduce a ‘capital conservation buffer’ of 2.5% of risk-weighted assets (in addition to the current 8% requirement).  This will be phased in from 2016 to 2019, and there are concerns that it could have a negative impact on the level of bank lending available to SMEs.   

On October 22, the European Banking Authority (EBA) published a report on the assessment of two proposals to mitigate these concerns.  The proposals analysed were:

  • a reduction of the current risk weights (RWs) of SME lending by one third; and
  • an increase from EUR 1 million to EUR 5 million on the regulatory thresholds for SMEs.  

In its report, the EBA cautions against the proposed altering of the RWs or the threshold for SME retail exposures.  However, it does advise that alternative measures to provide the same capital alleviation could be considered, such as the introduction of a supporting discount which would not act on RWs, but would be applied at the end of the process of capital calculation.  The EBA considers that these measures should be applied only to SME exposures and not to the whole retail exposure class.

ECOFIN Discusses Banking Union, CRD IV and RRD

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On July 10, the European Economic and Financial Affairs Committee (“ECOFIN”) considered the progress and timings in relation to the work on the banking union, CRD IV and the proposed Recovery and Resolution Directive (“RRD”). The Council of the EU published a press release concerning the matters discussed at the meeting. Press Release.

The press release covers the following areas:

  • Banking Union: The President of the Council has been invited to assist with the development of a specific and time-bound work programme on the banking report.
  • CRD IV: At the meeting, it was explained that negotiations concerning the CRD IV Directive are almost finished, and attention has now turned to the Capital Requirements Regulation. There are several outstanding issues such as bankers’ remuneration, crisis sanctions and the powers to be given to the European Banking Authority.
  • RRD: The press release states that the Council aims to agree a general approach on the proposed RRD by December 2012.