On 7 June 2019, the fundamental changes to the CRD (Capital Requirements Directive) and the CRR (Capital Requirements Regulation) were published in the EU's Official Journal. The amended requirements are commonly referred to as CRD V and CRR II. The new CRD requirements must be transposed into national law by 28 December 2020. Some of the new CRR changes are applicable from as early as 27 June.
These amendments to the CRD and the CRR address topics including the following:
- Pillar 2 capital requirements and recommendations
- Limitation of both the Supervisory Review and Evaluation Process (SREP) and Pillar 2 to microprudential oversight
- Introduction of a revised framework for interest-rate risk in the banking book
- Proportional application of some requirements for small and non-complex institutions (in particular with regard to reporting and disclosure requirements)
- Waivers from liquidity requirements for subsidiaries
- Implementation of the globally agreed Total Loss-Absorbing Capacity (TLAC) standard for global systemically important banks
- New provisions relating to eligible liabilities
- Standardised Approach for Counterparty Credit Risk (SA-CCR)
- Definition of trading book and additional reporting requirements for trading book positions based on the revised Basel trading book provisions for the market risk (FRTB)
- Large exposures regime
- Leverage ratio as an additional capital requirement and adjustment of the calculation method
- Net Stable Funding Ratio (NSFR)
- Expansion of preferential treatment with regard to the capital requirements for credit risk at small and medium-sized entities (SME supporting factor)
The published amendments to CRR II do not yet include the Basel III finalisation package agreed internationally at the end of 2017 (see also Basel regulatory framework). This results in a further major need for amendment of the CRR (particularly with regard to the introduction of a output floor for institutions that use internal approaches for determining own funds requirements. Other fundamental changes relate to the individual approaches for determining the own funds requirements for each of the risk types, such as the credit risk, operational risk or the risk of a credit valuation adjustment (CVA risk). Work on implementation in Europe is proceeding at full speed. The legislation is not expected to become applicable before 2023.