CRR/CRD regulatory framework for credit institutions and investment firms
The CRR/CRD regulatory framework (CRD package) consists of the Credit Requirements Directive (CRD IV) and the Capital Requirements Regulation (CRR). The regulatory framework aims to improve banks’ ability to bear risks by strengthening their solvency and liquidity position as well as their risk management. The CRD IV package replaced in 2014 the previous directives 2006/48/EC and 2006/49/EC relating to credit institutions and capital adequacy.
Updates to the CRR/CRD regulatory framework are upcoming:
- On 23 November 2016, the Commission adopted a reform package (CRR 2/CRD V) aimed at further improving the resilience of EU banks.
- In December 2017, the Basel Committee on Banking Supervision published its recommendations on the finalisation of the Basel III framework. The recommendations will be implemented in Europe by updating the CRR/CRD package.
CRR/CRD regulatory framework
The Credit Requirements Directive (CRD IV) covers both requirements relating to the taking up of business and the provision of services as well as requirements relating to official supervision, sanctions and reliable corporate governance. It also includes additional capital requirements in the form of various buffers. The Directive is implemented through national legislation.
The Capital Requirements Regulation (CRR) is directly applicable legislation, so it does not require national implementation. The CRR includes provisions relating to calculation of own funds and prudential minimum requirements, liquidity, leverage ratio and large exposures. It also includes comprehensive provisions on disclosure requirements.
The EU’s Capital Requirements Regulation is complemented by regulatory and implementing technical standards, prepared by the European Banking Authority and adopted by the EU Commission as decisions and regulations, which are binding and directly applicable in the Member States.
The EBA maintains on its website an interactive single rulebook, which not only contains the Credit Requirements Directive and the Capital Requirements Regulation, but also the corresponding technical standards developed by the EBA and adopted by the European Commission (RTS and ITS), as well as the EBA Guidelines and related Q&As.
The regulatory framework is accompanied by comprehensive COREP reporting.
Future CRR/CRD regulatory framework
On 23 November 2016, the Commission adopted an extensive reform package (CRR 2/CRD V) aimed at improving the resilience of banks within the EU (press release).
The key points of the reform package:
- More risk-sensitive capital requirements, in particular in the area of market risk, counterparty credit risk, and for exposures to central counterparties (CCPs)
- a binding Leverage Ratio (LR) to prevent institutions from excessive leverage
- a binding Net Stable Funding Ratio (NSFR) to address the excessive reliance on short-term wholesale funding and to reduce long-term funding risk
- a requirement for Global Systemically Important Institutions (G-SIIs) to hold minimum levels of capital and other instruments to cover losses in resolution. This requirement to be known as Total Loss-Absorbing Capacity (TLAC).
- enhance the capacity of banks to lend to SMEs and to fund infrastructure projects
- for non-complex, small banks, reduce the administrative burden linked to some rules in the area of remuneration (namely those on deferral and remuneration using instruments, such as shares), which appear disproportionate for these banks
- make CRD/CRR rules more proportionate and less burdensome for smaller and less complex institutions where some of the current disclosure, reporting and complex trading book-related requirements appear not to be justified by prudential considerations.
European Parliament - Press Release (16.4.2019): Parliament approves rules to reduce risks to EU banks and protect taxpayers
Council of the EU - Press release (14.5.2019): Banking Union: Council adopts measures to reduce risk in the banking system
2. Basel Committee on Banking Supervision’s recommendations on the finalisation of the Basel III framework
Basel Committee on Banking Supervision Basel III: Finalising post-crisis reforms
Commission press release: Banking regulation: Commission welcomes Basel Committee's agreement on post-crisis reforms
The Commission has sent to the EBA a call for advice on the implementation of the recommendations in Europe: EBA will support the Commission in the implementation of the Basel III framework in the EU
The CRR/CRD regulatory framework applies to the following supervised entities:
- credit institutions
- investment firms, excluding investment firms referred to in chapter 6 section 1 subsection 4 of the Investment Services Act
- management companies engaged in operations referred to in section 5 subsection 2 of the Investment Services Act (portfolio management companies)
- central institutions of amalgamations of deposit banks
- holding companies of credit institutions
- holding companies of investment firms
- parent undertakings of financial and insurance conglomerates.
Following the signature of the adopted legislation in the week of 20 May, the banking package will be published in the Official Journal in the course of June and will enter into force 20 days later. Most of the new rules will start applying in mid-2021.
Credit Requirements Directive (CRD IV)
Interactive single rulebook maintained by the EBA
Q&As maintained by the EBA
Regulation (EU) 2016/445 of the European Central Bank of 14 March 2016 on the exercise of options and discretions available in Union law (ECB/2016/4)
Guideline (EU) 2017/697 of the European Central Bank of 4 April 2017 on the exercise of options and discretions available in Union law by national competent authorities in relation to less significant institutions (ECB/2017/9)
Recommendation of the European Central Bank of 4 April 2017 on common specifications for the exercise of some options and discretions available in Union law by national competent authorities in relation to less significant institutions (ECB/2017/10)
Regulations and guidelines 25/2013 Capital requirements calculation and large exposures
Regulations and guidelines 26/2013 Yhteiseurooppalainen raportointi (COREP) (in Finnish)