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.
Banks are expected to familiarise themselves with the requirements.
The GFSC will set-up a working group with industry to consider, implement and operationalise the requirements as well as the derogations.
We will be issuing further information as we develop our approach to the requirements.