CRD IV is made up of the Capital Requirements Regulation 2013/575/EU (“CRR”), which is directly applicable to firms across the EU since 1 January 2014, and the Capital Requirements Directive 2013/36/EU (“CRD”), which must be implemented through national law. The Irish implementing statutory instrument has not yet been published by the Department of Finance but is expected in the next few months.
What are the key changes?
The purpose of CRD IV is to enhance financial stability, safeguard the interests of creditors and taxpayers, enhance the level playing field globally while ensuring international competitiveness of the EU banking sector and promoting the integrity of the Internal Market.
At a high-level the key changes are:
- Enhanced requirements for both the quality and quantity of capital
- A basis for new liquidity and leverage requirements
- New rules for counterparty risk
- New macroprudential standards including a countercyclical capital buffer and capital buffers for systemically important institutions
- Changes to rules on corporate governance, including remuneration
- Standardised EU regulatory reporting - referred to as COREP and FINREP. These reporting requirements will specify the information firms must report to supervisors in areas such as own funds, large exposures and financial information.
A number of the key provisions, including those relating to remuneration, will have a large impact on clients from an operational and regulatory perspective. Interestingly, the United Kingdom has filed a case with the European Court of Justice, challenging the cap on bonuses for bankers contained in CRD IV on the grounds that it poses a threat to financial stability.
The European Banking Authority is required to publish a number of technical standards under CRD IV. In addition, a number of Competent Authority discretions are allowed for in both the CRD and the CRR. The Central Bank has issued a useful guidance document entitled “Implementation of Competent Authority Discretions and Options in CRD IV and CRR”.
One interesting aspect of CRD IV is its graded application to MiFID firms based on the investment services they provide. As part of any CRD IV implementation project, we would recommend clients consider their current heads of authorisation and the scope of their activities as this will determine the extent of the application of CRD IV.