Following the conclusion of negotiations between the Council, the Parliament and the European Commission in March, the European Parliament has voted to adopt proposals for the Capital Requirements Regulation (CRR), and a fourth edition of the Capital Requirements Directive (CRD IV), which will come into effect from 1 January 2014. The final text is still to undergo a detailed review of legal drafting and translation into other official EU languages, and formal adoption by ministers. Provided that translation is completed in time for the legislation to be published in the Official Journal before 1 July 2013, implementation of CRD IV will be from 1 January 2014 (otherwise the implementation date will be 1 July 2014).
CRD IV deals with “access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms” and CRR “with prudential requirements for credit institutions and investment firms”. The package notably includes:
- A cap on bankers’ bonuses at a basic salary-to-bonus ratio of 1:1 (with the approval of 66% of shareholders owning half the shares represented, or of 75% of votes if there is no quorum, the ratio could be increased to 1:2);
- Deferral of a minimum of 25% of any bonus exceeding 100% of salary for 5 years;
- A requirement for banks to hold a minimum of 8% good-quality reasonably liquid capital (of which over half should be Tier 1 capital);
- A requirement for banks to hold both a capital conservation buffer and a countercyclical capital buffer
- A reduction of the nominal risk to be assigned to SME loans (to encourage lending)
- Disclosure of profits made, taxes paid and subsidies received country by country, together with turnover and employee numbers – such disclosure to be made initially to the European Commission from 2014, and to the public from 2015;
- EU competent authorities responsible for supervision of banks in collaboration with the European Banking Authority (EBA), which will have expanded supervisory powers.
The PRA has published a webpage containing a statement on the timetable for the implementation of CRD IV, as has the FCA. Both regulators are currently planning on the basis of implementation from 1 January 2014, and each intends to publish two consultations on elements of the framework:
- The main PRA and FCA consultations, likely to be published in Summer 2013, will propose changes substantially replacing most current capital requirements rules in the PRA and FCA Rulebooks (broadly in BIPRU and GENPRU) to reflect the new Regulation and to implement the Directive and relevant discretions provided in the Regulation.
- The shorter PRA and FCA consultations will deal with specific issues related to the procedure for transitioning, as appropriate, existing waivers, and will be published before the main consultations.
The consultations will also set out each regulator’s approach to implementation in relation to those areas for which they are responsible.