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For banks operating in the EU there is seemingly an endless supply of regulatory change – effectively forcing banks to constantly monitor their regulatory reporting technology.Just three years after CRD IV and CRR were finalised, for example, the EU’s banking sector now faces a revised Capital Requirements Directive and Capital Requirements Regulation, CRD V and CRR II.
In a 500+ page package these revisions to CRD IV and CRR are likely to stretch significant regulatory change into the next decade – and systems will need to adapt as a result. Here Richard Bennett, Head of Regulatory Reporting, EMEA, for Wolters Kluwer’s Finance, Risk & Reporting business, takes a look at what is in store…
The proposals include the following key elements:
1. Measures to increase the resilience of EU institutions and enhance financial stability
The proposals incorporate the remaining elements of the regulatory framework agreed recently within the Basel Committee on Banking Supervision (BCBS) and the Financial Stability Board (FSB). They include:
2. Measures to improve banks' lending capacity to support the EU economy
In particular, specific measures are proposed to:
3. Measures to further facilitate the role of banks in achieving deeper and more liquid EU capital markets to support the creation of a Capital Markets Union
Specific adjustments to the proposed measures are envisaged, in order to:
Moving away from International Standards
Commission Vice-President Valdis Dombrovskis, responsible for Financial Stability, Financial Services and Capital Markets Union, said: "Europe needs a strong and diverse banking sector to finance the economy. We need bank lending for companies to invest, remain competitive and sell into bigger markets and for households to plan ahead. Today, we have put forward new risk reduction proposals that build on the agreed global standards while taking into account the specificities of the European banking sector."
Most of this content is driven by the need to adopt various international regulatory standards into EU law. But the Commission has shown a growing willingness to depart from the BCBSand FSB rules to accommodate what it describes, as can be seen from the above text, European‘specificities’.
Examples of the divergences proposed include:
When you combine the above with the apparently last-minute addition of a requirement for some non-EU banks to house all their European operations under a single intermediate EU parent company, these proposals challenge the increasingly fragile state of international regulatory coordination.
What happens now?
These legislative proposals will now be submitted to the European Parliament and the Council for their consideration and adoption. The proposals discuss being adopted in 2019.The CRD V, CRR II proposals will be among the most important regulatory developments for banks operating in the EU in the coming years and will demand in-depth analysis.
For UK banks, Brexit adds an additional layer of complexity. Assuming the UK government proceeds with its plan to trigger Article 50 next year, the UK will be involved, in some form, in most of the EU’s negotiating process for CRD V, CRR II, but will then likely exit the EU just before or after the rules come into force.
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