New EU Legislation on Capital Requirements

Cristina Maria Scerri | Published on 30 Apr 2012

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Political agreement as regards the proposed legislative package on EU capital requirements and prudential supervision is aimed to be reached during the summer of 2012.

On the 20th July 2011, the European Commission transmitted to the Council, two major proposals as regards capital requirements and prudential supervision which are to replace the current Capital Requirements Directives (Directive 2006/48/EC and Directive 2006/49/EC) namely:

  • Proposal for a Directive of the European Parliament and of the Council on the access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms and amending Directive 2002/87/EC (‘new CRD’);

 

  • Proposal for a Regulation of the European Parliament and of the Council on prudential requirements for credit institutions and investment firms (‘CRR’).

The latest compromise text indicates that the CRR and the new CRD legislation are to come into force on the 1st January 2013, the implementation being phased in between 2013 and the beginning of 2019.

The proposed legislative package seeks inter alia, to enhance financial stability, address issues relating to the pro-cyclicality of the financial system, ensure a higher level of protection for investors and depositors and render the regulation of credit institutions and investment firms in the EU more effective.

These proposals also aim to faithfully implement the Basel III requirements, as endorsed by the G20 leaders, into EU law. The Basel III per se does not have the force of law, it mainly consists of internationally agreed standards developed by supervisors and central banks thus it would need to be transposed into EU Law in order to be effective on a pan-European basis.

The Commission aims to remove most of the national options and discretions found in the current Capital Requirements Directive in order to achieve full harmonization. Member States will be allowed to apply stricter requirements only where these are justified by national circumstances, financial stability grounds or because of a bank's specific risk profile.

The Member States will be required to transpose the new Capital Requirements Directive into national law, whilst the new Capital Requirements Regulation shall be directly applicable in all Member States in without necessitating any further action on the part of the national authorities.

 



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