Shearman & Sterling LLP | FinReg | EU Capital Requirements Directive V and Capital Requirements Regulation II Finalized
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  • EU Capital Requirements Directive V and Capital Requirements Regulation II Finalized

    The legislative amendments to the EU's Capital Requirements Regulation and the Capital Requirements Directive, widely referred to as "CRD5" or "CRR2", have been published in the Official Journal of the European Union. Subject to certain exceptions, the Regulation amending CRR will apply directly across the EU from June 28, 2021. EU Member States are required to transpose the Directive amending CRD into their national laws and to apply those provisions from December 29, 2020, subject to certain exceptions.

    The changes to CRR and CRD IV include:
    • A new requirement on non-EU G-SIBs (or non-EU banking groups that have EU firms with total assets of at least EUR 40 billion) that have two or more EU firms in their group to establish an EU intermediate parent undertaking. Non-EU groups that satisfy the threshold condition on June 27, 2019 will have until December 30, 2023 to establish an EU IPU.
    • Replacing the existing transitional provisions on bank capital requirements for exposures to non-Qualifying CCPs with longer-term transitional provisions. CCP authorization or recognition under the European Market Infrastructure Regulation gives the CCP the status of being a QCCP, which is relevant for clearing member firms to calculate their capital requirements for exposures to CCPs under the CRR. Lower capital requirements are imposed for exposures to a QCCP than for exposures to a non-QCCP. The new provisions apply from June 27, 2019.
    • Implementing the global total loss absorbing capacity (TLAC) standard into EU legislation for global systemically important institutions in the EU, taking into account the institution-specific minimum requirement for own funds and eligible liabilities (MREL) provided for in the EU Bank Recovery and Resolution Directive (amendments to the MREL are set out in BRRD II).
    • A new binding leverage ratio of Tier 1 capital equal to 3% of non-risk-weighted assets which firms must meet in addition to their risk-based capital requirements; some adjustments to the ratio will allow firms to reduce the leverage ratio exposure measure in certain circumstances.
    • A new binding net stable funding ratio of 100% and harmonized NSFR reporting requirements.
    • Amendments to the capital requirements for exposures to SMEs by increasing the threshold for SME exposures to EUR 2.5 million (up from the existing EUR 1.5 million threshold) and allowing any SME exposure exceeding EUR 2.5 million to be subject to a 15 % reduction in capital requirements.
    • Imposition of the use of SA-CCR methods for determining exposures to OTC derivative transactions.

    View the Regulation amending CRR.

    View the Directive amending CRD.

    You may also like to view our client note on the new EU IPU requirements for non-EU groups.

    View details of the legislative changes to the BRRD.

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