CRR II and CRD V: Basel IV implementation on European level

Transcription

1 April 12 th, 2017 : Basel IV implementation on European level Background. Last November the EU Commission published its proposal for amending the CRR (Regulation (EU) 575/2013) and the CRD (Directive 2013/36/EU). This proposal aims at implementing the recommendations of the Basel Committee on Banking Supervision (BCBS) regarding the completion of the Basel III framework as well as adjusting existing regulation, sometimes referred to as Basel IV. At this point it has to be mentioned that some Basel IV topics are currently still being discussed on international level and therefore are not adapted by the legislative drafts of the EU (e.g. the capital requirements concerning the CVA risk). The results are expected to be adapted by a later amendment to the EU regulation. Based on the proposal of the Commission, the current amendments, known as CRR II and CRD V, will be enacted by the EU Parliament and the EU Council and will afterwards be published in the official journal of the EU. On the 20 th day after publication they enter into force. While the CRD V first has to be transposed into national law, e.g. the German KWG, the CRR II becomes directly applicable in all member states two years after entering into force. The implementation of the CRD V into German law will come into effect through an implementation act by the German Parliament. After approval of the Federal Council it is published in the Federal Law Gazette. All member states are obliged to take such actions for implementation within the first year after the entering into force of the CRD V. The application of these national acts is set as one year plus one day after the CRD V enters into force, except for amendments concerning the interest rate risk in the banking book, which will be applicable together with the corresponding changes to the CRR. Since this topic is the most relevant aspect of the CRD V, all important topics will be applicable together with the CRR II two years after the regulation and directive enter into force. Within this time frame the EBA will draft several Regulatory Technical Standards and Implementing Technical Standards (RTS/ITS) as well as guidelines. These aim at clarifying methods and terms as well as implementing not substantial amendments. The Commission is empowered to enact these RTS and ITS as delegated acts in consultation with the EBA and publish them in the official journal of the EU. Typically delegated acts are enacted as regulations and are therefore directly applicable. Usually the date of application is aligned to the CRR II as underlying regulation. On the following pages we provide you with an overview over important topics and expected legal acts. Christian Behm Partner Christian.Behm@l-p-a.com Sabine Weiner Senior Manager Sabine.Weiner@l-p-a.com Daniel Wolff Manager Daniel.Wolff@l-p-a.com

2 Regulatory Timeline

3 Overview of selected topics. The Standardised Approach for measuring Counterparty Credit Risk (SA-CCR) Current Exposure Method and Standardised Method are replaced by the SA-CCR (Art CRR) Requirements concerning the Original Exposure Method and a simplified SA-CCR are amended and inserted respectively (Art CRR) Requirement for the application of the amended Original Exposure Method is that the volume of the derivative portfolio does not exceed the following thresholds (Art. 273a CRR): o 5% of total assets o 20 million EUR Requirement for the application of the simplified SA-CCR is that the volume of the derivative portfolio does not exceed the following thresholds (Art. 273a CRR): o 10% of total assets o 150 million EUR Within six months after the CRR II enters into force the EBA submits drafts for Regulatory Technical Standards for clarifying parts of the calculation method (namely the Supervisory Delta) and for identifying primary risk factors Within 15 months after the CRR II enters into force the EBA submits a draft for Regulatory Technical Standards concerning the additional characteristics, which are to be considered when determining the type of underlying for large and concentrated commodity derivatives portfolios

4 Net Stable Funding Ratio (NSFR) The NSFR is defined as proportion of available stable funding (ASF) to required stable funding (RSF) (Art. 428b CRR) Introduction of a minimum ratio (ASF/RSF) of 100% (Art. 428b CRR) The determination of available and required stable funding takes into consideration tenor and product type To achieve consistency between the NSFR and the Liquidity Coverage Ratio, the applied definitions and factors of the required stable funding represent the definitions and haircuts used for calculating the LCR The Commission is empowered to enact delegated acts within three years after the CRR II enters into force to review the proposed treatment of transactions with financial institutions and of the risk of future funding stress. Otherwise the RSF factors as proposed by the BCBS will be applicable for derivatives portfolios (Art. 510 (5) CRR) Further Commission delegated acts can be enacted on different topics, especially for reviewing the Delegated Regulation (EU) 2015/61 concerning the liquidity coverage requirements for financial institutions Fundamental Review of the Trading Book (FRTB) Revised conditions for the exception of institutions with small activity in the trading book (below 50 million Euro and 5% of total assets) to replace own funds requirements for the market risk with those of the credit risk of positions in the banking book (Art. 94 CRR) Clarifies the overall requirements for positions in the trading book (Art CRR) Presents the separation between trading and banking book (Art a CRR) Revision of the standardised approach (Art. 325d-az CRR) and the internal model (Art. 325ba-bq CRR) for calculating the own funds requirements of the market risk The simplified standardised approach remains unchanged and can be applied until the date of application of this regulation, afterwards only institutions with activities in the trading book below 300 million Euro and 10% of total assets, may apply this approach (Art. 325a CRR) After this regulation becomes applicable, the simplified approach on internal models cannot be applied for the calculation of own funds requirements for market risk, but may be used to calculate the own funds requirements for CVA risks Especially for clarifying the application of internal models as well as the classification in trading and banking book the EBA submits drafts on several technical Regulatory Standards within six month to two years after the CRR II enters into force

5 Changed Framework for the Interest Rate Risk in the Banking Book (IRRBB) Interest Rate Risk in the Banking Book will continue to be captured in pillar II. Additional regulatory capital will be required in case of material risk. Introduction of a standardised approach to be applied, if the systems developed by the institutions are not sufficient (Art CRD V) Improvement of the requirements for outlier tests and disclosure requirements (Art. 448 CRR) Within one year after the CRD V enters into force, the EBA submits a draft for Regulatory Technical Standards on the method of the standardised approach as well as how to determine six shock scenarios Within one year after the CRD V enters into force, the EBA publishes guidelines on the evaluation of internal systems Within two years after the CRR II enters into force, the EBA submits a draft for Regulatory Technical Standards on model assumptions for the calculation of net interest income as part of the disclosure of exposures on interest rate positions which are not held in the trading book The amendments to the CRD will be applicable together with the amendments to the CRR, i.e. after two years LPA Risk & Quant Consulting. LPA combines a unique quantitative and regulatory competence with in-depth knowledge of the capital markets. With LPA's Risk & Quant Consulting, you can make your institution fit for current and future regulatory requirements and preserve your profitability in the client business. We support you from analysis to implementation. Our powerful quantitative models and tools allow fast results and an efficient project set up. Capital markets DNA combined with deep know how and implementation skills.