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    HM Treasury Consults on Approach to Transposition of CRD 5

    July 16, 2020

    HM Treasury launched a consultation on the approach of UK to transposition of the Capital Requirements Directive 5 (CRD 5) before the end of the transition period of the withdrawal of UK from EU. As per the consultation paper, comment period on the proposed approach closes on August 19, 2020. CRD 5, which entered into force on June 27, 2019, amends the original 2013 CRD 4 provisions, to update the regulatory framework of EU for capital and liquidity requirements. HM Treasury's implementation of CRD 4 delegated significant responsibility to PRA. Therefore, HM Treasury only intends to legislate via secondary legislation to update the implementation of CRD 4 in UK—to reflect the amendments to CRD 4 that have been made by CRD 5. This includes providing PRA with new or updated powers to implement CRD 5 and to ensure that PRA can update its rulebook as needed.

    The government will transpose the EU legislation that applies before the end of 2020 and this includes CRD 5, which must be transposed by December 28, 2020. The consultation only seeks comment on the areas requiring legislation, which include:

    • The intention to exempt investment institutions prudentially regulated by FCA from the scope of CRD 5, given the planned introduction of the Investment Firms Prudential Regime by summer 2021
    • Various updates to the capital buffers that PRA can require from institutions, to allow the Financial Policy Committee and PRA to maintain their current level of macro-prudential flexibility
    • Extension of powers of PRA for consolidated supervision of holding companies and creating a new approval regime for financial holding companies and mixed financial holding companies and granting, to PRA, of an express power to remove members of the management body of institutions and holding companies
    • Amendments to the list of entities exempted from CRD 5

    Given that PRA is independent of the UK government, with its own statutory objectives, the areas of CRD 5 that are to be implemented in PRA rules will not be included in this consultation. The government does not intend to legislate to prescribe changes to the framework for gender-neutral remuneration policies. As the legislation will form a part of the “retained EU law” at the end of the transition period, the government will also need to exercise powers under section 8 of the European Union (Withdrawal) Act 2018, prior to the end of the transition period, to correct any deficiencies arising in this retained EU law to ensure that UK maintains a functioning regulatory and legal framework following the end of the transition period.

     

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    Comment Due Date: August 19, 2020

    Keywords: Europe, UK, Banking, Basel, Brexit Transition, CRD, IFPR, Macro-Prudential Policy, Transposition of CRD5, PRA, HM Treasury

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