EC Extends Transitional Regime for Capital Requirements for Non-EU CCP
EC has extended, by an additional year, the current transitional regime for the capital requirements that EU banks and investment firms must maintain when exposed to non-EU central counterparties (CCPs). This transitional regime will thus continue to apply until June 28, 2022. This is the last and final extension possible under the Capital Requirements Regulation (CRR). Exposures to the non-EU CCPs that will not be recognized by ESMA by June 28, 2022 will no longer be eligible for lower capital requirements after that date. EC suggests stakeholders to start preparing for this possibility. In addition, EC announced that CRR2 and Investment Firms Directive/Regulation (IFD/IFR) will apply from June 28, 2021 and June 26, 2021, respectively.
The CRR regime establishes the prudential requirements for banks and large investment firms, in particular for capital and liquidity, as well as requirements on reporting of prudential information to supervisors and on disclosing prudential information to the markets. The new CRR2 rules will introduce more proportionality into EU rules for smaller financial institutions and increase resilience of the banking sector by including new requirements for leverage and stable funding. The rules also introduce more risk-sensitive rules for calculating capital requirements. Additionally, the new prudential framework for investment firms set out in the IFR and the IFD is designed to reflect better the nature, size, and complexity of investment firms’ activities compared to the CRR/Capital Requirements Directive (CRD) framework. IFD and IFR will introduce a new tailored, targeted set of rules that will make life simpler for smaller investment firms while the largest, systemic investment firms will remain under the same prudential regime as European banks. The capital requirements set in the IFR comprise three items:
- Fixed overhead requirement, equal to a quarter of the annual fixed overheads of the firm
- Permanent minimum capital requirement of EUR 75,000, EUR 150,000, or EUR 750,000, depending on the activities of the investment firm
- Overall “K-factor” capital requirement, which is the sum of “K-factor requirements” grouped into three categories: Risk-to-Client, Risk-to-Market, and Risk-to-Firm
The IFR and IFD apply to investment firms deemed sufficiently small and non-interconnected (class 3 firms) and to investment firms not falling under any of the other categories (class 2 firms). The large majority of EU investment firms fall in these two categories. Class 3 firms are subject to lighter requirements than class 2 firms. However, some investment firms remain subject to the CRR/CRD rules. This is the case for investment firms that perform dealing on account or underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis and meet a EUR 30 billion threshold for their consolidated assets (class 1 firms). It is also the case for investment firms that perform dealing on account or underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis and meet a EUR 15 billion threshold in terms of their consolidated assets or meet a EUR 5 billion threshold and are designated by their competent authorities following specific criteria (“class 1 minus” firms).
Related Links
- Notifications on CRR and IFR Regimes
- Press Release on Extension of Transitional Regime
- CRR2 Regulation
- Prudential Rules for Investment Firms
Keywords: Europe, EU, Banking, Securities, Investment Firms, CCPs, CRR, IFD, IFR, Basel, Transitional Regime, Regulatory Capital, Qualifying CCPs, CRR2, ESMA, EC
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous Article
EBA Publishes Report on Monitoring of Additional Tier 1 InstrumentsRelated Articles
ESAs Issue Multiple Regulatory Updates for Financial Sector Entities
The three European Supervisory Authorities (ESAs) issued a letter to inform about delay in the Sustainable Finance Disclosure Regulation (SFDR) mandate, along with a Call for Evidence on greenwashing practices.
ISSB Makes Announcements at COP27; IASB to Propose IFRS 9 Amendments
The International Sustainability Standards Board (ISSB) of the IFRS Foundations made several announcements at COP27 and with respect to its work on the sustainability standards.
IOSCO Prioritizes Green Disclosures, Greenwashing, and Carbon Markets
The International Organization for Securities Commissions (IOSCO), at COP27, outlined the regulatory priorities for sustainability disclosures, mitigation of greenwashing, and promotion of integrity in carbon markets.
EBA Finalizes Methodology for Stress Tests, Issues Other Updates
The European Banking Authority (EBA) issued a statement in the context of COP27, clarified the operationalization of intermediate EU parent undertakings (IPUs) of third-country groups
OSFI Sets Out Work Priorities and Reporting Updates for Banks
The Office of the Superintendent of Financial Institutions (OSFI) published an annual report on its activities, a report on forward-looking work.
APRA Finalizes Changes to Capital Framework, Issues Other Updates
The Australian Prudential Regulation Authority (APRA) finalized amendments to the capital framework, announced a review of the prudential framework for groups.
BIS Hub and Central Banks Conduct CBDC and DeFI Pilots
The Bank for International Settlements (BIS) Innovation Hubs and several central banks are working together on various central bank digital currency (CBDC) pilots.
ECB Sets Deadline for Banks to Meet Its Climate Risk Expectations
The European Central Bank (ECB) published the results of its thematic review, which shows that banks are still far from adequately managing climate and environmental risks.
ESAs, ECB, & EC Issue Multiple Regulatory Updates for Financial Sector
Among its recent publications, the European Banking Authority (EBA) published the final standards and guidelines on interest rate risk arising from non-trading book activities (IRRBB)
EC Adopts Final Rules Under CRR, BRRD, and Crowdfunding Regulation
The European Commission (EC) recently adopted regulations with respect to the calculation of own funds requirements for market risk, the prudential treatment of global systemically important institutions (G-SIIs)
