Alternative Investment Management Association Representing the global hedge fund industry
A key piece of European legislation in delivering a single market in financial services, the Capital Requirements Directives (CRD) set common capital standards for European financial institutions and implemented the Basel Accord of 1988 across the European Union.
Formally adopted in June 2006 and entering into force on 1 January 2007, the CRD framework has been subject to a number of amendments – the latest revisions being in the form of a European Commission proposal published on 20 July 2011.
The CRD framework was first amended in May 2009. CRD II covers: (i) large exposures; (ii) hybrid capital instruments; (iii) supervisory arrangements (colleges); (iv) liquidity risk management; (v) securitisations; (vi) the waivers for banks organised in networks; and (vii) adjustments to certain technical provisions and largely follows technical advice put forward by the then Committee of European Banking Supervisors (now the European Banking Authority).
In parallel with work undertaken by Basel, the European Commission adopted legislative proposals in July 2009 on amendments to provisions relating to the trading book, re-securitisation and remuneration. The final text agreed by the European Commission, Parliament and Council of Ministers was published in the Official Journal on 14 December 2010, with an implementation deadline of 31 December 2011. Its key relevance to asset management firms was the introduction of remuneration rules. Whilst many of the elements of the CRD III provisions had little real application in respect of the typical hedge fund remuneration model, the agreed text contained explicit permission for such rules to be applied proportionately. In the UK, these rules have been implemented through revisions to the FSA’s already existing Remuneration Code.
The relevant consultations, legislation and AIMA documents can be found here.
On 20 July 2011, the European Commission adopted further legislative proposals to strengthen the regulation of the banking sector and implement the international capital standards agreed under Basel III. The proposals would replace the current Capital Requirements Directives with a Directive and a Regulation with three goals:
· to require banks to hold a greater amount of better quality capital to resist future shocks;
· to set up a new governance framework which provides supervisors with new monitoring and enforcement powers to identify and eliminate risks;
· to create a Single Rule Book for banking regulation.
The Regulation contains detailed prudential requirements for credit institutions and investment firms. The Directive covers existing areas of the CRD and includes enhanced governance, supervision and sanctioning provisions, as well as the additional capital buffers demanded under Basel III.
CRD IV was adopted by The Council of the European Union Committee of Permanent Representatives (COREPER) on 27 March 2013 and the European Parliament during its Plenary session on 16 April 2013. It was published in the Official Journal of the European Union on 27 June 2013.
Capital Requirements Directive (June 2013)
Capital Requirements Regulation (June 2013)