A recap of the EU’s CRD6/CRR3 regulation and its timeline
In this article, we wanted to briefly recap the background of CRD6/CRR3, where it comes from, and how it all started.
This is a second intro article in Basel and CRD6/CRR3-related articles. Please read the first intro article: A recap of the Basel IV regulation and its timeline here.
The Background
As discussed in our previous article: A recap of the Basel IV regulation and its timeline, the Basel Committee on Banking Supervision (BCBS) is the primary global standard-setter for the prudential regulation of banks. Committee members include central banks and other banking regulators from around the world. Their main target is to improve supervisory understanding and the quality of banking supervision worldwide. The Basel Committee on Banking Supervision (BCBS) sets the Basel Framework, and they have issued a round of regulations in recent years. Basel IV was intended to begin implementation on Jan. 1, 2022, and it was supposed to be fully implemented by January 2025. Due to the global pandemic, the start date has now been pushed back to Jan. 1, 2023. Based on recent history, it is still possible that the deadline will be extended, and some provisions may be further modified before they go into effect.
European Union wanted to go further at a faster pace with related regulations. And as a result, on Oct. 27, 2021, the European Commission published its 2021 Banking Package, called the sixth Capital Requirements Directive and the third Capital Requirements Regulation, known as CRD6/CRR3. The package’s purpose is to strengthen banks’ resilience and prepare banks for the future. The goal is that EU banks become more resilient to potential future economic shocks while contributing to Europe’s recovery from the COVID-19 pandemic and the transition to climate neutrality.
What CRD6/CRR3 includes
The European Commission published a series of amendments to the EU Capital Requirements Regulation, the Capital Requirements Directive, and the Bank Recovery and Resolution Directive. These are now collectively known as CRD6/CRR3.
There are three parts to the package:
- Implementing the final Basel reforms (Basel 4/ Basel 3.1): strengthening resilience to economic shocks. While taking into account the specific features of the EU’s banking sector, for example, low-risk mortgages.
- Sustainability – contributing to the green transition. The new rules will require banks to identify, disclose and manage sustainability risks (environmental, social, and governance or ESG risks) as part of their risk management.
- Stronger supervision – ensuring sound management of EU banks and protecting financial stability
CRD6/CRR3 timeline
As discussed earlier in this article, Basel IV/3.1 has an application date of Jan. 1, 2025, with transition arrangements for over five years, and this might still change and be postponed. The European Commission set Jan. 1, 2025, as the implementation date for most articles of CRR3, covering the majority of the Basel 3.1 framework. This is two years later than the original Basel IV/3.1 January 2023 deadline and at the same time as the postponed Jan. 1, 2025, timeline. But still, it can be expected that CRD6/CRR3 goes forward at a faster pace compared to Basel. It is predicted that most components of Basel 3.1 are to be implemented in full on Jan. 1, 2025. However, there are exceptions; the Commission proposed transition periods for several parts of the package. Most of the transition periods are moved from 2025 to 2030.
Nevertheless, there are many steps banks can and should already take. While different regions may apply the rules differently, it is unlikely they will apply significantly different rules.
Our next blog post will discuss CRD6/CRR3 legislation in more detail, stay tuned!
References:
https://www.bis.org/bcbs/history.htm
https://www.eba.europa.eu/regulation-and-policy/implementing-basel-iii-europe
https://ec.europa.eu/commission/presscorner/detail/en/ip_21_5401