CRD IV - Financial Conduct Authority

CRD IV

Published: 16/06/2015     Last Modified: 25/01/2016
The Capital Requirements Directive (CRD) is an EU legislative package that contains prudential rules for banks, building societies and investment firms. The aim of CRD is to ensure firms are able to meet their liabilities as they fall due and to minimise the negative effects of firms failing by ensuring that firms hold enough financial resources to cover the risks associated with their business.

The fourth amendment to this legislation is the CRD IV, which came into effect on 1 January 2014. CRD IV strengthens the prudential framework for individual institutions and responds to financial stability concerns that arose during the latest banking crisis. Further information on various aspects of the CRD IV.

To whom does CRDIV apply?

We are responsible for prudential regulation of nearly all investment firms in the UK that are subject to the CRD IV requirements. Amongst others, these include brokerage firms, sole traders, broker dealers, commodities traders, spread betters and asset managers. Further information on how CRD IV applies to investment firms.

The Prudential Regulation Authority (PRA) has also implemented CRD IV for the firms it regulates, such as banks, building societies, and a small number of large investment firms.

How does CRD IV apply?

CRD IV is divided into two legislative instruments:

All the firms subject to CRD IV that we regulate must comply with the CRR, supplemented by technical standards, recommendations and guidelines from the European Banking Authority (EBA), and our Handbook rules and guidance from 1 January 2014.

UK aspects of CRD IV

Consultations and Policy Statement

When transposing the CRD IV into our Handbook we explained our policy proposals to the public in consultation papers CP13/6, CP13/9 (Chapter 16) and CP13/12, which all led to the development and publication of our CRD IV policy statement PS13/10 in December 2013.

Liquidity

CRD IV brings in new liquidity requirements for firms that are already subject to the UK liquidity regime. For more information how these regimes will work together, see our webpage on liquidity modification by consent.

Pillar 2 and SREP

Our supervisory approach to CRDIV Pillar 2 is in line with the EBA’s Guidelines on common procedures and methodologies for the supervisory review and evaluation process (SREP GLs). We have issued a consultation paper CP15/42 (Chapter 10) on proposed changes to our Handbook rules and guidance as a consequence of adopting the SREP GLs approach. 

Supervisory Reporting

One of the important operational consequences of the CRD IV was the introduction of an EU harmonized supervisory reporting framework, referred to as COREP (supervisory reporting templates) and FINREP (financial reporting templates). For further information on harmonised supervisory reporting, including technical information and updates on COREP/FINREP, please see our webpage on CRD IV harmonised reporting.

When implementing the harmonised reporting framework, we wrote a letter to the investment firms subject to CRD IV to inform them of our interest to ask information about their transition from CRD III to CRD IV and their implementation of the COREP/FINREP (which was followed by a survey on the same topic).

Residential Mortgages

CRD IV allows preferential capital treatment for credit risk in relation to certain types of residential mortgage exposures if the underlying residential property market has long-standing positive characteristics. For more information on how this requirement is met in the UK, see our webpage on property loss rates.

Waivers and Permissions

Waivers granted to investment firms before the CRD IV ceased to have effect after the implementation of the CRD IV. However, we have powers to extend those waivers into ‘CRD IV permissions’ in certain conditions. For more information on how these permissions were implemented, see our permissions/waivers page.

EU aspects of CRD IV

CRD IV Secondary Legislation

CRD IV is a legislative package that not only consists of the Directive and the Regulation, but also of various technical standards, recommendations and guidelines that are issued by EU supervisory authorities (EBA, ESMA, etc.), aimed at supplementing the text in CRD IV with further clarifications and technical details. For more information when and how these instruments are consulted and finalised, please see the webpages of the EBA and the EU Commission, respectively.

While technical standards are binding on firms, the recommendations and guidelines become applicable to firms once we have implemented them as a competent authority. For more information on which of these legislative instruments are applicable to our firms, see our webpage on recommendations and guidelines.

Competent Authority Disclosures

As a competent authority we have an EU requirement under Article 143 of the Directive to publish information on our rules and guidance, policy options and discretions, supervisory work and aggregate statistical data, alongside the obligation to submit this information to the EBA.

Below is our disclosure at 31 December 2014:

For the disclosure made by the PRA, see their webpage on published data.