The Capital Requirements Directive IV (CRD IV) is an EU legislative package that contains prudential rules for banks, building societies and investment firms.
Most of the rules in the legislation have applied since 1 January 2014.
CRD IV is made up of the:
- Capital Requirements Directive (2013/36/EU) (CRD), which must be implemented through national law, and
- Capital Requirements Regulation (575/2013) (CRR), which applies to firms across the EU
CRD IV is intended to implement the Basel III agreement in the EU. This includes enhanced requirements for:
- The quality and quantity of capital.
- A basis for new liquidity and leverage requirements.
- Rules for counterparty risk.
- Macroprudential standards including a countercyclical capital buffer and capital buffers for systemically important institutions.
CRD IV also:
- Makes changes to rules on corporate governance, including remuneration.
- Introduces standardised EU regulatory reporting, referred to as COREP and FINREP. These reporting requirements will specify the information firms must report to supervisors in areas such as own funds, large exposures and financial information.
CRD IV strengthens the prudential framework for individual institutions and responds to financial stability concerns that arose during the latest banking crisis.
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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
- asset managers
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. See the PRA’s information on implementing CRD IV for banks and building societies.
Specifically, CRD IV applies to investment firms that are currently subject to the CRD including:
- firms that benefit from the current exemptions on capital requirements and large exposures for specialist commodities derivatives firms
- firms that only execute orders and/or manage portfolios, without holding client money or assets.
- firms subject to BIPRU
- other firms in the investment sector (exempt-CAD firms, management companies as defined under the UCITS Directive, Alternative Investment Fund Managers (AIFMs) – as defined under the Alternative Investment Fund Managers Directive (AIFMD)), subject to certain CRD IV provisions (eg, on ‘initial capital’ in the Directive)
There is a competent authority discretion available for certain investment firms to stay on CRD III rules, rather than move to the CRD IV rules. We decided to apply this discretion for FCA investment firms. Therefore, some firms will continue to be subject to BIPRU/GENPRU as it stood on 31 December 2013. This applies to current BIPRU firms that do not carry out MiFID regulated activity which goes beyond:
- portfolio management
- the execution of orders on behalf of clients
- the firm does not hold client money
FCA firms that benefit from this discretion should continue to submit their existing regulatory returns as opposed to submitting the CRD IV financial reporting requirements (COREP and FINREP).
We undertook an exercise to identify the firms eligible to benefit from this discretion. In December 2013 we sent letters to all CRD firms confirming our understanding of their status as CRD III or CRD IV.
If your firm believes it may be eligible to benefit from this competent authority discretion or you would like more information on remaining on CRD III/BIPRU rules, please see Remaining on CRD III what you need to do.
All other firms subject to the CRD are subject to the sourcebook, IFPRU, which was created specifically to implement CRD IV. We have also made changes to the Systems and Controls sourcebook and other amendments where necessary to ensure our Handbook is consistent with CRD IV.
Policy statements and consultation papers
Liquidity modification by consent
See our liquidity modification by consent page.
Pillar 2 and SREP
Our supervisory approach to CRD IV 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 published a Pillar 2 Summary Note which highlights some aspects of existing Pillar 2 policy arising from CRD IV and, specifically, as a consequence of the publication of the EBA SREP GLs. It provides examples to help understanding of Pillar 2 policy in the context of CRD IV. These principles apply equally to firms that are subject to, or not subject to, CRD IV, but are subject to Pillar 2.
See our consultation paper CP15/42 (Chapter 10) on proposed changes to our Handbook rules and guidance as a consequence of adopting the SREP GLs approach.
CRD IV introduced an EU harmonised supervisory reporting framework, referred to as COREP (supervisory reporting templates) and FINREP (financial reporting templates).
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 property loss rates.
Waivers / permissions
Waivers granted to investment firms before the CRD IV ceased to have effect after the implementation of the CRD IV. We have powers to extend those waivers into ‘CRD IV permissions’ in certain conditions.
See our permissions/waivers page for more information on how these permissions were implemented.
CRD IV secondary legislation
CRD IV is a legislative package consists of the Directive and the Regulation, and 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.
See the webpages of the EBA and the EU Commission for more information when and how these instruments are consulted and finalised.
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 page on recommendations and guidelines.
Competent authority disclosure
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 2016:
- rules and guidance - annex 1 (XLS)
- options and discretions - annex 2 (XLS)
- supervisory review and evaluation process (SREP) - annex 3 (XLS)
See the PRA's disclosure.
EBA review under CRDIV of the prudential framework for MiFID investment firms
EBA discussion paper
A recent EBA discussion paper sets out a possible new, bespoke prudential regime for MiFID investment firms, which is quite different from the current regime under the CRD/CRR. On 17 January, we hosted an event to talk through the EBA discussion paper and explain the thinking behind the proposals and give firms the opportunity to ask questions.
The EBA's consultation closes on 2 February 2017.
Investment firms that have not submitted data to the EBA can still do so to the same email address. More information is available from the EBA.