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FCA update – CRR2 implementation – updating the UK’s prudential regime

FCA update – CRR2 implementation – updating the UK’s prudential regime

Background

  • The EU is implementing many Basel III standards, and other prudential regulations, via CRR2, which applies in the EU from June 2021. The UK therefore intends to update the prudential regime for UK credit institutions.
  • The methods and approaches for implementation in the UK will be impacted by changes linked to the UK’s departure from the EU expected on 31 December 2020.
  • Changes and plans are expected to be included in a Financial Services Bill during 2020 but some actions have been delayed by responses to the Covid-19 pandemic.

Impacts

CRR2 and CRDV amend the Capital Requirements Regulation (CRR) and Capital Requirements Directive (CRDIV), which provide the legal architecture for the prudential regulation of banks in the EU.

Many of the changes made by CRR2 and CRDV continue the EU’s implementation of internationally agreed Basel standards. Hoever, the EU’s implementation deviates from Basel standards in a few areas.

The revised rules on capital and liquidity (CRR2 and CRDV) and resolution (BRRD2 and SRMR2) were published in the Official Journal on 7 June 2019 following a legislative process which began at the end of 2016. Most changes will start to apply from mid-2021. Some will apply sooner.

Although the changes ostensibly apply to CRR investment firms as well as banks, many EU investment firms will soon be removed from the scope of the CRR with the introduction of the new Investment Firms Regulation and Directive.

The EU’s published texts for the Investment Firm Regulation and Directive (IFR and IFD) are due to go live in April 2021 but the FCA has begun to consult UK investment firms on its intended approaches to prudential reporting following the UK’s departure from the EU.

Under the IFR/IFD most EU investment firms will be regulated for prudential purposes under the IFR.  The largest investment firms will remain within the scope of the CRR.

Timeline with relevant dates to be logged on regulatory calendar

  • 28 June 2021: Implementation date and firm compliance expected

Next steps

Detailed information is available on the FCA website for all these regulatory changes and initiatives.

For any further queries or to discuss further, the FCA Supervision Hub on 0300 500 0597 is the primary contact for a firm’s day-to-day interactions with the FCA.

Click here if you would like to get in touch with us.