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Document 32013L0036

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Banks and investment firms — prudential supervision

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  • Date of last review: 28/10/2015
  • Initial creation date: 08/04/2014
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  • Author: Publications Office
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Banks and investment firms — prudential supervision

SUMMARY OF:

Directive 2013/36/EU — banks and investment firms — prudential supervision

SUMMARY

WHAT DOES THIS DIRECTIVE DO?

The capital requirements directive — known as ‘CRD IV’ — governs access to the deposit-taking activities of banks and investment firms.

It replaces the former capital requirements directives (2006/48/EC and 2006/49/EC).

It covers topics previously dealt with by those directives, including those relating to:

access to the taking up and pursuit of the business of banks;

the conditions for freedom of establishment; and

the freedom to provide services.

KEY POINTS

In addition to the aspects covered by the previous capital requirements directives, the directive covers a number of new elements.

Staff bonuses. To prevent banks from giving their staff incentives to take excessive risks, the directive provides for a maximum ratio between fixed and variable pay for all relevant staff. The bonus cannot exceed the identified staff member’s annual fixed pay, unless shareholders decide, subject to certain conditions, to allow bonuses that amount to up to twice the fixed pay. The new rules also include requirements on bonuses that promote a long-term approach to risk taking.

Better governance and more transparency. The directive introduces rules to ensure effective oversight by the banks’ management bodies and to improve risk management. Diversity in board composition is required in order to contribute to their effective oversight. From January 2015, banks have to disclose certain information on a country-by-country basis, including their profits, taxes and public subsidies received.

Additional capital to be held by banks. The directive provides for more capital requirements in addition to the ones foreseen in the capital requirements regulation (CRR). Known as capital buffers, they aim to protect a bank's capital by setting safeguards and limits on the amount of dividend and bonus payments a bank can make. Each time a bank ‘eats’ into the buffer, the limits become stricter, thus preventing erosion of a bank's capital.

Reduced reliance on external ratings. The directive reduces, where possible, reliance by financial institutions on external credit ratings. For example, it requires that all banks’ investment decisions are based not only on ratings but also on their own internal credit opinion.

The CRR/CRD IV package provides for the adoption of delegated and implementing measures. These offer guidance on compliance with the package to the relevant national authorities and market participants.

WHEN DOES THE DIRECTIVE APPLY?

From 17 July 2013. The deadline for transposition in EU countries’ national law is 31 December 2013.

BACKGROUND

The directive is part of a package of legislation that seeks to strengthen the resilience of the EU banking sector following the financial crisis in 2008. The package also includes Regulation (EU) No 575/2013, the capital requirements regulation (CRR), which establishes the supervisory requirements that banks need to respect.

ACT

Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, pp. 338-436)

Successive amendments and corrections to Directive 2013/36/EU have been incorporated into the basic text. This consolidated version is for reference only.

RELATED ACT

Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories (OJ L 201, 27.7.2012, pp. 1-59). See consolidated version.

Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (OJ L 176, 27.6.2013, pp. 1-337). See consolidated version.

last update 28.10.2015

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