EU agrees plan to implement Basel III reforms

The Council has reached an agreed position on the implementation of the Basel III reforms designed to boost the resilience of banks operating within the EU and strengthen their supervision and risk management. The proposals will necessitate amendments to the Capital Requirements Regulation (the CRR) and the Capital Requirements Directive (the CRD).

The Council has sought to clarify the position regarding the limiting banks’ variability of capital levels computed by using internal models via the so-called “output floor” by specifying that the limit applies both at banking group level and at the level of each individual bank. However, member states retain discretion to apply the floor at the highest level of consolidation for entities in their country.

Key elements of the Council’s proposals include:

  • adding technical improvements to the areas of credit risk, market risk and operational risk;
  • enhancing proportionality rules for small banks, in particular concerning disclosure requirements for small and non-complex institutions;
  • revising the “fit and proper” framework for assessing the suitability of members of the institutions’ management bodies and key function holders;
  • imposing a more proportionate and targeted framework for cooling-off periods for staff and members of governance bodies of competent authorities, before they can take up positions in supervised institutions; and
  • harmonising minimum requirements applicable to branches of third-country banks and the supervision of their activities.

Emma Radmore