The Minister for Finance, Mr. Michael Noonan T.D. today (31st of March 2014) signed into Irish law two regulations to give effect to the Capital Requirements Directive IV (CRD IV). The European Union (Capital Requirements) Regulations 2014, gives effect to the Capital Requirements Directive (Directive 2013/36/EU) and the European Union (Capital Requirements) (No. 2) Regulations 2014, gives effect to a number of technical requirements in order that the Capital Requirements Regulation can operate effectively in Irish law.
Minister Noonan stated: “This is a vital piece of financial services legislation which aims to strengthen the effectiveness of the regulation of credit institutions and investment firms in the EU and enhance financial stability across the EU.”
The Capital Requirements Package, made up of Directive 2013/36/EU and Regulation 575/2013, aims to strengthen the resilience of credit institutions across the EU. The legislation was published on 27 June 2013 in the Official Journal of the EU following the successful negotiation under the Irish Presidency of the Council of the EU. The proposal was first published by the European Commission in July 2011.
CRD IV is one of the largest pieces of financial services legislation published and it had a truncated transposition deadline of six months after it was published in the Official Journal. The Directive has 165 Articles and the Regulation has 521 Articles. These deal with a diverse range of topics including Authorisations, Liquidity requirements, remuneration provisions and capital requirements. Ireland is amongst the first wave of Member States to complete the transposition of the Capital Requirements Directive and Regulation.
ENDS
31 March 2014
Notes for editors:
Note on the Capital Requirements Regulation and Directive (CRD IV)
The Capital Requirements Regulation 575/2013 and Directive 2013/36/EU form the package known as CRD IV. The proposals under this package are the EU’s answer to transposing the Basel III agreement reached by the Basel Committee on Banking Supervision in December 2010 which was endorsed by the G20 leaders.
This legislative package aims to strengthen the effectiveness of the regulation of credit institutions and investment firms in the EU and enhance financial stability. It is a vital piece of financial services legislation. A further objective is to contain the pro-cyclicality of the financial system which in turn will ensure a high level of protection for investors and depositors and will benefit of the operators in these markets.
How is CRD IV to be implemented in Ireland?
Directive 2013/36/EU is implemented by Statutory Instrument. The Central Bank of Ireland’s implementation notice on the application of CRD IV has been available since 24 December 2013.
Approach to Member State discretions
Throughout the Directive – 2013/36/EU and the Regulation 575/2013, there are a number of instances where the obligation for a decision falls on the Member State. The following list of these discretions indicates the approach that will be taken;
Capital Buffers
Article 129 – Requirement to maintain a capital conservation buffer
The Central Bank may exempt small and medium sized investment firms from the requirements to maintain a capital conservation buffer due to reasons of proportionality.
Article 130 – Requirement to maintain an institution-specific countercyclical capital buffer
The Central Bank may exempt small and medium sized investment firms from the requirements to maintain an institution-specific countercyclical capital buffer for proportionality reasons.
Article 131 – Global and other systemically important institutions
The Central Bank is designated as the body responsible for the identification of the GSIIs and OSIIs.
Article 133 – Requirement to maintain a systemic risk buffer
The systemic risk buffer is a macro-prudential instrument that aims to address systemic risks of a long term, non-cyclical nature or other risks not otherwise covered in capital requirements regulation. The Minister will not be implementing the systemic risk buffer as higher capital requirements for Irish institutions are not necessary at this stage.
Article 136 – Setting countercyclical buffer rates
The Central Bank is the body responsible for the application of this article.
Article 160 – Transitional provisions for capital buffers
The option of giving effect to the capital conservation buffer and the countercyclical capital buffer from 31 December 2013 is not being exercised by the Minister; instead the statutory instrument provides for its gradual introduction from 1 January 2016.
Remuneration
· Article 94 (1) (g) (i) Member States may set a lower percentage of the ratio between the variable remuneration and fixed remuneration
The Minister will not avail of a lower percentage for this cap.
· Article 94 (1) (g) (ii) – Member States may allow shareholders to approve a higher maximum level of the ratio between the fixed and variable components up to 200% of the fixed component of the total remuneration for each individual.
The Minister will avail of this option to allow shareholders or owners to approve a higher maximum level up to 200%.
· Article 94 (1) (g) (ii) – Member states may set a smaller percentage i.e. not a 200% ratio of the total fixed component of the total remuneration for reach individual.
The Minister will not introduce a smaller maximum ratio.
· Article 94 (1) (g) (iii) – Member States may allow institutions to apply the discount rate to a maximum of 25 % of total variable remuneration provided it is paid in instruments that are deferred for a period of not less than five years.
The Minister will allow institutions to apply the discount rate to a maximum of 25%.
· Article 94 (1) (g) (iii) – Member States may set a lower maximum percentage.
The Minister will not introduce a smaller percentage.
· Article 94 (l) (ii) Member States or their competent authorities may place restrictions on the types and designs of those instruments or prohibit certain instruments as appropriate.
The Minister will maintain the Member State right to place restrictions on these types of instruments.
Allocation of responsibility to the Central Bank of Ireland
Under Directive 2013/36/EU
Article 12(4) – initial capital
Article 19 – name of credit institution
Article 29(3) –Initial capital for certain types of investment firms
Article 91(10) – Management bodies
Article 119(1) – Inclusion of holding companies in consolidated supervision
Article 152 – Reporting requirements
Article 153 (4) – Further breaches
Under Regulation (EU) 575 of 2013
· Article 4(2)
· Article 412 (5)
· Article 413
· Article 458
Capital Requirements Regulation
Article 493 Transitional provisions for large exposures
This exemption will be maintained in its current form. The Minister will not take the exemption in 493 (3).