The Commission advice on the level of application of banking prudential regulation

On August 5, 2015, the European Commission (EC) published a report on its assessment of the appropriateness of the rules governing the levels of application of the prudential requirements under the Capital Requirements Directive (CRD IV) and the Capital Requirements Regulation (CRR), in particular the exemption regime. The EC is empowered to issue the report according to the mandates in Art 161(4) CRD and Art 508(1) CRR. The report is based on the previous opinion delivered by the European Banking Authority (EBA).

There is a general rule that a banking group is subject to prudential requirements both on consolidated and individual level (the so-called dual-level supervision). Both levels are complementary. However, there are certain exceptions to the general rule. Some of them are based on the discretion of the competent authorities, others are fixed and imply directly from the regulation. The analytical part of the EC report shows that in application of the exemptions several issues have been identified that merit further consideration:

• differences in the derogations applied to credit institutions on one hand, and on investments firms on the other hand;
• conditions for exempting institutions that do not take resolution aspects into consideration;
• existence of exemptions for requirements that are considered essential for effective prudential supervision;
• incomplete conditions for the application of exemptions;
• misalignment of exemption rules between CRD and CRR;
• insufficient monitoring of the entities excluded from the scope of prudential requirements;
• some interpretation issues.

As a result of this assessment the EC does not think that it is suitable to propose any amendments to the rules now as consideration needs to be given to the impact of the Single Supervisory Mechanism, implementation of the liquidity coverage requirement and the application of the Bank Recovery and Resolution Directive. Experience is also to be collected with some new rules. Moreover, the EC report on the prudential regime for European investment firms which shall be issued according to Art 508(2) and (3) CRR should be taken into consideration before changing the rules applicable to investment firms.

The EC report is available at: https://ec.europa.eu/transparency/regdoc/rep/1/2015/EN/1-2015-388-EN-F1-1.PDF