The European Union reached an interim agreement on banking regulatory reform to increase the resilience of banks operating in the Union and strengthen their supervision and risk management by finalizing the implementation of globally agreed Basel III regulatory reforms.
The negotiators of the Council and the European Parliament reached this provisional agreement on the amendments to the regulation and the directive on capital requirements, although it still needs to be endorsed by both institutions before its formal adoption.
By virtue of the provisional agreement, the negotiators decided how to apply the so-called ‘output floor’, which limits the variability of the banks’ capital levels calculated using internal models, and the appropriate transitional provisions to give sufficient time to the agents of the market to adapt.
The negotiators also agreed to introduce improvements in the areas of credit risk, market risk and operational risk. They also agreed to introduce more proportionality into the rules, particularly for small and non-complex entities.
The agreement also includes a harmonized framework to assess the suitability of the members of the management bodies of the entities and the holders of key functions. Likewise, an agreement has been reached on rules to safeguard the independence of supervision, in particular establishing a minimum period of reflection for the staff and members of the governing bodies of the competent authorities before they can hold positions in the supervised entities. , and a time limit in office for members of the governing bodies.
The negotiators have also agreed on a transitional prudential regime for crypto assets and modifications to improve the management of environmental, social and governance risks by banks and have decided to harmonize the minimum requirements applicable to branches of third-country banks and the supervision of their activities in the EU.
(Reference image source: Engin Akyurt, Unsplash)