The Basel III standards comprise a package of reforms that were largely agreed by the Basel Committee on Banking Supervision (“BCBS”) in December 2017 and set out in the BCBS standard “Basel III: Finalising post-crisis reforms” (BCBS 424).
To implement these standards, the European Commission has amended the Capital Requirements Regulation (Regulation (EU) 575/2013, as amended (“CRR”)) by Regulation (EU) 2024/1623 (“CRR III”) and the Capital Requirements Directive (Directive (EU) 2013/36, as amended (“CRD IV”)) by Directive (EU) 2024/1619 (“CRD VI”). Most amended provisions of the CRR will become effective on 1 January 2025 while CRD implementation provisions are to be transposed by EU member states and applicable as of 11 January 2026.
The latest CRR changes have two general objectives: Contributing to financial stability; and Contributing to the steady financing of the economy in the context of the post-COVID-19 crisis recovery.
Those general objectives can be broken down into four more specific objectives: (1) Strengthening the risk-based capital framework, without significant increases in capital requirements overall; (2) Enhancing the focus on ESG risks in the prudential framework; (3) Further harmonising supervisory powers and tools; and (4) Reducing institutions’ administrative costs related to public disclosures and improving access to institutions’ prudential data.
The key final Basel III standards being implemented in the latest set of amendments address: (1) the output floor; (2) the standardised approach for credit risk; (3) internal ratings-based approach for credit risk; (4) the credit valuation adjustment risk framework; (5) the leverage buffer; (6) the operational risk framework; and (7) the market risk.
Each of these areas of reform is described in greater detail in our Legal Update.