Geopolitical risk and the CRD 6 / CRR 3

Neither the CRR 3 nor the CRD 6 introduce a new stand-alone Pillar capital charge labelled ‘geopolitical risk’. Instead, geopolitical risk is recognized and embedded in the new prudential framework in certain ways including:

• Heightened prudential expectations around “geopolitical and trade risks”.
• Impact on capital, exposures, and modelling under CRR 3.
• The expansion of environmental, social and governance (ESG) risk requirements (including geopolitical drivers).

There are also certain indirect geopolitical components including the third country branch requirement.

This briefing note examines these elements.