Steven McEwan, partner in Hogan Lovells’ financial institutions group, has said that the new EU Capital Requirements Regulation (CRR), which is due to come into effect on 1 January 2014, marks an ‘important step’ for the EU.
For the first time, capital rules will apply through a single piece of legislation to all EU banks and investment firms.
According to McEwan, at a regulatory level banks are concerned about how this will affect the role of the Prudential Regulation Authority (PRA), which is no longer the rule maker. ‘In practice, however, the PRA will still have very significant powers in determining bank capital requirements,’ he said.
‘UK banks are likely to be able to accommodate the new requirements effectively, given what is already expected of them by the PRA. The new leverage rules have been the factor causing them the most concern, especially given the strict early implementation by the PRA for the largest eight banks, although the PRA has recently relaxed its position slightly. The operational burden of the new central EU reporting process is also causing considerable anxiety.’
McEwan explained that there is some overlap between the CRR and other EU regulations, particularly the European Market Infrastructure Regulation (EMIR), which will require the clearing of derivatives.
‘The need to implement so many new requirements is likely to put considerable strain on banks. This is a process that it likely to continue for some time, as the EU Commission will be publishing numerous further requirements under both the CRR and EMIR for many years to come.’