Capital Requirements Regulation (CRR) 2024/1623

EP and Council Regulation (EU) 2024/1623 (CRR ) Capital Requirements Regulation of May 31, 2024, amending Regulation (EU) No. 575/2013 regarding the requirements for credit risk, credit risk adjustment risk, operational risk, market risk and the lower limit for output values. In the consolidated wording of the CRR regulation, ESG factors are addressed, for example, in article 4, paragraph 1, point 52d), 52e), 52f), 52g), 52h), 52i), 154; Article 177; Article 207; Article 208; Article 210; Article 430; Article 433b; Article 449a; Article 501c (the list does not represent an exhaustive calculation).

This Regulation enters into force on the twentieth day following its publication in the Official Journal of the European Union. It applies from January 1, 2025. However, these points of Article 1 of this regulation apply from July 9, 2024: point 1 letter a) point iv); point 1 letter b); points 2, 3 and 4; point 6 letter f); point 8 letter c); point 11 regarding article 34 par. 4 of Regulation (EU) No. 575/2013; point 30 letter d); point 34 regarding article 104 par. 9 of Regulation (EU) No. 575/2013; point 35 letter a); point 37 regarding article 104c par. 4 of Regulation (EU) No. 575/2013; point 42 regarding article 111 par. 8 of Regulation (EU) No. 575/2013; point 52 relating to article 122a par. 4 of Regulation (EU) No. 575/2013; point 53 relating to article 123 par. 1 of the third subparagraph of Regulation (EU) no. 575/2013; point 55 regarding article 124 par. 11, 12 and 14 of Regulation (EU) No. 575/2013; point 56 regarding article 126a par. 3 of Regulation (EU) No. 575/2013; points 57 and 65; point 70 letter c) regarding Article 143 par. 5 of Regulation (EU) No. 575/2013; point 71 letter b); point 72 letter i); point 75 letter d); point 78 letter e); point 81; point 98 letters b); point 102 letter d); point 104 letter c); point 105 letter c); point 106 letter e); point 135 letter c); point 152 letter b) point ii); point 155 regarding article 314 par. 9 and 10, Article 315 par. 3, Article 316 paragraph 3, Article 317 paragraph 9 and 10, Article 320 par. 3, Article 321 paragraph 2 and Article 323 par. 2 of Regulation (EU) No. 575/2013; point 156 letter b); point 159 letter c) relating to Article 325c para. 8 of Regulation (EU) No. 575/2013; point 160 letters c) relating to Article 325j par. 7 of Regulation (EU) No. 575/2013; point 164 letter b); point 178 letters e); point 180; point 182 letters d); point 183 letters c); point 184 letter b) point iii); point 198 letters c); item 201 relating to Article 383a par. 4 and 5 of Regulation (EU) No. 575/2013; point 204; point 205 letter b) point i); point 214 letter a) and c); points 222 and 223; point 229 relating to article 449a par. 3 of Regulation (EU) No. 575/2013; points 232, 235, 236 and 238; point 239 letter a); point 242 relating to article 495b par. 2 and 4 and Article 495c par. 2 of Regulation (EU) No. 575/2013; points 243, 244, 248 and 249; point 250 relating to Article 506 of Regulation (EU) no. 575/2013; point 251 regarding Articles 506e and 506f of Regulation (EU) no. 575/2013; points 252, 253 and 254.

Publication date

19. 6. 2024

This Regulation introduces several changes to the existing Regulation (EU) No. 575/2013, which concern prudential requirements for institutions. The changes focus on various areas, including own resources, risk weights, market risk and operational risk.

Main changes:

• Lower limit for output values: A mechanism is being introduced to ensure the appropriate distribution of own resources with a goal savings protection. At the same time, transition periods and adjustments are defined for specific types of exposures, such as exposures of investment grade against unrated business entities a low risk mortgages.
• Exposures secured by real estate: It continues to be used credit distribution approach, but with adjustments in accordance with Basel III standards. Measures are being introduced to reducing the impact of cyclical effects on real estate valuation and on improving transparency when valuing real estate.
• Lower bounds for input values: They are misled minimum values for own estimates of risk parameters (probability of default, loss at default, loan conversion factors), which ensures a prudent level requirements for own resources.
• Market risk: A uniform effective date for the requirements is established FRTB (Fundamental Review of the Trading Book) to calculate the requirements for own funds to cover market risk. For institutions with moderately large range of activities in the business book the possibility to use is introduced simplified standardized approach.
• Operational risk: The Regulation defines in detail what is considered to be loss resulting from an operational risk event, and modifies the calculation methodology requirements for own funds to cover operational risk.

The regulation also emphasizes principle of proportionality, taking into account differences in the size and complexity of institutions.

Additional provisions:

• Definitions: The Regulation expands and clarifies the definitions of several terms, including model risk, exposures secured by real estate, one-year default rate, SME, unconditionally revocable promise.
• Consolidation: The rules regarding consolidation of subsidiaries, while providing more flexibility to competent authorities.
• Hedging: Rules are introduced for hedging of foreign exchange risk of capital shares and the treatment of internal hedging in exposures to the risk of adjusting the valuation of receivables.
• Transitional adjustments: They are established transitional periods for the implementation of some changes such as higher lower bounds for input LGD values.

The regulation also mandates EBA (European Banking Authority) by working out several guidelines and regulatory technical regulations to specify some aspects of the implementation in more detail.

Conclusion

This regulation represents a significant update of the prudential framework for institutions in the EU. His goal is increase resistance of the financial system and improve protection depositors and investors.