Capital Requirement Directive V / CRD V – Directive (EU) 2019/878 of the European Parliament and of the Council of 20 May 2019 amending Directive 2013/36/EU as regards exempted entities, financial holding companies, mixed financial holding companies, remuneration, supervisory measures and powers and capital conservation measures (known as “Capital Requirement Directive V” or “CRD V”).
The Capital Requirements Directives (CRD) for the financial services industry have introduced a supervisory framework in the European Union which reflects the Basel II and Basel III rules on capital measurement and capital standards.
Since 1 January 2007, Member States have been gradually transposing the CRD, requiring financial services businesses to comply. The first basic indicator method, which raises the minimum capital requirement under the Basel I approach from 8% to 15%, and the standardised approach, which analyzes business lines as medium sophistication, were both available to institutions. The business lines are assessed as medium sophistication approaches in the new framework.
From January 2008, the most complex techniques for operational risk, the Advanced IRB (Institutional Review Board) methodology and the AMA (Advanced Measurement Approach), became available.
From this day forward, all affected EU businesses were required to comply with Basel II.
The new CRD IV package went into effect on July 17, 2013, and it simply transposes the newest worldwide requirements on bank capital adequacy, known as Basel III, into EU legislation. Basel III builds on and enhances the existing Basel II regulatory foundation.
Both the EU Directive 2013/36/EU and the EU Regulation 575/2013 are referred to as CRD IV.
The EU’s previous Capital Adequacy Directive, which was originally published in 1993, was superseded by the Capital Requirements Directives.
The updated Capital Requirements Directive, often known as CRD V, improves and continues to implement Basel III in the European Union by making substantial changes to a number of areas, including Human Resources and Remuneration. The changes under CRD V will force impacted companies to rethink their HR and pay policies. The Directive took effect on June 27, 2019, and Member States now have until December 28, 2020 to update their local compensation laws to reflect the new CRD V requirements.
One of the most important things is equal pay for equal work for men and women: businesses must adopt a “gender neutral” payment policy, such as equal pay for equal labor or work of equal value for men and women. Local regulators will also gather data on the gender pay gap from businesses.
The collected data will be given to the EBA (European Banking Authority), which will publish a report on the implementation of gender-neutral policy two years after the new rules are released.
The EBA will provide recommendations on whether rules are considered gender-neutral.
Many companies’ pay structures will be affected by CRD V, particularly those that presently use the notion of “proportionality” to offset some remuneration obligations, or those that use a shorter deferral period than the new regulations demand.