As you may be aware, a revised Banking package was published on 20 May 2019 which brings about a number of changes to the prudential framework applicable to credit institutions. The package consists of the Capital Requirements Regulation (‘CRR’) which is directly applicable and the Capital Requirements Directive (‘CRD’) which needs to be transposed into the national regulatory framework. Locally, amendments to the Banking Act, Subsidiary Legislation and Banking Rules will be issued in the coming months in order to transpose the CRD. Credit institutions will be notified accordingly.
Credit institutions shall ensure that they are fully in line with the new requirements of the CRDV Package.
Some of the main changes which may be of particular importance include:
- Leverage Ratio: a new non-risk-based ratio of 3%;
- Net Stable Funding Ratio (NSFR): a new requirement to ensure stable funding of balance sheets in the medium term. Banks must have at least 100% ratio;
- Pillar 2 Capital: banks to meet Pillar 2 requirements set by the ECB or the MFSA with Tier 1 and CET1 capital in line with CRDV thresholds. This measure is designed to align capital requirements to risks where a quantitative methodology is not set in CRDV.
- It will also put in place requirements to hold capital buffers against stress events to improve balance sheet resilience and support bank lending in an economic crisis;
- Large exposures: improvements required to the quality of capital used to mitigate risks posed by large loans on balance sheets;
- Small and medium-sized enterprise (SME) Supporting factor: a special arrangement to support lending to SMEs is introduced with an extension to the number of exposures benefiting from lower capital requirements;
- Infrastructure Supporting factor: lower capital requirements for infrastructure projects to help support investment in EU infrastructure;
- (Mixed) Financial Holding Companies: approval for holding companies is now required;
- Anti-Money Laundering: Enhancing cooperation and exchange of information between prudential supervisors, Financial Intelligence Units and other competent authorities; to strengthen the AML dimension in authorisation, fit and proper checks and SREP.