03 Apr 2020

Yesterday (2 April 2020), the Prudential Regulation Authority (PRA) and HM Treasury (HMT) issued a joint statement, welcoming the delay of the implementation of the Basel 3.1 standards by one year (click here to access the PRA and HMT joint statement.)

The statement comes on the back of the announcement on Friday 27 March 2020 by the Basel Committee's oversight body, the Group of Central Bank Governors and Heads of Supervision (GHOS) that, in response to the COVID-19 global pandemic, the implementation of the Basel 3.1 standards is to be deferred by one year to 1 January 2023. This delay is intended to give banks the capacity to focus their energies and resources on responding to the financial impact that the COVID-19 global pandemic will have on the stability of the global financial system (click here to access GHOS press release.)

In 2019, the Capital Requirements Regulation II (CRR II) (Regulation (EU) 2019/876) and the Capital Requirements Directive V (CRD V) (Directive (EU) 2019/878) came into force, amending the Capital Requirements Regulation (575/2013) (Regulation) and the CRD IV Directive (2013/36/EU) (Directive) respectively.

The Regulation and the Directive (commonly referred to as the "banking package") comprise the legislative means by which the Basel 3.1 standards are to be implemented in the EU member states, and apply to banks, building societies and investment firms.

The Brexit connection

This banking package is directly applicable in all EU member states. However, EU member states have the right to require banks in their respective jurisdictions to hold more capital than the minimum required under the package, for up to 2 years at a time.

As you may already be aware, the UK formally exited the EU on 31 January 2020, and we are now in a transition period scheduled to last until the end of 2020. During the transition period, UK banks are still required to comply with EU law. While EU law will not be directly applicable in the UK post-Brexit, the UK regulators have expressed a clear commitment towards a UK implementation of the Basel 3.1. standards. In practice, we expect a large degree of legislative alignment between the EU's and the UK's prudential regulations.

Conclusion

The COVID-19 global pandemic will no doubt have a negative impact on the global financial system, and every attempt at cushioning this impact is to be welcomed. The move by the Basel Committee to defer the implementation of CRD IV should be a welcome reprieve for banks across the EU and in the UK.

Womble Bond Dickinson continues to guide our banking and financial services clients in their response to the challenges presented by the COVID-19 pandemic.