CRD VI / CRR III Compliance: EU Capital Requirements
Amending Basel IV rules, published in the EU Official Journal on 20 June 2024, apply from 1 January 2026. They tighten credit-risk weighting, output floors, leverage-ratio buffers and market-risk models, ensuring EU banks and investment firms remain resilient under stress.
What are CRD VI/CRR III?
CRD (Directive 2013/36/EU, now CRD VI draft) and CRR (Regulation 575/2013, soon CRR III) transcribe the Basel framework into EU law.Together they set Pillar 1 minimum own-funds (CET1, Tier 1, total capital), buffers for systemic risk & counter-cyclical exposure, the 3 % leverage ratio, liquidity standards (LCR & NSFR), large-exposure limits and robust governance & remuneration rules.The 2024 “Banking Package” introduces a 72.5 % output floor on internal-model RWAs, stricter CVA & market-risk approaches and climate-risk disclosures. Supervisors will still apply Pillar 2 add-ons via ICAAP/SREP.
Key Features: CRD VI/CRR III
The CRD VI/CRR III regulation comprehensively navigates through various facets of banking compliance:
Stricter Capital Requirements
The Capital Requirements Directive and Regulation (CRD6/CRR3) are revised regulations designed to implement the finalised Basel 3 reforms. The key feature of these regulations is stricter capital requirements for banks. These requirements are designed to ensure financial stability and reduce the chances of banking sector collapse. They do this by making sure banks hold adequate capital to cover potential losses.
Risk Management Practices for better handling of credit, market and operational risks.
The CRR3/CRD6 regulations aim to enhance risk management practices by integrating environmental and social risks into Pillar 1, which addresses credit, market, and operational risks. This integration is designed to accelerate the consideration of these risks in financial institutions' overall risk profiles. By incorporating these aspects into Pillar 1, the regulations require institutions to include them in their risk-weighted assets, thereby influencing their capital requirements.
Reporting and Disclosure Requirements
The Capital Requirements Directive IV (CRD IV) and Capital Requirements Regulation (CRR) set EU standards for credit institutions and investment firms, focusing on transparency and reporting. Article 89 of CRD IV mandates financial and non-financial disclosures by institutions. Additionally, CRD V’s Article 153 requires the European Commission to review the adequacy of these disclosures. While Article 90 of CRD IV and Part Eight of CRR detail annual report and financial statement disclosures, only Article 89 specifies country-by-country reporting.
Leverage Ratio Requirements and Liquidity Coverage Ratios
The Capital Requirements Regulation 3 (CRR3) and Directive 6 (CRD6) enhance the EU banking sector's stability by setting leverage and liquidity coverage ratios.
The Leverage Ratio limits excessive leverage to protect the financial system and economy, while the Liquidity Coverage Ratio (LCR) ensures banks have enough liquid assets to cover 30-day net cash outflows, bolstering resilience against operational risks.
Banks must always meet these ratios under CRR3/CRD6.
Implications of CRD VI/CRR III
Banks must re-calculate RWAs with output floor, model CVA under SA-CVA, integrate market-risk FRTB, enhance leverage & liquidity monitoring, and map COREP/FINREP taxonomy 3.3 changes ahead of the 1 Jan 2026 go-live. Expect vigorous SREP reviews on governance and remuneration caps.
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Grand: Enhancing CRD VI/CRR III Compliance
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How Grand Helps
Every component of Grand.io's GRC software suite is crucial for full compliance with the Capital Requirements Directive VI (CRD VI) and Capital Requirements Regulation III (CRR III), focusing on key areas such as leverage and liquidity management, risk assessment, capital adequacy reporting, and ongoing regulatory adaptation.
Frequently Asked Questions
The primary objectives of CRD VI (Capital Requirements Directive VI) and CRR III (Capital Requirements Regulation III) are to implement the Basel III agreement within the European Union, focusing on strengthening the resilience of banks against major risk areas.
These areas include credit risk, market risk, operational risk, and liquidity risk. The regulations aim to ensure that banks maintain adequate capital and liquidity levels to withstand financial crises. They also intend to improve risk management and governance, promote financial stability, and enhance the transparency of banks' operations.
CRD VI and CRR III are regulatory initiatives designed to strengthen the stability of the banking sector. Among other requirements, they address leverage and liquidity of financial institutions. The CRR amendment introduces a minimum 3% leverage ratio as a mandatory requirement for all institutions under the CRD.
This means that banks must hold capital equivalent to at least 3% of their total exposures, limiting their ability to increase their size through borrowed funds. In essence, the leverage ratio serves as a backstop to risk-based capital requirements, preventing excessive leverage and enhancing the resilience of banks.
From 2026, risk-weighted assets from internal models may not fall below 72.5 % of the standardised total.
Quarterly COREP/FINREP XBRL, plus monthly LCR and daily internal monitoring of liquidity and leverage.
