What does the CRR III/CRD VI banking package mean for Europe’s banks? The new regulations are intended to strengthen the stability of credit institutions. However, banks and IT service providers must overcome a number of hurdles in implementing them.
With Basel III Endgame, Europe is putting a regulatory end to the lessons of the 2008 financial crisis.
With the banking package (CRR III/CRD VI) – also known as the “Basel III endgame” – Europe is putting the regulatory finishing touches to the lessons of the 2008 financial crisis. The package is intended to further strengthen the stability and resilience of European credit institutions. These comprehensive new regulations are a decisive step, but also pose complex challenges for the institutions and IT service providers. This article explains the most important steps in implementing the banking package and highlights the key aspects that are important for successful implementation.
Ambitious implementation roadmap for the EBA
The last formal step towards the adoption of the banking package was taken with its publication in the EU Official Journal on 19 June 2024. With 140 mandates, the European Banking Authority (EBA) will play a key role in the further operationalisation of the regulations, which will ensure a precise and efficient implementation of the new requirements.
The EBA has already developed a roadmap for staggered implementation on 14 December 2023 (see
- Phase 1 (time horizon: 1 year): 32 mandates focus on credit, market and operational risks, ESG (environmental, social, governance) and, above all, reporting and disclosure.
- Phase 2 (time horizon: 2 years): 43 mandates build on the priorities of the first phase and complement them with governance aspects.
- Phase 3 (time horizon: 3 years): 21 mandates are dedicated to the final technical guidelines and monitoring.
- Phase 4 (time horizon: 4 years+): 36 mandates include reports on implementation progress, results and challenges.
National implementation, in particular through the German Banking Act (KWG), is planned after the official publication of the banking package.
Although this step-by-step implementation is helpful and necessary to prepare European banks and savings banks for the new challenges, the tight schedule entails risks for comprehensive implementation – both on the part of the institutions and IT service providers, but also for the European and national supervisory authorities.
Phase 1 of the EBA Roadmap focuses on reporting capability
In Phase 1 of its roadmap, the EBA is primarily developing the mandates necessary for reporting capability – in particular on reporting, i.e. the new world of forms, and on disclosure (13 mandates in total).
The authority has already put the first drafts of this out for consultation together with the roadmap in December 2023. A new approach, in which the detailed specifications are only published on the Internet by the EBA (and no longer by the EU Commission via the EU Official Journal), is also intended to speed up the processes – even if adjustments are required later – and to make access to the information easier for “users”. The discussion surrounding a “Pillar 3 Data Hub” is also intended to provide relief in the target image.
In addition, the drafts of various technical standards in the areas of credit (7 mandates in Phase 1) and market risks (7 mandates) as well as operational risks (5 mandates actually in Phase 2, some brought forward) have already been successively put out for consultation. They form the basis for determining the capital requirement in accordance with the amended requirements of CRR III.
Challenges in implementation
The introduction of the banking package brings with it a redesign of the regulatory landscape and a series of demanding requirements that fundamentally change both the internal organization of the institutions and their external reporting obligations. The integration of these requirements into the existing systems leads to increased complexity and presents the institutions with considerable challenges.
A key aspect of the new regulations is the consideration of ESG (environmental, social, governance) risks, which require a fundamental revision of risk management and reporting. Equally challenging is the revision of reporting and increasing transparency in disclosure practices in order to meet the new European and global standards.
This poses personnel and technical challenges for small and medium-sized credit institutions in particular in order to implement these extensive requirements promptly. The integration of the diverse mandates into already established processes requires not only extensive adjustments, but also considerable investments in training and IT infrastructure. In the Sparkassen Financial Group, both Finanz Informatik and Sparkassen Rating and Risk Systems, together with the regional associations and the DSGV, provide the institutions with significant support in this regard.
However, the tight schedule makes things even more difficult: the final text of the banking package, numerous EBA products and the national implementations are completed at short notice, often just before the official application date. In order to make the implementation efficient and to adapt the operational processes in good time, an early and intensive examination of the new requirements is therefore essential.
The CRR III/CRD VI banking package presents banks with challenges: a wealth of requirements, time pressure and high complexity.
Call for early involvement and active participation
The finalization of the banking package not only presents a regulatory challenge, but also opens up opportunities for the financial industry to play an active role in shaping a resilient and future-oriented financial system. The EBA’s clear roadmap has laid out the path for the next steps. It is now up to us not only to accept these guidelines, but also to play an active role in shaping them – especially in the context of the consultations.
Particular attention should be paid to the balanced application of the new rules. These should not overburden small and medium-sized institutions in particular. Instead, it is crucial to design the rules in such a way that they strengthen the stability of the banking sector as a whole while maintaining the competitiveness of all participants. We must ensure that the measures are implemented in a way that supports all institutions and distributes the burden fairly.
Due to the tight schedule and the adherence to the introduction date of January 1, 2025, an early analysis of the new requirements is also necessary before their final implementation and on the basis of the draft versions – which are unfortunately only available in English. This offers the opportunity to adapt to the new requirements in IT and internal processes in good time.
Milestone in the development of European banking regulation
The implementation of the banking package (CRR III/CRD VI) represents an important milestone in the development of European banking regulation and marks the completion of the regulatory initiatives following the 2008 financial crisis. The new regulations pose major challenges for banks and savings banks. Committed action and a cooperative attitude are essential to ensure the competitiveness, stability and integrity of the European banking sector.
Given the complexity and high costs of current regulation, simplification and streamlining of the rules in the sense of “smart regulation” is necessary. This would particularly benefit small and medium-sized credit institutions, which are particularly affected by the tight deadlines and the multitude of requirements. It is crucial that legislators, supervisors and institutions work together to find a sensible balance between strict regulation and practicality.
