The approval of the European Parliament on 16 April 2013 of the CRD IV legislative package means that once it is formally approved by the Council of Ministers, that the CRD IV legislation will apply across the European Union, on a phased basis, from 1 January 2014. 

CRD IV consists of a Capital Requirements Regulation (the "CRR"), and the fourth edition of the Capital Requirements Directive (the "CRD IV").  The CRR will impose a single set of prudential rules, which will apply directly to all banks in Member States without the need for domestic transposition. 

The CRD IV provisions will require the enactment of domestic legislation in order to have legal effect.  Certain discretions are afforded to Member States, including the right to impose higher capital requirements than those set out in the CRD IV. 

Among the key issues dealt with in CRD IV are:

  • Remuneration: requirements designed to tackle excessive risk taking have been included which prescribe the relationship between the variable (or bonus) component of remuneration and the fixed component (or salary) with a maximum ration of 1:1 being permitted (increases in this are permitted only in exceptional circumstances and only as provided for – and will require the approval of the shareholders).
  • Enhanced governance: new rules focused on risk oversight by boards are included as well as requirements relating to corporate governance arrangements and processes and introduces new rules aimed at increasing the effectiveness of risk oversight by Boards, improving the status of the risk management function and ensuring effective monitoring by supervisors of risk governance.
  • Enhanced transparency. CRDIV improves transparency regarding the activities of banks and investment funds in different countries, in particular as regards profits, taxes and subsidies in different jurisdictions.  Banks will be required to disclose profits made, taxes paid and subsidies received country by country, as well as turnover and number of employees. From 2014, these figures should be reported to the European Commission and from 2015 made fully public.

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