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CEBS Analysis on the Scope of Full Harmonisation in the CRD

Executive Summary

CEBS supports the European Commission's initiative to develop a single EU rule book for banking regulation, while acknowledging the need for flexibility in certain areas. It recognizes that a "single" rule book does not necessarily mean a "uniform" one, and that national differences may be justified in limited cases. However, some CEBS members argue that full harmonisation can only be achieved if flexibility is not allowed in key prudential areas such as the definition of own funds and liquidity requirements.

Cross-border banking groups face challenges due to divergent implementations of the CRD. CEBS emphasizes that even a fully harmonised rule book would not resolve all issues, as legal implementation can differ from legal interpretation. It also notes that national provisions, which may be beneficial for financial stability, should not be removed without thorough assessment.

CEBS acknowledges that Member States may use "gold-plating" (implementing stricter rules than required by the CRD) for reasons such as:

• Risk assessment: When Competent Authorities believe existing CRD provisions are insufficient.
• Market/product specificities: When local markets or products require different treatment.
• Legal framework: When national laws need to align with CRD requirements or maintain legal continuity.

The CEBS exercise aimed to identify areas where 'gold-plating' is currently applied and where it should be retained. A narrow definition of 'gold-plating' was used, focusing on cases where national rules go beyond the CRD while remaining legal. The exercise excluded national discretions, undetermined CRD terms, and rules not based on CRD provisions.

CEBS also notes that while the industry generally opposes 'gold-plating', the extent of its use varies among Member States. The final decision on whether to retain 'gold-plating' will depend on the calibration of quantitative limits under CRD IV.

Scope of the CEBS Exercise

The CEBS analysis focused on the following areas from the CRD and CRD IV:

Pillar 1:

• Own Funds / Capital Definition: Articles 56–67 (2006/48), Articles 4–10 (2006/49)
• Minimum Level of Own Funds: Article 75 (2006/48), Articles 18–27 (2006/49)
• Minimum Own Funds Requirements for Credit Risk: Articles 76–77 (2006/48), Annex II, III, IV (2006/48)
• Standardised Approach: Articles 78–83 (2006/48), Annex VI (2006/48)
• Internal Ratings Based Approach: Articles 84–89 (2006/48), Annex VII (2006/48)
• Credit Risk Mitigation: Articles 90–93 (2006/48)
• Securitisation: Articles 94–101 (2006/48), Annex IX (2006/48)
• Operational Risk: Articles 102–105 (2006/48), Annex X (2006/48)
• Market Risk: Article 11 (2006/49), Annexes I–V and VII (2006/49)

Large Exposures:

• Articles 106–118 (2006/48), Articles 28–32, Annex VI (2006/49)

Qualifying Holdings Outside the Financial Sector:

• Articles 120–122 (2006/48)

Pillar 3:

• Articles 145–149 (2006/48), Annex XII (2006/48), Article 39 (2006/49)

Further Issues

The following issues were flagged as potentially hampering full harmonisation but were not included in the 'gold-plating' analysis:

• Scope of application and Pillar 3: Some Member States require credit institutions to disclose Pillar 3 information even if they are not subject to the CRD's scope, which may be seen as an increase in reporting obligations.
• Deduction of breach of large exposures (LE) limit: Certain Member States, such as Hungary, deduct the excess of LEs from own funds, which may constitute 'gold-plating' pending clarification from the CRDTG.
• Use of call options in synthetic securitisation: France limits the use of call options to "clean-up call" options, which may be an example of 'gold-plating'.
• Specific limits on real estate and country risk positions: The Netherlands and Hungary have implemented strict limits on real estate investments and country risk, which are not covered by the CRD.
• Related party lending: Ireland imposes stricter limits on exposures to entities in which a bank, its directors, or significant shareholders have significant shareholdings, due to conflict of interest concerns.

Key Findings

• CEBS supports the Commission's initiative for a single rule book but believes that flexibility in key prudential areas is necessary.
• The concept of 'gold-plating' is used selectively and only when it is deemed necessary for financial stability.
• The exercise did not cover all areas of potential 'gold-plating' due to time constraints and the early stage of CRD IV legislation.
• The final decision on 'gold-plating' will depend on the calibration of quantitative limits under CRD IV.
• National rules not based on CRD provisions or that do not create cross-border barriers were excluded from the analysis.

Conclusion

CEBS emphasizes the need to thoroughly assess whether the current rules in the CRD adequately address risks for all Member States before considering the removal of 'gold-plating' possibilities. It also stresses the importance of developing binding technical standards to ensure consistency and efficiency in the application of EU banking regulations.