www.pwc.lu/crd-IV Flash News CRD IV package: Binding LCR ratio postponed! 15 October 2014 As you may remember, an important dimension of the CRD IV package the transposition of Basel III rules in European Union law - is the introduction of the so-called Liquidity Coverage Ratio (LCR) to force banks (and possibly investment firms) to have a pool of liquid assets sufficient to survive a liquidity crisis of up to 30 days. LCR binding date postponed The above disposition was supposed to enter into force on 1 January 2015 with a minimum ratio of 60% (meaning a period of 18 days). However, there had been a significant delay in the European Banking Authority (EBA) submitting its final proposals to the European Commission (a process known as the “delegated acts”), which means that the Commission’s adoption did not take place before end of June 2014 as expected but only last Friday 10 October 2014. This is certainly very important news for many Luxembourg-based institutions, many of which are still struggling to reach the minimum 60% ratio. The said delegated act proposes a binding LCR introduction date of 1 October 2015, thereby giving institutions another 9 months to comply with this requirement compared to the initial date. Please note that reporting the LCR has however been in place since March 2014 and remains applicable until a new set of reporting templates becomes available to reflect the changes introduced by the delegated act. The full document is available from the following link: http://ec.europa.eu/internal_market/bank/docs/regcapital/acts/delegated/14 1010_delegated-act-liquidity-coverage_en.pdf Out of the 59 pages of the document, we would like to quote this particularly important paragraph: “In order to give credit institutions sufficient time to comply with the detailed liquidity coverage requirement in full, its introduction should be phased-in in accordance with the timetable laid down in Article 460(2) of Regulation (EU) No 575/2013, starting with a minimum of 60% from 1 October 2015 rising to 100% on 1 January 2018.” Special provision concerning Investment Firms Also worthy of attention is the fact that so-called “CRR” investment firms may not have to comply with the liquidity requirements as quoted in the abovementioned delegated act: “In accordance with Article 508(2) of Regulation (EU) No 575/2013, the Commission must report to the co-legislators by no later than 31 December 2015 on whether and how the liquidity coverage requirement laid down in Part Six (PwC: this is the CRR Part relative to Liquidity) should apply to investment firms. Until that provision starts to apply, investment firms should remain subject to the national law of Member States on the liquidity coverage requirement. However, investment firms should be subject to the liquidity coverage ratio laid down in this Regulation on a consolidated basis, where they form part of banking groups.” Finally, the delegated act also provides significantly more technical details on some aspects of the LCR computation and constituents, in particular in its tailoring of the Basel rules to the specificities of the European banking system (and especially due to the fact that CRD IV liquidity requirements are supposed to be met both at stand-alone and consolidated levels, a significant deviation from the Basel III rules). This is a welcome development given the CRR’s sometimes cryptic coverage of that section. If you have any queries or need assistance, please contact us. You will find the appropriate contact details below. 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