The original Basel Accord was agreed in 1988 by the Basel Committee on Banking Supervision. The 1988 Accord, now referred to as Basel I, helped to strengthen the soundness and stability of the international banking system as a result of the higher capital ratios that it required.
The Basel Accord was implemented in the European Union via the Capital Requirements Directive (CRD), which was designed to ensure the financial soundness of credit institutions (banks and building societies) and certain investment firms. The CRD came into force on 1 January 2007, with firms applying the advanced approaches from 1 January 2008.
The CRD framework was revised by the introduction of Basel II, initially published in June 2004. The Basel II framework introduced the concept of three 'pillars'. Pillar I sets out the minimum capital requirements firms will be required to meet for credit, market and operational risk. Under Pillar 2, firms and supervisors have to take a view on whether a firm should hold additional capital against risks not covered in Pillar I and must take action accordingly. Pillar 3 aims to improve market discipline by requiring firms to publish certain details of their risks, capital and risk management
The crisis in financial markets over 2008 and 2009 prompted a strengthening of the Basel rules to address the deficiencies exposed in the previous set of rules.
The Basel III proposals sought to strengthen the regulatory regime applying to credit institutions in the following areas.
- Enhancing the quality and quantity of capital.
- Strengthening capital requirements for counterparty credit risk (and in CRD III for market risk) resulting in higher Pillar I requirements for both.
- Introducing a leverage ratio as a backstop to risk-based capital.
- Introducing two new capital buffers: one on capital conservation and one as a countercyclical capital buffer.
- Implementing an enhanced liquidity regime through the Net Stable Funding Ratio and Liquidity Coverage Ratio.
The Basel III proposals are a long-term package of changes that are due to commence on 1 January 2013 and, based on the Commission’s timetable, the transition period is expected to run until 2021.
The Basel III proposals will be implemented into EU law through changes to the existing CRD – referred to as CRD IV. CRD IV, which will include an EU Regulation and an EU Directive (implemented through national law). This will be a key instrument through which the Commission intends to introduce substantive parts of the new European supervisory architecture, including the development of the Single Rule Book for financial services.
The single rule book which the UK signed up to at the June 2009 European Council, is intended to replace separately implemented rules within Member States. The principle of maximum harmonisation will be applied to the adoption of CRD IV. This principle requires that national legislative implementation should not exceed the terms of the original EU legislative proposal, and therefore prohibits the gold-plating of EU legislation when it is transposed into national law.
Industry groups
This section presents the different industry groups that have been created to provide strategic leadership, to help us formulate our policy before consultation, and to discuss specific policy issues
Practical information for firms
This section provides practical information for firms implementing the CRD III changes required by 31 December 2011. We will use this section to provide information on the CRD IV changes and the Capital Requirements Regulation (CRR) in due course.
Archived material
This section consists of material that is no longer current but may still be of interest to certain groups or individuals.
CRD-related documents
The most important CRD-related FSA documents are available in the FSA Library
