The Association for Financial Markets in Europe (AFME) welcomes the agreement by the European Parliament's Committee on Economic and Monetary Affairs (ECON) on the CRR3 legislation, voted today.

Caroline Liesegang, Head of Prudential Regulation at AFME, said: “Today’s agreement is an important step in finalising the EU implementation of the international Basel III reforms. The Parliament has made positive steps forward via changes to the Commission’s legislative proposal which should be given due consideration during interinstitutional negotiations. More work is still needed on the crypto assets proposal to better define its scope to ensure tokenised securities are not captured. It is also vital that cross-border trading on financial markets can continue through the removal of the requirement for banks to establish a subsidiary or branch in the EU under Article 21c.”  

In particular:

• The industry welcomes the decision of the Committee to apply the Output Floor at the consolidated level, which reflects how it was calibrated at Basel.
• AFME welcomes the recognition of the important role of securitisation in the financing of the  economy. The ECON Committee has included transitional adjustments to mitigate the negative impact the introduction of the Output Floor would have on this mechanism a until a wider review of the securitisation framework is undertaken.
• AFME further welcomes the alignment of the Parliament and Council on the implementation of the trading book reforms. The use of a delegated act for market risk is a critical tool to ensure a globally consistent and aligned implementation of the market risk capital rules. AFME also welcomes some of the clarifications brought to the treatment of equity investments in funds under the FRTB, including the extended definition of third-party vendors.
• AFME also welcomes the Council and Parliament postponement of the implementation of the CRR2 mandated Trading book (TB) and banking book (BB) boundary to 1 January 2025. This change helps implement the TB/BB boundary that has been split between the CRR2 and CRR3 coherently, easing the operational burden, complexity and potential rigidity in instrument designation that would have resulted from the two-step approach.
• AFME suggests it will be important to avoid the significant adverse impact of the proposed access requirements for third country undertakings on the ability of EU financial institutions, corporates, governmental entities, and individuals to access international markets and cross-border services. In this respect, AFME supports the Council approach to remove the requirement for Member States to require third country undertakings to establish a branch in their territory, via deletion of proposed Articles 21c and 48c(1).
• Finally, AFME notes the European Parliament has proposed an interim treatment to apply a 1250% risk weight to crypto assets until 31 December 2024.  However, there is no definition of crypto assets in the CRR and therefore the requirement may apply to tokenised securities, as well as the non-traditional crypto assets the interim treatment is targeted at.  The scope of application should be clarified in the trilogue process to ensure a faithful implementation of the finalised Basel standard to avoid any unintended impact on securities markets during the interim period.

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