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The Directive (CRD) includes enhanced governance for banks and introduces rules to increase the effectiveness of risk oversight by boards. It also improves the status of the risk management function to ensure effective risk governance. Importantly, it also includes sanctions such as administrative fines of up to 10 per cent of an institution’s annual turnover, or temporary bans on members of the institution’s management body.
The regulation (CRR) creates the “single rule book” concept. The proposal creates a single set of harmonised prudential rules (as opposed to conduct of business rules) for all EU banks for the first time. Critically, the European Commission has proposed removing national options and discretions from the CRD and achieving full harmonisation by allowing Member States to apply stricter requirements only where these are justified by national circumstances (e.g. real estate), needed on financial stability grounds, or because of a bank’s specific risk profile.
This process puts the Commission in the driving seat for the decision about varying rules applied to national banks. Putting such decisions at the EU level is the essence of the single market and is precisely the sticking point for the UK. There may be more filibusters and threats of veto – but it may be an empty threat at 26-1.