Capital Requirements Regulation—funded and unfunded credit risk mitigation
Produced in partnership with Andrew Barber of Bond Dickinson LLP
Capital Requirements Regulation—funded and unfunded credit risk mitigation

The following Financial Services guidance note Produced in partnership with Andrew Barber of Bond Dickinson LLP provides comprehensive and up to date legal information covering:

  • Capital Requirements Regulation—funded and unfunded credit risk mitigation
  • Changes to credit risk mitigation introduced by the CRR
  • Principles governing eligibility of credit risk mitigation techniques
  • Eligible forms of credit risk mitigation
  • Techniques available to all firms irrespective of the approach and method they are on
  • Firms that have adopted the Financial Collateral Comprehensive Method
  • Firms that use the IRB Approach
  • Further requirements for eligibility
  • Eligible providers under all approaches
  • Eligible providers under the IRB Approach
  • more

The implementation of Basel III in Europe saw the replacement of the Banking Consolidation Directive (BCD) and the Capital Adequacy Directive (CAD) (also known as the Capital Requirements Directive or CRD and as amended by a series of directives in 2009 and 2010) with the Capital Requirements Regulation (CRR) and the Capital Requirements Directive (CRD IV).For further information relating to the background and history of the CRD IV package please refer to the following Practice Notes: Capital Requirements Directive IV: background and legislative history and CRD IV—essentials.

Parts of the CRR brought significant changes for firms, including the introduction of new capital buffers and ratio requirements. The approach to credit risk mitigation (CRM) techniques in the CRR did not fundamentally change but there were a number of amendments that affect requirements for a range of CRM techniques.

Despite this largely unchanged approach to CRM, the Basel Committee on Banking Supervision (Committee) may look to tighten the regime in the future. In December 2015, the Committee released a second consultative document which highlighted several weaknesses (first identified in a 2014 consultative document) of the current CRM framework, not least the ability for banks to cherry-pick and use internal estimates, which is contrary to one of the Committee's principles for revising the Standardised Approach.

This Practice Note revisits the changes (from