Financial Crime World

EU Proposes Amendments to Capital Requirements Directive IV and Regulation

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The European Commission has unveiled its proposal for amendments to the Capital Requirements Directive IV (CRD IV) and the Capital Requirements Regulation (CRR), aimed at strengthening the banking sector’s resilience and stability.

Enforcement of Capital Adequacy Guidelines

  • Under the current regime, capital adequacy guidelines are enforced through regular reporting from banks and a combination of theme-based inspections and on-site visits by the Financial Supervisory Authority of Norway (FSAN).
  • If a bank becomes undercapitalized, its CEO and board of directors must notify the FSAN, which will work with the bank to determine necessary measures.
  • The FSAN has broad powers to ensure compliance, including calling for a general meeting or replacing the board.

Insolvency Process

  • In the event of insolvency, the FSAN notifies the Central Bank and the Banks’ Guarantee Fund.
  • If it is assumed that the bank cannot meet its obligations on time and further funding is not available, the Ministry of Finance may decide to place the bank under public administration.
  • However, with the introduction of the Banking Recovery and Resolution Directive (BRRD), the regulatory approach will change.

Resolution Authority

  • The FSAN will be appointed as the resolution authority, but certain decisions, including those of major significance, will be conferred on the Ministry of Finance.
  • Prior to insolvency, if an institution infringes or is likely to infringe capital adequacy requirements, it must notify the FSAN, which may initiate early intervention measures.

Ownership Restrictions

  • The ownership structure of Norwegian banks is subject to certain restrictions.
  • Any entity or individual acquiring a controlling interest in a bank must obtain approval from the Ministry of Finance or the FSAN, depending on the significance of the transaction.
  • A “controlling” interest constitutes more than 10% of the capital or voting rights, or other interests that provide material influence.

Recent Developments

  • A recent judgment by the EFTA Court has challenged the dispersion sale rule and the regulatory practice setting out the 25% limitation rule, citing infringement on the internal markets’ freedom of establishment.
  • The case is ongoing, and it remains unclear whether these rules will be deemed lawful or not.

Implications for Entities with Control

  • Entities that own a controlling interest in a bank are responsible for complying with the terms of their approval and may face revocation if these terms are no longer met.
  • Special regulatory requirements apply to shareholders in cases of insolvency or capital inadequacy, while owners with a 20% or higher shareholding may be subject to consolidated capital requirements.

The proposed amendments aim to strengthen the banking sector’s resilience and stability by enhancing risk management, improving governance, and promoting financial stability. The changes are expected to have significant implications for banks, investors, and regulators alike.