European implementation of Basel IV, the CRR III / CRD VI package finalised

The CRR III introduces several changes to the calculation of Pillar I capital requirements, along with updates to the corresponding reporting and disclosure requirements. These changes primarily implement the Basel Committee’s finalised Basel III framework (Basel IV), initially published in December 2017. Most of the rules included in the CRR III have become applicable on the first of January 2025.  

 Key aspects of the CRR III include:   

• Credit Risk: Revisions to the standardised and internal ratings-based approaches for calculating credit risk.  

• Credit Valuation Adjustment (CVA) Risk: Updates to the approaches for CVA risk to better capture CVA risk and align with major adjustments to the market risk framework.  

• Operational Risk: Introduction of revised standardised approach for operational risk that will be applicable by all banks.  

• Market Risk: Revised trading book boundary and adoption of the FRTB approaches for capital calculation purposes.   

• Output Floor: Introduction of an output floor to limit the variability of risk-weighted assets calculated by internal models.  

• The CRR III includes for the first time in European prudential regulation separate specific provisions for leasing and explicitly recognises in the regulation the high level of expertise and risk management developed by leasing companies in the EU.  

• The CRR III contains a specific clause for leasing exposures (Article 495c) where the EBA is mandated to adopt a report on leasing within 36 months after CRR III enters into force. The EBA is mandated to produce a report on leasing calibrations, including the standardised approach. Based on the EBA report findings and policy recommendations the European Commission must submit to the European Parliament and to the Council a legislative proposal specific on leasing by 31 December 2028. Leaseurope is currently in contact with the EBA in relation to this specific mandate and will provide support to the EBA on the production of this report. 

• The new Article 495c also includes a 5-year phasing-in period, which applies to the new risk parameters for leasing when using internal models for the calculation of risk weights. This provision lowers the haircuts for assets leased, therefore allowing leasing companies to consider as secured a bigger part of the exposure than in regular loans. This recognises for the first time in prudential regulation the role of the physical collateral in leasing, positioning leasing as a more attractive financing product from capital perspective. 

• Furthermore, the European SME supporting factor has been kept (Article 501). Under this provision SME exposures of up to EUR 2.5 million are subject to a 23.81% reduction in risk weighted exposure amount which is equivalent to a 76,19% risk weight, instead of 100%. In addition, for SME exposures of more than EUR 2.5 million, the part exceeding EUR 2.5 million should be subject to a 15% reduction in capital requirement, which is equivalent to 85% risk weight instead of 100%. Given the importance of SMEs in the leasing portfolios the maintenance of the supporting factor in the CRR III, is critical for the leasing industry to continue financing European SMEs with lower regulatory capital consumption. 

• Leaseurope has also managed to secure in Article 124 (5a), that Real Estate leasing qualifies as exposure secured by immovable property, which recognises the leased asset as collateral reducing the risk weights for real estate leasing. 

• The CRR III also recognises the low risk of non-CRR, regulated and supervised leasing companies in its (Article 121), 1a, which entails lower capital requirements for banks when providing funding to regulated and supervised leasing companies, therefore making it more attractive for banks to finance leasing companies. 

• Finally, the CRR III includes adjustments (Article 465, 7a&b) to improve the prudential treatment of securitisations. It also contains a new mandate to revise the European regulatory framework for securitisations to remove potential regulatory barriers to boost European securitisations markets (Article 506ca), which are an important source of finance for leasing companies at competitive rates. 

As the first part of the project is officially finished, Leaseurope is now focusing on engagements with the EBA to achieve a permanent specific category of risk weights for leasing exposures that reflects the low risk profile of leasing.  

The CRD VI contains a number of revised rules regarding supervisory tools, in particular access to the EU’s market by third country banks and entrenches the requirements to include ESG-related risks in banks’ governance and risk management in EU law.  

EU member states will now need to transpose the requirements of CRD VI into national law, to be applied by January 11th, 2026.  

Key components of the CRD VI include:   

• ESG Risks: Mandating that credit institutions incorporate ESG risks into their governance structures and risk management processes, reflecting the growing importance of sustainable finance (see EBA’s roadmap on sustainable finance). Leaseurope is actively influencing the EBA initiatives on ESG risks to ensure they take into account the specificities of leasing. 

• Supervisory Powers and Sanctions: Enhanced powers for supervisors to impose sanctions and corrective measures.  

• Third-Country Branches: Stricter requirements for third-country credit institutions wishing to operate within the EU, ensuring they meet EU standards.