Directive 2006/49/EC

Directive 2006/49/EC of 14 June 2006 on the capital adequacy of investment firms and credit institutions

Published under Risk Management
Title: Directive 2006/49/EC of the European Parliament and of the Council of 14 June 2006 on the capital adequacy of investment firms and credit institutions

Note: this Directive is commonly referred to as the Capital Requirements Directive in conjunction with Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions (both of which were published simultaneously).
Source reference: http://eur-lex.europa.eu/LexUriServ/
Topic: Financial stability through capital adequacy of investment firms and credit institutions
Direct / indirect relevance Indirect. A large part of the text focuses on financial RM/RA practices, which implies an obligation to implement appropriate RM/RA measures with regard to network/information security.
Scope: Directly applicable to all EU Member States
Legal force: EU Directive, requires transposition into national law
Affected sectors: Investment firms and credit institutions
Relevant provision(s): A large part of the 55 page Directive is directly related to RM/RA for European investment firms and credit institutions. Of specific interest is Chapter V of the Directive, which includes provisions with regard to minimum fund requirements and valid methods for their calculation, for credit institutions and for investment firms. Additionally, it details requirements on how the provisions of Directive 2006/48/EC apply to these organisations.
Relevance to RM/RA: The scope of the provisions of the Directive reflects the supervisory rules introduced by Basel II, and provides a European perspective on requirements for the stability through capital adequacy of investment firms and credit institutions.

In addition to the general subjects indicated above, the Annexes to the Directive contain more specific guidance on how the relevant risks should be managed, including through:

• Annex I – Calculating capital requirements for position risk
• Annex II – Calculating capital requirements for settlement and counterparty credit risk
• Annex III – Calculating capital requirements for foreign-exchange risk
• Annex IV – Calculating capital requirements for commodities risk
• Annex V – Use of internal models to calculate capital requirements
• Annex VI – Calculating capital requirements for large exposures
• Annex VII – Trading activity

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