CRR/CRD - Capital Requirements Regulation & Directive

Implementing CRR/CRD requirements is more than a regulatory compliance exercise — it offers strategic opportunities to realign business models and optimize capital allocation. ADVISORI takes an integrated approach that goes beyond mere compliance and treats regulatory requirements as a catalyst for sustainable value creation.

🔍 Strategic dimensions of our approach:

💡 Value creation through intelligent compliance:

The introduction of CRR III and CRD VI marks a significant milestone in the evolution of the European banking regulatory framework. These reforms bring far-reaching changes that require strategic adjustments and operational restructuring. ADVISORI offers a structured approach to successfully meeting these challenges. Core challenges of CRR III/CRD VI: Realignment of credit risk measurement: The Fundamental Review of the Trading Book (FRTB) and the revision of standardized approaches for credit risk require comprehensive adjustments to risk measurement methods and models. Extended output floors: The introduction of output floors limits the benefit of internal models and requires new strategies for capital optimization as well as parallel calculation methods. ESG risk integration: The new requirement to integrate environmental, social, and governance (ESG) risks into capital planning demands new data sources, valuation methods, and reporting processes. Operational complexity: The parallel application of various calculation methods and increased disclosure requirements significantly raise operational complexity. ADVISORI's integrated solution approach: Gap analysis and roadmap development: Systematic identification of all affected areas and development of a prioritized implementation roadmap with clear milestones.

Liquidity requirements — the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR) — represent central pillars of the Basel framework and require a well-considered balance between regulatory compliance and profitability. ADVISORI supports financial institutions with a comprehensive approach to optimizing these metrics, covering both technical and strategic dimensions.

💧 Integrated approach to liquidity optimization:

🔄 Operational and strategic optimization:

The increasing complexity and level of detail of CRR/CRD requirements place significant demands on the technological infrastructure of financial institutions. ADVISORI pursues a technology-oriented solution approach that employs modern systems and advanced analytical methods to automate, optimize, and future-proof compliance processes.

💻 Technological pillars for efficient CRR/CRD compliance:

🔧 Advanced technologies for strategic value:

Advanced internal risk measurement approaches under CRR/CRD enable more risk-sensitive capital calculations and offer substantial strategic advantages over standardized approaches. Despite the introduction of output floors, they remain an important instrument for optimizing capital efficiency. ADVISORI supports financial institutions throughout the entire lifecycle of internal models — from initial development through to continuous validation and further development.

📐 Strategic advantages of advanced internal models:

🧪 ADVISORI's end-to-end support for internal models:

The Supervisory Review and Evaluation Process (SREP) is increasingly becoming a central element of banking supervision with direct implications for capital requirements and the strategic room for maneuver of financial institutions. Proactive and structured preparation for the SREP can significantly reduce supervisory capital add-ons and positively shape the relationship with supervisors. ADVISORI offers a comprehensive approach to SREP optimization. Key elements of effective SREP preparation: Comprehensive self-assessment: Conducting a detailed self-evaluation based on the EBA/ECB SREP methodology prior to the actual supervisory process, in order to identify weaknesses early and address them proactively. Risk driver analysis: Identification and quantification of the specific risk drivers in your business model that could potentially lead to higher SREP add-ons, and development of targeted measures to address them. Documentation excellence: Preparation of compelling and consistent documentation that demonstrably evidences the solidness of risk management processes, governance structures, and capital planning methods. Communication strategy: Development of a clear and consistent communication approach for dialogue with supervisors that convincingly conveys your strategic priorities and risk management capabilities.

Disclosure requirements under Pillar

3 have intensified considerably under the CRR/CRD framework, presenting financial institutions with complex operational and strategic challenges. The increased granularity, frequency, and public visibility of these disclosures make them an important element not only of regulatory compliance but also of market and stakeholder communication. ADVISORI offers an integrated approach to the efficient and strategic implementation of these requirements. Key developments in Pillar

3 requirements: Increased granularity: The new disclosure requirements demand more detailed information on capital, risk positions, and risk management practices at an institution-specific level. Extended subject areas: In addition to traditional risk categories, information on ESG risks, remuneration practices, and new metrics such as TLAC/MREL must now also be disclosed. Standardized formats: The introduction of mandatory disclosure formats and templates increases comparability but also places higher demands on data preparation. Accelerated timeline: The shortening of disclosure deadlines and the partial requirement for quarterly disclosure intensify the operational pressure on reporting institutions.

The increasing complexity of the regulatory environment, with overlapping requirements from various regulatory initiatives, presents financial institutions with considerable challenges. An isolated approach to implementing each individual regulation inevitably leads to inefficiencies, inconsistencies, and unnecessary costs. ADVISORI pursues an integrated compliance approach that identifies and utilizes synergies between different regulations. Key areas of regulatory convergence and synergies: Data management and governance: The data requirements of CRR/CRD overlap significantly with the principles of BCBS 239, the resilience requirements of DORA, and the data evidence obligations of ESG regulations. Risk management framework: A harmonized risk management system can simultaneously cover the CRR/CRD requirements for internal models, the BCBS 239 requirements for risk data aggregation, and the climate risk assessments under ESG regulations. IT infrastructure and operational resilience: The technological requirements of DORA for operational resilience can be aligned with the operational risk management requirements of CRR/CRD and the data architecture principles of BCBS 239. Governance and control environment: An integrated governance framework can simultaneously fulfill the requirements of various regulatory initiatives regarding responsibilities, controls, and documentation obligations.

Effective capital planning and management under the CRR/CRD framework requires balancing the fulfillment of regulatory requirements with the preservation of strategic flexibility. ADVISORI supports financial institutions in developing an integrated capital management approach that ensures compliance while simultaneously providing the foundation for sustainable growth.

🧭 Core elements of strategically aligned capital management:

2 add-ons, and combined buffer requirements while ensuring operational flexibility.

📈 ADVISORI's approach to sustainable capital optimization:

9 impacts, ICAAP processes, and stress scenarios.

Small and medium-sized banks face particular challenges in implementing CRR/CRD requirements. While the proportionality principle is enshrined in regulation, its practical application often remains complex. ADVISORI has developed a specialized approach that helps smaller institutions establish an appropriate, cost-efficient compliance framework without compromising on regulatory requirements.

⚖ ️ Specific challenges for smaller institutions:

🔍 ADVISORI's proportional implementation approach:

Internal stress tests within the framework of ICAAP (Internal Capital Adequacy Assessment Process) and ILAAP (Internal Liquidity Adequacy Assessment Process) have developed into critical instruments of risk management and supervisory compliance. ADVISORI supports financial institutions in developing and implementing solid, business-relevant stress testing procedures that both meet regulatory requirements and deliver valuable strategic insights.

🔬 Core components of an effective stress test framework:

📊 ADVISORI's specialized stress test approach:

The integration of environmental, social, and governance (ESG) factors into the CRR/CRD framework marks a significant shift in banking regulation. Sustainability risks are increasingly recognized as material financial risk drivers that require explicit consideration in risk management, capital planning, and disclosure practices. ADVISORI supports financial institutions with a comprehensive approach to this complex transformation. ESG integration into the CRR/CRD framework: Risk management extension: ESG risks must be integrated into existing risk management frameworks, particularly for credit, market, and operational risks, as well as in the identification and assessment of emerging risks. Capital planning and ICAAP: Sustainability risks must be integrated into the ICAAP, including stress tests for climate risks across various time horizons (short-, medium-, and long-term). Extended disclosure obligations: ESG-related risks and their management must be transparently presented in Pillar

3 disclosures, including quantitative metrics and qualitative strategy descriptions. Governance and oversight: Establishment of clear responsibilities for ESG risks within governance structures and decision-making processes of institutions.

European banking supervision is undergoing a continuous transformation process shaped by regulatory developments, market dynamics, and new risk dimensions. ADVISORI closely monitors these developments and supports financial institutions in preparing early for upcoming requirements and securing strategic competitive advantages. Key development trends in European banking regulation: Basel IV finalization: The full implementation of the Basel IV standards, with stricter output floors and revised standardized approaches for various risk categories, will fundamentally change capital requirements and risk modeling. Digital transformation of supervision: The trend toward data-driven supervision with direct access to granular bank data (supervisory technology) will significantly influence transparency requirements and data management systems. Climate risk integration: The systematic incorporation of climate risks into all pillars of banking regulation, including specific capital requirements for climate-related risks, is becoming increasingly concrete. Consolidation of the single rulebook: The further harmonization of European banking regulation with the goal of a genuine banking union and uniform supervisory practices remains a central guiding principle.

The management of counterparty risks has gained considerably in complexity and strategic importance under the CRR/CRD framework. With the introduction of the Standardized Approach for Counterparty Credit Risk (SA-CCR) and stricter requirements for CVA risks, financial institutions face the challenge of fundamentally revising their approaches. ADVISORI supports the implementation of effective and capital-efficient counterparty risk management. Core elements of advanced counterparty risk management: Integrated risk measurement: Development of a consistent measurement approach for counterparty risks that links regulatory requirements (SA-CCR, CVA) with internal economic considerations and provides a basis for strategic business decisions. Collateral management optimization: Implementation of advanced collateralization strategies and processes that maximize regulatory capital relief while ensuring operational efficiency. Risk mitigation techniques: Systematic assessment and implementation of regulatory-recognized risk mitigation techniques such as netting, hedging, and central clearing, taking into account their cost-benefit profiles. Pre-trade analysis: Establishment of processes for assessing the regulatory capital impact of new transactions prior to execution, enabling capital-efficient deal structuring.

An effective governance structure is fundamental to the sustainable compliance with CRR/CRD requirements and the strategic integration of regulatory considerations into business decisions. ADVISORI supports financial institutions in developing and implementing optimal organizational and governance models that both meet regulatory requirements and ensure operational efficiency.

🏛 ️ Success-critical elements of effective compliance governance:

🔄 ADVISORI's practice-oriented governance approach:

Supervisory inspections in the context of CRR/CRD compliance have increased considerably in intensity, depth, and technical complexity in recent years. Professional preparation and structured management of these inspections are critical to avoiding regulatory measures and establishing a positive relationship with supervisors. ADVISORI supports financial institutions with a comprehensive approach to managing supervisory inspections. Key elements of successful inspection preparation: Proactive self-assessment: Conducting detailed preliminary analyses on inspection-relevant topics to identify potential weaknesses early and address them before they are identified by supervisors. Documentation excellence: Ensuring complete, consistent, and compelling documentation of all relevant processes, methods, and decisions that meets regulatory requirements and ensures traceability. Data quality management: Implementation of solid data quality checks and processes to ensure that all information submitted to supervisors is correct, consistent, and traceable. Communication strategy: Development of a clear and consistent communication approach for dialogue with supervisors that presents complex technical aspects in an understandable manner and supports the institution's strategic direction.

Requirements in the area of operational risk have expanded and been refined significantly with the further development of CRR/CRD. The introduction of the new Standardized Measurement Approach for operational risk (SMA) and the increased focus on cyber and technology risks require a fundamental realignment of operational risk management. ADVISORI supports financial institutions with a comprehensive approach to addressing these complex challenges. Core elements of modern operational risk management: Integrated risk taxonomy: Development of a comprehensive, structured classification of operational risks that integrates traditional and emerging risk categories (such as cyber, conduct, compliance, and outsourcing risks) into a coherent framework. Data-driven assessment: Implementation of advanced methods for the identification, assessment, and quantification of operational risks that combine both historical loss data and forward-looking scenario analyses. Integrated control environment: Design of an efficient, risk-based control framework that optimally links operational controls, management controls, and independent monitoring functions. Resilience-oriented management: Transition from a pure loss focus to a comprehensive resilience approach that places resistance to disruptions at the center.

CRR/CRD requirements have fundamentally challenged the traditional business models and revenue sources of banks. In an environment of rising capital requirements, stricter risk constraints, and intense competition, strategic optimization of the risk-return relationship is critical for sustainable profitability. ADVISORI supports financial institutions with an integrated approach that aligns regulatory compliance with business performance. Strategic levers for risk-return optimization: Risk-adjusted performance measurement: Implementation of advanced RAPM methods (Risk-Adjusted Performance Measurement) such as RAROC or RORAC that explicitly incorporate regulatory capital costs into profitability assessments and enable risk-adjusted management. Portfolio optimization: Systematic analysis and realignment of the business portfolio based on risk-adjusted returns, with particular focus on reducing RWA-intensive but low-yield exposures. Strategic pricing: Development of pricing frameworks that transparently incorporate regulatory capital and liquidity costs into product calculations and ensure risk-adequate pricing. Balance sheet structure optimization: Strategic redesign of the balance sheet structure with a view to an optimal balance between regulatory requirements (capital, utilize, liquidity) and earnings potential.

Regulatory reporting under CRR/CRD has evolved into a highly complex, resource-intensive process that presents financial institutions with considerable operational challenges. The continuously rising requirements for granularity, frequency, and quality of reporting data require a fundamental redesign and extensive automation of the underlying processes and systems. ADVISORI supports financial institutions in transforming their regulatory reporting into an efficient, future-proof functional area. Key elements of an optimized reporting framework: End-to-end process integration: Design of smoothly integrated processes from data collection through calculations to report generation and submission, with clear responsibilities and control points along the entire process chain. Data governance and quality: Implementation of solid governance structures and quality assurance mechanisms that ensure the correctness, consistency, and traceability of all reporting data. Granular data foundation: Development of a unified, granular data foundation for all regulatory and internal reporting requirements that avoids redundant data collection and establishes a consistent single source of truth.

The differentiated treatment of significant institutions (SI) and less significant institutions (LSI) in the European banking supervisory system represents a central pillar of the proportionality principle. While the fundamental CRR/CRD requirements apply to all institutions, there are considerable differences in supervisory practice, the level of detail of regulatory requirements, and implementation timelines. ADVISORI supports both groups of institutions with tailored approaches that take into account their specific regulatory requirements and challenges. Key differences in requirements: Supervisory jurisdiction: SIs are subject to direct supervision by the ECB within the SSM framework, while LSIs are primarily supervised by national supervisory authorities, with the ECB retaining an overarching supervisory function. Methodological depth: The methodological requirements placed on SIs are typically more detailed and demanding, particularly in areas such as ICAAP/ILAAP, risk management models, and stress tests. Reporting scope: SIs have more extensive, more granular, and more frequent reporting obligations, while LSIs can benefit from certain reliefs, particularly regarding detailed supplementary requirements.