The Capital Requirements Directive (CRD) for the financial services industry will introduce a supervisory framework in the EU which reflects the Basel II

Basel II

Basel II is the second of the Basel Accords, which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision...

 rules on capital measurement and capital standards.

Member States have to transpose, and firms of the financial service industry have to apply, the CRD from January 1, 2007. Institutions can choose between the current basic indicator approach

Basic indicator approach

The basic approach or basic indicator approach is a set of operational risk measurement techniques proposed under Basel II capital adequacy rules for banking institutions....

, that increases the minimum capital requirement in Basel I

Basel I

Basel I is the round of deliberations by central bankers from around the world, and in 1988, the Basel Committee in Basel, Switzerland, published a set of minimal capital requirements for banks. This is also known as the 1988 Basel Accord, and was enforced by law in the Group of Ten countries...

 approach from 8% to 15% and the standardized approach

Standardized approach (operational risk)

In the context of operational risk, the standardized approach or standardised approach is a set of operational risk measurement techniques proposed under Basel II capital adequacy rules for banking institutions....

 that evaluates the business lines as a medium sophistication approaches of the new framework. The most sophisticated approaches, Advanced IRB approach and AMA or advanced measurement approach

Advanced measurement approach

Under Basel II, operational risk charges can be calculated by using one of the three methods that increase in sophistication and risk sensitivity: the Basic Indicator Approach; the Standardised Approach; and Advanced Measurement Approaches .Under AMA the banks are allowed to develop their own...

 for operational risk

Operational risk

An operational risk is, as the name suggests, a risk arising from execution of a company's business functions. It is a very broad concept which focuses on the risks arising from the people, systems and processes through which a company operates...

 will be available on the beginning of 2008. From this date, all EU firms will apply "Basel II

Basel II

Basel II is the second of the Basel Accords, which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision...

".

External links

• http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2006:177:0001:0200:EN:PDF
• http://eur-lex.europa.eu/LexUriServ/site/en/oj/2006/l_177/l_17720060630en02010255.pdf