In his introductory address to the Investment Services (Amendment) Bill, Finance Minister Edward Scicluna principally spoke of the Capital Requirements Directive (CRD), as well as the Banking Union, while also delivering a background to the international financial crisis.

However the report in Times of Malta (April 17) attributes the characteristics of the Banking Union to the CRD instead.

The CRD, which is the basis for the legal amendments before Parliament, is intended to ensure that banks increase and strengthen their capital to ensure that they are less vulnerable to insolvency.

The CRD tackles some of the vulnerabilities shown by credit institutions and investment firms during the financial crisis, namely the insufficient level of capital, both in quantity and in quality.

It sets stronger prudential requirements for credit institutions and investment firms, requiring them to keep sufficient capital reserves and liquidity. It strengthens their capacity to adequately manage the risks linked to their activities and absorb any losses they may incur in doing business.

The amendments to the Investment Services Act, therefore, mainly provide for the designation of the Malta Financial Services Authority as a competent authority for the purposes of the CRD and also for the purposes of the regulation on prudential requirements for credit institutions and investment firms, and amending the regulation commonly referred to as the ‘Capital Requirements Regulation (CRR)’.

On the other hand, the Banking Union is a separate arrangement for approximately 6,000 banks in the eurozone member states. It is intended to prevent a banking crisis through close supervision of the assets of credit institutions and a mechanism for resolution of troubled banks whereby defaulting banks would be bailed-in instead of bailed-out.

The respective legal framework related to the Banking Union will be presented and discussed in Parliament in due course.

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