European Commission considers further postponement and temporary relief measures for FRTB application
In view of the continuing uncertainties surrounding the implementation of the Basel III market risk framework in major jurisdictions such as the United States and the United Kingdom, the European Commission has launched a targeted consultation. This initiative aims to assess the possibility of a further postponement, as well as the introduction of temporary relief measures regarding the Fundamental Review of the Trading Book (FRTB) requirements within the European Union. The consultation period ended on April 22, 2025.
Content of the consultation
The Commission’s consultation presents three main options:
1. Maintain the current timetable, with implementation of the FRTB on January 1, 2026;
2. Postpone implementation by one year, to January 1, 2027;
3. Introduce temporary relief measures for up to three years, postponing full implementation until either January 1, 2029 or January 1, 2030, depending on whether or not option 2 is adopted.
These options are based on Article 461a of the Capital Requirements Regulation (CRR3), which empowers the Commission to defer the application of capital requirements for market risk for up to two years, and to introduce temporary relief measures for up to three years, in order to ensure alignment with international standards and maintain a level playing field for European banks. Among the relief measures proposed:
For banks using the Internal Models Approach (IMA) :
– Progressive phase-in of capital requirements for non-modifiable risk factors (NMRF), applying a fixed multiplier of between 35% and 45% for three years years;
– Use of the Profit and Loss Attribution Test (PLAT) only as a monitoring tool until January 1, 2029.
For banks using the alternative standardized approach (ASA) :
– Temporary elimination of the Residual Risk Add-on (RRAO) by applying a zero multiplier for instruments with exotic underlyings or other residual risks.
These measures are designed to mitigate potential competitive disadvantages for European banks resulting from asynchronous implementation schedules on a global scale.
Impacts
The proposed postponement and relief measures are intended to give European banks additional time to adapt to the complex requirements of the FRTB framework, particularly in the face of challenges related to the implementation of advanced risk models and operational complexities.
Feedback from the banking industry is expected to be mixed. Internationally-operating ASA banks may prefer alignment with the US and UK timetables to ensure fair competition, while mainly European ASA banks, having already invested in compliance, may perceive the postponement as an additional cost of maintaining parallel systems. IMA banks, on the other hand, are likely to support the proposed measures, given the benefits in terms of capital and the encouragement of wider adoption of internal models.
The Commission should finalize its approach by June 2025, taking into account feedback received during the consultation.
