The Association for Financial Markets in Europe (AFME) welcomes adoption by the European Commission of the Delegated Act to delay the implementation of the EU’s market risk framework by one year to 1 January 2026. AFME supports the EU Commission’s decision given the need for further clarity on both substance and timing, and the need for international alignment.

Caroline Liesegang, Managing Director, Head of Capital & Risk Management, Sustainable Finance and Research at the Association for Financial Markets in Europe (AFME) said: “Delaying the implementation of the market risk framework (FRTB) was a necessary decision in light of the ongoing lack of clarity on both content and timeline in other major jurisdictions. It is important to avoid unnecessary regulatory fragmentation when possible. The decision underlines that the European Commission firmly supports international alignment.

“AFME also commends the European Commission’s complementary Q&A as it takes into consideration and clarifies the implications a delayed implementation would have on other elements of the EU’s banking regulatory framework (e.g. CRR3 reporting and disclosure requirements and the calculation of the Output Floor). These elements are intrinsically linked to the market risk framework and could create significant challenges for banks if not addressed accordingly.

“However, further work remains to be done. It is crucial that the EU’s implementation of the Trading Book/Banking Book boundary (TB/BB boundary) is consistent with the timeline invoked by the delegated act to delay both the FRTB Standardised Approach (SA) and the FRTB Internal Model Approach (IMA) capital calculations and therefore, we welcome the guidance issued to the European Banking Authority (EBA) to instruct supervisors to delay the implementation of the TB/BB boundary as they have done previously.

We are, however, disappointed in the Commission’s conclusion not to address the credit valuations adjustment framework (CVA) and the profit and loss attribution test (PLAT). In our view, given the interdependence of the various regulatory frameworks, an aligned timeframe of implementation and transition is important to avoid operational inconsistencies. We look forward to a continuing dialogue with the Commission and the EBA as these issues evolve and as the broader international picture becomes clearer.”

Source: AFME

European Commission statement 

The European Commission has adopted a delegated act that postpones by one year (i.e. until 1 January 2026) the date of application of one part the Basel III standards in the EU – the Fundamental Review of the Trading Book (FRTB). The FRTB incorporates more sophisticated risk measurement techniques that aim to align capital charges more closely to the actual risks banks are facing in their activities in capital markets.

The Commission has always been committed to a timely implementation of the Basel III standards. The entry into force of the final text of the Banking Package on 9 July as well as the entry into application in the EU of the new Basel requirements from 1 January 2025 are a proof of that.

By doing so, the EU is among the first major jurisdictions to finalise the implementation of the Basel standards. The application of these standards is important for the functioning of a well-regulated and stable banking sector that can contribute to financial stability and economic growth.

However, aligned implementation of the standards across jurisdictions is essential. Delays and deviations in implementation in major jurisdictions could undermine the credibility of the standards. This could ultimately hamper the international level playing field and undermine the global financial stability.

The Commission’s ongoing monitoring of the implementation of the Basel standards in the rest of the world indicates that some major jurisdictions have yet to finalise their rules or communicate on their timelines for implementation. That is why, to preserve the global level playing field for internationally active European banks in respect to their trading activities, the Commission has decided to postpone the entry into force of this part of the Basel III standards. The Basel III standards will apply to all EU banks from 1 January 2025, with the exception of the market risk framework (provided the co-legislators do not object to the delegated act).

The delegated act has been adopted in accordance with the mandate received by the Commission from the European Parliament and Council.

Next steps

The delay of the application date of the FRTB rules by one year will give us time to assess the international developments and our next steps. This delegated act is now subject to the scrutiny of the European Parliament and Council for a period of 3 months.

Background

The recent entry into force of the Banking Package (the Capital Requirements Regulation and the Capital Requirements Directive) represents a key milestone towards the faithful implementation of the Basel standards in the EU. It reaffirms our willingness to fulfil our international commitment and to implement the new prudential rules as of 1 January 2025, as previously announced.

An international level playing field is particularly important for capital market activities. Competition between internationally active banks is very intense in this area due to the ease with which market activities can be conducted across jurisdictions. The implementation of the FRTB should therefore converge as much as possible across jurisdictions to prevent distortions of the playing field.

Source: European Commission