Questions and answers: Postponing market risk requirements to preserve the international level playing field – technical implications

1. Can you explain what the Commission proposes to do in relation to the market risk rules?

The updated Capital Requirements Regulation and Capital Requirements Directive, that completed the implementation of Basel III in the European Union, started to apply from 1 January 2025, with the exception of the market risk prudential requirements (‘the Fundamental Review of the Trading Book’ or ‘FRTB’), whose date of application was postponed by one year by means of a delegated act to 1 January 2026.

The international level playing field is particularly important for financial market activities, as competition between internationally active banks is very intense in this area, due to the ease with which these activities can be conducted across jurisdictions (including between Member States and third countries or through branches). To prevent any distortions of the playing field, the implementation of the FRTB rules should therefore converge as much as possible across jurisdictions.

The Commission’s ongoing monitoring indicates that several jurisdictions have already implemented the standards or are in the process of doing so, in line with their international commitments. However, some major jurisdictions, for which level playing field considerations are very relevant, have yet to finalise their rules or communicate on a definite timeline for implementation of the FRTB rules as well as the other final Basel III standards. 

Hence, our decision to act again for the preservation of the level playing field for EU banks, on the basis of the CRR empowerment.

The Council and the European Parliament mandated the European Commission to monitor the international implementation of the FRTB standards across jurisdictions andempowered the Commission to adopt one or more delegated acts to ensure an international level playing field, should significant deviations in implementation by third countries be identified, either in terms of timeline or requirements. The co-legislators empowered the Commission to adopt delegated acts to postpone by up to 2 years the entry into application of the FRTB, or introduce targeted amendments up to 3 years.

As a result, the Commission considers it necessary, so as to fulfil the mandate entrusted by the European co-legislators and preserve the level playing field for the trading activities of European banks, to postpone by one additional year, until 1 January 2027, the date of application of the FRTB standards in the EU for banks’ calculation of own funds requirements for market risk. This decision is based on the Commission’s technical assessment and the feedback from the recently concluded targeted public consultation.

A Delegated Act has been adopted today to that effect. Subject to the scrutiny of the European Parliament and Council for a period of 3 months, the Delegated Act should enter into application in the second half of the year. This is the last delegated act the Commission can adopt to postpone the application of the FRTB. The empowerment allows the Commission to adopt successive delegated acts, thus allowing the Commission to take further action in 2026 only in relation to amendments to the market risk framework. 

Postponing the application of the new market risk rules for the calculation of banks’ own funds requirements means that banks will continue to calculate the related own funds requirements also during 2026 under the current rule.

2. What are the implications for the banks and the implementation of the related prudential rules? 

A number of related operational and technical aspects must be clarified, so that banks and supervisors have a consistent approach to the implementation of the requirements. We expect these aspects to be addressed in the same way as for the previous Delegated Act which first postponed the application of the revised market risk framework. It is also important to stress that adverse developments in financial markets can materialise suddenly and with a highly amplified impact. It is important for banks to remain vigilant towards market risk in their risk management practices (independently from and in addition to the applied Pillar I treatment).

Market risk reporting requirements

The CRR2 introduced specific reporting requirements for banks based on the FRTB framework. The objective of those reporting requirements was to ensure that institutions adequately prepare for the implementation of the FRTB framework as binding capital requirements.

Similarly to the measures introduced with the 2024 Delegated Act, during the additional one-year postponement period, institutions will continue to use their current (pre-FRTB) methodologies to calculate their own funds requirements for market risk. In parallel, the FRTB Standardised Approach will be used for the output floor calculation. These elements therefore need to continue to be reported to competent authorities based on the current reporting requirements.

Concretely, it means that the existing reporting templates for market risk, as they are laid down in Commission Implementing Regulations (EU) 2021/451 and 2021/453, will continue to apply until 1 January 2027.

Market risk disclosure requirements

The banking package introduces specific disclosure requirements for the own funds requirements for market risk, based on the FRTB framework. Considering the decision to postpone the application of the FRTB requirements by one additional year, the Commission considers that the new disclosure requirements should equally be postponed by one year, until 1 January 2027. 

As institutions will continue to calculate their own funds requirements for market risk using the current (pre-FRTB) methodologies as available under CRR2, information on those methodologies and on relevant own funds requirements must continue to be made available to market participants, in line with the existing disclosure requirements. These are key contributions to preserve market discipline and correctly inform investors.

However, the use of the FRTB Standardised Approach for the purpose of the output floor requires elements of its calculation to be provided in the context of the disclosure framework applicable to the output floor. These elements are not affected by the empowerment for the delegated act allowing the Commission to delay the application of the FRTB and have already been specified in the Commission implementing Regulation (EU) 2024/3172.

Output Floor

The output floor is a key element of the Basel reform. It works as a lower limit (‘floor’) determined on the basis of standardised approaches on the capital requirements (‘output’) that banks calculate using their internal models. After the adoption of the 2024 delegated act, its application was made consistent with the one-year postponement of the FRTB implementation. Banks should continue to apply the same approach for one additional year.

Trading book / non-trading book boundary requirements

The new requirements introduced by the banking package on the non-trading book / trading book boundary became applicable from 1 January 2025. However, the additional delay of the FRTB requirements for the calculation of own funds requirements implies that banks would be required to implement the boundary conditions in the context of pre-FRTB approaches, potentially leading to unintended consequences. Therefore, the Commission considers that EU regulators and supervisors should extend the no action letter adopted in this area last year to avoid a staggered implementation of the different elements of the FRTB framework.