The European Commission is set to push back, yet again, on the implementation of the Fundamental Review of the Trading Book as it postpones the Basel III requirements for Market Risk for another year, now set to come into effect on January 1, 2027. It is now the second time the EU will push back on the implementation of this complex set of rules, which aims to reflect the capital requirements on actual trading risks.
International coordination drives regulatory postponement decision
The European Commission mentioned “recent international developments” as the rationale for this latest postponement, citing delays in the implementation of Basel III in other global jurisdictions as the reason. The European Commission is, nonetheless, committed to the timely implementation of Basel standards but is aware of the significance of maintaining an international level playing field.
Commissioner Maria Luis Albuquerque stressed the ‘practical balance between regulatory requirements and competitive positioning,’ saying, ‘Although the EU is in support of the implementation of Basel III standards, as this is essential for global financial stability, the EU must be mindful and cautious about monitoring the competitiveness of banks within the EU.
Key drivers of the delay are:
- • Postponed implementation deadlines in other large global jurisdictions
- • Obstacles related to competitive disfavor for EU banks in global markets
- • Requirement for global cooperation to provide and preserve a level playing field
- • Results from technical assessments indicate the need for more preparation time
The Basel III framework aims to strengthen banking sector resilience
The Fundamental Review of the Trading Book is the final element of the Basel III international requirements to which member states of the European Union are obliged to implement. These regulations require an increased level of risk measurement methodologies and enable greater symmetry between capital requirements and risks driven by activities in capital markets.
Most Basel III requirements were successfully implemented on January 1, 2025, through the Comprehensive 2024 Banking Package legislation adopted by the EU. The Basel III FRTB is only postponed in relation to this specific component of market risk, and other Basel III standards will remain on schedule. It will allow European banks to appropriately prepare without departing from already adopted requirements.
However, the delegated act on this postponement is subject to scrutiny by the European Parliament and Council, which takes three months, possibly extended by another three months. Each of these periods may allow the Commission to monitor international trends and act appropriately on the implementation of FRTB, while ensuring competitive balance for European banks on global markets.
The competitive implications exceed the implementational benefits
The Commission’s action is prompted by the need to secure competitive balance, and this is linked to the consideration that unilateral action may adversely affect European banks in international trading. The rationale for this action is linked to the consideration that laws about banks must be aware of global competitive realities, and this is especially so in capital markets, where banks are involved in competitive practices with the aim of securing trading business.
The delay will now allow for greater international coordination, as well as ensuring that European banks are subject to no greater regulatory standards than their global competitors. The pragmatic regulatory approach, considering both financial stability and competitiveness, reflects Commissioner Kroes’s commitment to financial stability and competitiveness for European banks in the global economy.
The decision by the European Commission to defer the Basel III rules on Market Risk to 2027 is evidence of pragmatic leadership. The implementation dates being synchronized with other global financial systems will enable the EU to strengthen financial systems in Europe while being compliant with global financial standards on financial stability. The decision will also enable financial systems within Europe to remain competitive as they are set to address the improved standards of risk management.
