Contribution ID: 031070b2-ed5f-48d2-9b59-317c05f55383
Date: 22/04/2025 12:40:38
Targeted consultation on the application of the
market risk prudential framework
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Introduction
Background for this consultation
There is still high uncertainty as regards the US and UK
[1]
implementation of the final Basel III standards, both in terms
of timeline and content. This raises major level playing field concerns among internationally active banks, particularly in
the area of market risk.
Following the
postponement by one year of the new market risk own funds requirements
in 2024, the European
Commission aims, with this targeted consultation, to gather views from stakeholders on policy options in relation to the
application of the
EU’s prudential framework for market risk
in view of potentially using the empowerment in
Article 461a of the
Capital Requirements Regulation (CRR)
to adopt a Delegated Regulation by the end of June 2025.
The Commission is interested in evidence and substantiated views from relevant stakeholders. Contributions are
particularly sought from EU national regulators and supervisors, banks and other financial institutions, and
organisations representing end-users of financial services, think tanks and academics.
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Other jurisdictions with a smaller number of internationally active banks are at different stages of the implementation of the Basel III
requirements on market risk: Canada was the first jurisdiction to implement FRTB in November 2023 (it has announced this year that it would
stop the phase‑in of the output floor until other jurisdictions catch up on implementation); Japan implemented the market risk requirements for its
banks in March 2024, with securities houses such as Nomura to follow in March 2025; Singapore and Hong Kong implemented the FRTB
requirements from the beginning of 2025, while Australia announced that it would not carry out an initial consultation on the FRTB measures
until 2026.
Context and scope
The Basel III standards for market risk – also known as the
fundamental review of the trading book (FRTB)
– were
designed as a response to the weaknesses in the market risk prudential framework revealed by the global financial
crisis. The objective of the FRTB was to establish a new, more robust framework for determining capital requirements
for banks’ financial instruments held for trading activities (e.g. shares, bonds, derivatives).
The FRTB revises all the key elements of the market risk framework:
it introduces more prescriptive trading book / banking book boundary conditions, with a precise list of
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