On 4 June 2026, the European Commission adopted a delegated regulation introducing targeted, time-limited (up to three years) amendments to the EU’s implementation of the prudential framework for market risk for EU credit institutions that was revised under Regulation (EU) 2024/1623 (CRR 3) (known as the ‘fundamental review of the trading book’ (FRTB) standards). The FRTB standards were developed under the Basel III framework to strengthen the measurement of market risk in credit institutions’ trading books.
Background
The date of application of the FRTB standards was already postponed by two years, to 1 January 2027, to address international level playing field concerns. Despite the postponement, the European Commission is concerned that some major jurisdictions, including the UK and US, are expected to delay full FRTB implementation beyond 1 January 2027 and uncertainty remains regarding the final rules for those jurisdictions. The new targeted measures are intended to address competitiveness concerns as the European Commission considers that delays in other jurisdictions could leave EU credit institutions subject to higher capital requirements than international peers. The delegated regulation therefore introduces temporary relief measures, including a “multiplier” intended to offset increases in capital requirements for market risk, in certain cases, until 31 December 2029.
Temporary amendments
The delegation regulation, once finalised and in force, will amend the Capital Requirements Regulation to address problematic aspects of the FRTB framework, in terms similar to what other major jurisdictions have already done or signalled they would in their FRTB implementation.
These concern both FRTB internal model and standardised approaches. Specific aspects of the internal model approach are being temporarily relaxed (such as the profit and loss attribution test and the risk factor eligibility test), providing both capital and operational relief. The delegated regulation also introduces more flexible treatment for the calculation of the capital requirements for ‘Collective Investment Undertaking’ exposures, under both approaches, and allows credit institutions specific flexibilities in the calculation of the capital requirements for default risk for sovereign exposures under the internal model approach and for hedged equity exposures under the standardised approach. Institutions also benefit from a temporary phase-in of some requirements under the standardised approach that address level playing field issues coming from the different implementation timelines with other jurisdictions.
The “multiplier” (mentioned above) is designed to neutralise the capital impact on credit institutions negatively impacted by the revised market risk framework. Institutions will calibrate this multiplier such that it scales down their FRTB capital requirements, after the application of the targeted amendments and after the application of the output floor, to the level of their pre-FRTB capital requirements.
Some related operational and technical aspects must be further clarified, so that institutions and supervisors have a consistent approach to the implementation of the requirements.
Practical implications for credit institutions
For in-house legal and compliance teams, the announcement is significant for two reasons. First, it signals that the EU remains committed to implementing the FRTB standards but is prepared to adjust the framework temporarily to preserve a level playing field for EU credit institutions active in international markets. Second, the temporary measures give institutions additional time and flexibility as they prepare to apply the FRTB standards from 1 January 2027.
Credit institutions with material trading book activity should consider whether the proposed adjustments may affect capital planning, implementation timelines and internal governance arrangements for FRTB readiness. In particular, institutions should assess the operational impact of any temporary relief measures and ensure that relevant stakeholders understand that the relief is limited in duration and does not alter the direction of travel towards full FRTB implementation. Finally, institutions will need to closely monitor the final form of the delegated regulation after the scrutiny period (see below).
Next steps
The delegated regulation will be reviewed by the European Parliament and the Council of the EU during a three-month scrutiny period, which may be extended by a further three months. If no objection is raised, the delegated regulation is expected to apply from 1 January 2027 for three years.
The delegated regulation enables credit institutions to progress with the implementation of the revised market risk framework, while mitigating capital and operational impacts to preserve a level playing field. Institutions should continue to track developments closely and factor the temporary adjustments into their ongoing market risk implementation planning.
If you need support in relation to tracking and planning, please contact Eoin O’Connor, Partner Patrick Brandt, Partner, Eimear O’Brien, Partner, Louise Hogan, Partner, Sarah Lee, Senior Practice Development Lawyer or your usual ALG contact.
