EU extends timeline for trading risk capital framework by three years

The European Commission will postpone the introduction of a new market risk capital framework for banks by three years as it assesses how the United States and Britain implement the same international standards, the Commission said on Thursday.

The framework forms part of the Fundamental Review of the Trading Book (FRTB), a key component of the broader Basel III banking standards.

The measures are designed to strengthen how banks measure trading-related risks and ensure that capital levels accurately reflect the risks institutions take in their trading activities.

Delay aimed at preserving competitiveness

According to the Commission, the decision to delay the implementation of capital requirement rules related to trading risk is intended to prevent European banks from being placed at a competitive disadvantage compared with peers in the United States and Britain.

The move will allow European authorities additional time to assess how other major jurisdictions proceed with the adoption of the same standards before implementing the rules in full across the European Union.

EU Commissioner for Financial Services Maria Luis Albuquerque said the decision was designed to ensure European banks remain competitive internationally.

"Europe's banks must be able to compete on equal terms with their international peers," Albuquerque said.

She added that the measures are limited in scope and duration while maintaining the European Union's commitment to international banking standards.

Albuquerque also said the delay would provide policymakers with greater flexibility to evaluate developments in other jurisdictions before determining the most suitable long-term framework.

New timeline for implementation

Under existing EU legislation, the new capital requirement rules would have been fully implemented from January 2027.

However, under the Commission's revised approach, the new regime will apply from 2027 through the end of 2029.

The proposal will take effect unless it is vetoed within the next six months by either EU member state governments or the European Parliament.

The extension effectively provides a three-year window during which European authorities can continue evaluating international developments related to the implementation of the Basel III framework and the FRTB standards.

Support from European banking authorities

Officials said the three-year postponement has been agreed with both the European Central Bank and the European Banking Authority.

The decision reflects a coordinated approach among European regulatory institutions as they seek to balance adherence to global banking standards with concerns over maintaining equal competitive conditions for lenders operating across different jurisdictions.

By delaying the full implementation of the trading risk capital requirements, European policymakers aim to monitor how major global markets adopt the standards before deciding on a long-term regulatory approach for banks within the European Union.