This opinion from the European Banking Authority addresses the application of provisions regarding the boundary between the trading book and the banking book, as well as internal risk transfer between these books. It highlights that the revised framework for capitalizing market risk, introduced by the FRTB, will be applicable from January 1, 2027. The document also specifies targeted operational relief measures and…
This document is an opinion issued by the European Banking Authority (EBA) in 2026, referenced EBA/Op/2026/08. It concerns the application of provisions related to the boundary between the trading book and the banking book, as well as the internal risk transfer between these two books. The scope covers European prudential rules stemming from Regulations (EU) 2019/876, 2024/1623, and 575/2013, notably within the implementation of the Fundamental Review of the Trading Book (FRTB). The document covers the period 2025-2029, with a focus on the transitional period linked to the postponement of the FRTB framework application to January 1, 2027.
This report addresses the application of rules governing the boundary between the trading book and banking book within the FRTB framework, and the use of a multiplier to adjust own funds requirements for market risk. The main issue is to ensure a level playing field within the European Union while avoiding excessive operational complexity for financial institutions. The major finding is that the simultaneous application of two distinct regulatory frameworks — the CRR2 framework (prior to June 28, 2023) and the FRTB framework — creates operational difficulties and high costs, especially for institutions using the multiplier provided in Article 495v of Regulation 575/2013. The EBA recommends that, during the transitional period until December 31, 2029, institutions should consistently apply the CRR2 framework for calculating own funds requirements, with or without the multiplier, to avoid regulatory fragmentation and preserve the integrity of the single market. Furthermore, the suspension of reporting obligations related to the composition of the trading book and reclassifications is advised as long as the FRTB framework is not fully applicable. Finally, the EBA invites the European Commission to propose a legislative act clarifying these provisions and aligning reporting requirement dates with those for own funds calculation to ensure a smooth transition.
The document responds to difficulties encountered in implementing the FRTB framework in the European Union, notably due to the postponement of its application to January 1, 2027 by the European Commission through several delegated acts. This postponement aims to preserve a level playing field internationally, considering delays in other jurisdictions. The EBA has taken up the issue of boundary rules between trading and banking books, which were partially introduced by Regulation 2019/876 and supplemented by Regulation 2024/1623, but whose full application is deferred. The objective is to avoid excessive operational complexity and inconsistencies in rule application, as well as risks of regulatory fragmentation within the single market. The scope includes own funds requirements for market risk, rules for allocating financial instruments to regulatory books, reclassifications, and internal risk transfers. The document aims to clarify the EBA’s position on the temporary application of regulatory frameworks and associated reporting modalities.
Regulatory framework and application postponements:
- The FRTB, introduced by Regulations (EU) 2019/876 and 2024/1623, was to apply from January 1, 2025, but its application is postponed to January 1, 2027 via several delegated acts, notably the 3rd FRTB delegated act (3rd FRTB DA) which will apply until December 31, 2029 (p. 1-2).
Multiplier of Article 495v of Regulation 575/2013:
- This multiplier allows institutions to adjust their own funds requirements for market risk. Its calibration must be based on the CRR2 framework, i.e., the rules in force before the 2019/876 amendments, to avoid excessive operational complexity (p. 2-3).
- The EBA emphasizes that for precise and consistent calibration, own funds requirements calculated with and without the multiplier must both be based on this CRR2 framework (p. 3).
Application of the framework to institutions without a multiplier:
- The Commission considers that banks not using the multiplier should benefit from the same flexibility and be able to apply the CRR2 framework for calculating their requirements to ensure fair treatment (p. 3).
Reporting and information requirements:
- Regulation 2024/3117 imposes reporting on the composition of the trading book and reclassifications, based on the FRTB framework (p. 3-4).
- The EBA recommends suspending this reporting as long as own funds requirements calculation does not rely on the FRTB framework, to avoid inconsistencies and unnecessary administrative burden (p. 4).
Risks of fragmentation and competition level issues:
- The simultaneous application of two distinct frameworks (CRR2 and FRTB) generates operational complexity and high costs (p. 5).
- Divergences in the implementation of rules between the Union and third countries may lead to regulatory fragmentation and competitive disadvantages for European institutions (p. 5-6).
Legislative proposals and recommendations:
- The EBA calls on the Commission to present a legislative proposal to clarify, suspend, or temporarily modify the application of certain articles of Regulation 575/2013 related to the boundary between books, for the 2027-2029 period (p. 6).
- It also recommends aligning the start dates of reporting obligations with those of the application of the FRTB framework for own funds calculation (p. 6).
- Until these measures are implemented, supervisory authorities should suspend any control or sanction actions related to the non-application of FRTB rules on the boundary between books (p. 6-7).
Established facts:
- The FRTB framework, although adopted, will only be applicable from January 1, 2027, with a transitional period until 2029 (p. 1-2).
- The multiplier of Article 495v requires calibration based on the CRR2 framework, prior to the 2019/876 amendments (p. 2-3).
- The FRTB framework is more prescriptive and operationally constraining than the CRR2 framework (p. 5-6).
Hypotheses and interpretations:
- The simultaneous application of the two frameworks (CRR2 and FRTB) would cause significant operational complexity and costs (p. 5).
- A differentiated application of the FRTB framework depending on the use or not of the multiplier could create inequalities among institutions within the Union (p. 5-6).
- The suspension of reporting related to the FRTB framework is justified as long as the framework is not fully applicable for requirements calculation (p. 4).
Uncertainties:
- The entry into force of the 3rd FRTB delegated act remains subject to approval by the European Parliament and the Council (p. 2).
- Future legislative negotiations on the Commission’s proposal, expected early 2027, could modify the timeline and application modalities (p. 6).
- The evolution of practices in third-country jurisdictions could influence the need to adapt the European framework (p. 5).
The EBA concludes that, to avoid excessive operational complexity, high costs, and risks of regulatory fragmentation, it is appropriate to temporarily allow the application of the CRR2 framework for the calculation of own funds requirements for market risk, whether institutions use the multiplier of Article 495v or not. It also recommends suspending reporting obligations related to the composition of the trading book and reclassifications as long as the FRTB framework is not fully applicable. The EBA calls on the European Commission to present, in the first quarter of 2027, a legislative proposal aimed at clarifying, suspending, or temporarily modifying Articles 104, 104a, 106(2) to (7), 204a, and 325j(5) of Regulation 575/2013 for the 2027-2029 period, as well as aligning reporting dates with those of the FRTB framework application. Finally, it requests competent authorities not to prioritize supervisory or enforcement actions related to the non-application of FRTB rules on the boundary between trading and banking books until the legislative measures are implemented.
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