New trading rules face delays and revisions in US and Europe as regulators ease requirements amid industry pushback and competitiveness concerns.
The final stage of the Basel III framework is being reworked after drawing significant industry and regulatory pushback. Both sides of the Atlantic are now examining the Fundamental Review of the Trading Book (FRTB).
The European Commission said it was considering measures to neutralize the impacts of the FRTB. It cites concerns about the international “level playing field” amid diverging implementation across other major jurisdictions. Earlier in the year, the Commission had already delayed implementation to January 2027.
On March 19, US regulators — the Federal Reserve, the FDIC, and the OCC — advanced a revised Basel III “endgame” proposal. The proposal aims to simplify capital requirements and soften earlier measures, reinforcing concerns that the framework is no longer being implemented consistently across major markets.
Federal Reserve Vice Chair for Supervision Michelle Bowman noted at the time that the new proposal would “streamline the risk-based capital framework” and “better align requirements with risk.”
Competitive Problems
The FRTB aims to change the way banks measure risks in their trading books by introducing stricter rules for calculating market risk, tougher tests for which trading desks can continue using internal models, and higher capital charges for complex or less liquid positions.
But almost 20 years after its inception, in the aftermath of the 2008 Global Financial Crisis, the framework faces renewed resistance. Banks and regulators claim it could materially deteriorate industry margins, particularly for banks with large and complex trading operations.
Earlier this year, in a consultation response to the European Commission, the Association for Financial Markets in Europe said that “certain components of the FRTB continue to pose challenges, due to the significant operational complexity and excessively conservative capital requirements that do not align with the underlying economic risk.”
Experts also worry that uneven implementation across jurisdictions could create a competitive problem. After all, EU banks often face stricter regulation.
“At a time when global competition for capital is intense, and customer choice is not limited by jurisdictional boundaries, maintaining a level playing field is critical to ensuring EU banks can continue to lend and invest effectively,” says Hyder Jumabhoy, Partner and Global Co-head of its Financial Institutions Industry Group at White & Case.
