The European Union’s move to push back the start date for new bank capital rules on the trading book by one year to January 2026 has turned the spotlight on regulators in the US and the UK, where the requirements are still officially expected to take effect in July 2025.
The European Commission announced earlier today (June 18) that it had decided to delay implementation of the Fundamental Review of the Trading Book (FRTB), planned for January 2025, due to concerns that US regulators would fail to meet their July 2025 deadline for implementing their version of the so-called Basel endgame rules.
“We had to act now on the basis that we do not consider it likely that the US will manage to have a kick-off date for the Basel III reforms by July 1, 2025, as envisaged,” said Marco Crotti, a policy expert at the European Banking Authority, speaking on a panel at the Risk Live conference in London shortly after the EC announced the delay.
At the moment we’re marching to that July 2025 timeline, because we have not received formal messages from the Federal Reserve Board to tell us otherwise
Adolfo Montoro, Bank of America
US regulators are revising their Basel endgame proposals after an initial framework released in July 2023 set off a storm of criticism from banks and Republican lawmakers. The final package is not expected to be finalised until September at the earliest, and may be delayed until 2026.
Banks need at least one year from the point the FRTB rules are finalised to collect data required for model eligibility tests under the new capital regime. With the clock ticking, the EC determined that “it would be almost impossible for the US to stick to that timeline, so there was the need to act,” Crotti said.
But with US regulators yet to formally confirm that implementation of the Basel endgame will be delayed, banks with US headquarters or subsidiaries find themselves in the strange position of having to treat July 2025 as the effective start date for FRTB, even if no-one thinks that deadline can be met.
“Whether FRTB will go live in July 2025 in the US, at the moment we’re marching to that timeline, because we have not received formal messages from the Federal Reserve Board to tell us otherwise,” said Adolfo Montoro, a director in the global market risk analytics function at Bank of America.
Montoro added the bank had little choice but to plan for a July 25 go-live date unless US regulators announce a delay. “We cannot afford to stop and then restart,” he said.
Who’s next?
The EC’s delay could also unnerve global banks in other jurisdictions already locked into an earlier timeline. Japanese regulators implemented the local version of the final Basel III rules, including FRTB, on March 31 this year, with its three megabanks – Mizuho, Mitsubishi UFJ and Sumitomo Mitsui – all opting to use the regulator-set standardised approach to calculate market risk capital requirements. Nomura, a pure-play investment bank and securities house, is regulated by Japan’s Financial Services Agency, which will apply its own version of the Basel III capital in June 2025.
“We managed to get a concession based on the fact that originally all the major jurisdictions would go live next year. Now that’s no longer the case so we are obviously worried,” said Eduardo Epperlein, global head of risk methodology at Nomura.
