EBA recommends postponing the controls on the new rules that separate the trading activities of banks from the rest of their operations.

The European Banking Authority recommends national authorities not to prioritize controls or sanctions regarding the new rules that establish which operations fall into a bank's trading portfolio and which operations remain in the banking portfolio. The recommendation is expected to apply from the introduction of the new European framework for market risk, scheduled for January 1, 2027, until the end of 2029 or until a legislative change clarifies the ambiguities.

In short, the EBA has issued a non-intervention letter recommending authorities not to treat violations of the new rules regarding the delineation of the trading portfolio from the banking portfolio as a priority. The recommendation is valid only if the delegated act adopted by the Commission in June comes into force and is expected to apply until December 31, 2029, or until the clarification of the legislation. Banks will be able to temporarily continue using the old delineation for calculating capital requirements related to market risk, regardless of whether they use the reduction mechanism introduced by the Commission. The EBA believes that the simultaneous application of two classification systems would create costs, parallel procedures, and different treatments among banks conducting similar activities. The letter does not modify or suspend the legislation. It represents a recommendation addressed to supervisors, and the Commission intends to present a legislative proposal in the first quarter of 2027.

Banks categorize financial instruments into two main categories. The trading portfolio generally includes positions held for short-term sale, to profit from price changes, or to hedge risks arising from market activity.

The banking portfolio mainly includes loans, equity holdings, and other positions held for regular activity or for longer periods. The difference is important because risks and capital requirements are calculated using different methods.

An instrument placed in the trading portfolio is subject to market risk rules, which aim to address losses that may occur when the prices of obligations, equities, currencies, or other instruments change. Positions in the banking portfolio are primarily treated under credit risk rules and other risk categories.

The rules that establish where each position should be placed are known as the boundary between the trading portfolio and the banking portfolio. They also regulate situations in which a bank can move a position from one category to another or can internally transfer a risk between the two portfolios.

The European Union is preparing to introduce a new framework for market risk, based on international standards known as the Fundamental Review of the Trading Book. This changes both the methods for calculating capital and some rules regarding the classification of positions.

The full application of the framework was initially scheduled for 2025, but the Commission postponed it until January 1, 2027, to take into account delays in other jurisdictions and to avoid disadvantaging European banks compared to international competitors.

On June 4, 2026, the Commission adopted a new delegated act that temporarily modifies the application of the rules between 2027 and 2029. The act introduces operational simplification measures and multipliers through which capital requirements can be adjusted.

The act is still under the control of the European Parliament and the Council. Documents published by the EBA become relevant only if it comes into force.

One of the introduced mechanisms allows banks negatively affected by the transition to the new system to temporarily reduce capital requirements for market risk. The goal is that the migration to the new method does not produce, during the transition period, a disproportionate increase in the required capital.

Eligibility will be determined by comparing the requirements calculated according to the old system with those resulting from the new framework. The reference date is March 31, 2027.

A bank can use the mechanism only if the new calculation leads to a capital requirement greater than that resulting from the old methods. The application of the reduction is not automatic and is not mandatory.

The institution must inform the supervisory authority and demonstrate that it meets the conditions. The EBA recommends banks expecting an increase in requirements to discuss in advance with supervisors and to send notifications before the reporting deadlines in May 2027.

Banks that choose the mechanism must maintain the ability to simultaneously calculate capital requirements using both the old system and the new framework. Comparing the two values is necessary for periodic recalibration of the adjustment.

The issue identified by the EBA arises because the Commission's act temporarily retains some old rules for calculation, while other provisions of the legislation may require banks to use the new delineation between portfolios.

An institution could thus classify the same instruments in two ways, depending on the calculation, reporting, or requirement analyzed. It would need to maintain parallel procedures, databases, and controls for two systems that do not always produce the same classification.

The EBA warns that this situation would be costly and difficult to manage. Moving a position between portfolios can affect risk models, capital requirements, reports to authorities, and internal control procedures.

The issue does not only concern banks using the adjustment mechanism. If they could use the old delineation, while other institutions would be required to immediately apply the new rules, banks with similar activities would be treated differently within the single market.

The EBA believes that such differences could affect competitive conditions and the integrity of the European financial market. For this reason, it recommends that flexibility be available to institutions that do not use the multiplier.

In practice, banks could continue to temporarily calculate market risk using the delineation applicable before the introduction of the new elements of the FRTB framework.

The recommendation also concerns internal risk transfers. A bank can use an internal transaction to transfer a risk from the banking portfolio to a unit that manages it in the trading portfolio.

The rules establish the conditions under which such a transfer can be recognized for capital calculation. The simultaneous application of two delineations could lead to different treatments of the same operation and complicate the recognition of its effect.

The EBA recommends supervisors not to prioritize actions regarding compliance with the new delineation rules, reclassification of instruments, and internal transfers until the framework is clarified.

The same approach is recommended for certain reporting obligations. Banks should not be required to report the composition of the trading portfolio according to the new delineation if they still use the old rules for calculating capital.

In the absence of this approach, the institution would calculate the capital requirement using one delineation and would describe the portfolio structure to the supervisor through another. The EBA believes that reporting should align with the system effectively used in calculation.

The recommendation applies until the first date that occurs: December 31, 2029, or the entry into force of the necessary legislative changes.

The Commission has announced its intention to present a legislative proposal in the first quarter of 2027. This should clarify the application, temporary suspension, or modification of the provisions regarding the delineation of portfolios.

A non-intervention letter does not repeal the rules and does not formally change their application date. The EBA cannot suspend an obligation established by European regulation.

The document recommends competent authorities not to consider the application of these provisions a priority for supervision or sanctioning during the temporary period. Authorities retain the powers provided by legislation.

The EBA has used this instrument because it believes that the literal application of the provisions would create exceptional problems for the orderly functioning of markets, financial stability, and the coherence of supervision.

The recommendation aims to provide a temporary solution until the European Parliament and the Council can adopt the legislative amendment proposed by the Commission.

Separately, the EBA has published technical clarifications regarding the use of the multiplier, reporting, information disclosure, and the treatment of certain structural foreign exchange positions.

For an eligible bank, the adjustment must be used starting from the first quarter of 2027. The institution cannot decide to start its application later, after observing market developments or the effect on capital.

Banks must inform the authority before abandoning the mechanism. A temporary decrease in the requirement calculated according to the new system below the level of the old calculation does not automatically obligate the institution to cease application.

The clarifications also address the interaction between the multiplier and the threshold that limits the advantage gained by using internal models. The Commission's stated goal is to maintain capital neutrality during the transition period.

This means that the adjustment should be calibrated so that the resulting requirement for market risk is equivalent to that calculated by the methods applicable before the FRTB, including when the bank is affected by the ceiling imposed on internal models.

The EBA also provides temporary instructions for the information published by banks. Institutions using the mechanism must indicate this choice and present both information based on the old system and data regarding the new methodology.

Some tables will show the theoretical requirement resulting from the FRTB framework before the application of the general adjustment. Other tables, used for presenting capital and key indicators, will reflect the full effect of the mechanism.

This difference is necessary for investors and supervisors to see both the value calculated by the new framework and the requirement that effectively enters the prudential indicators.

The EBA intends to modify the technical reporting standards to integrate the delegated act. The new requirements are expected in the second half of 2027.

Until then, banks must use the existing forms and include the information according to the temporary instructions published by the authority.

Institutions using the multiplier will report the requirements calculated by both systems. Other banks will report only the results of the FRTB framework, with the temporary adjustments that apply to them.

The EBA also clarifies participation in the European exercise through which the risk models of banks are compared. Institutions that continue to use the old internal models for calculating the adjustment will participate in the corresponding component of those models.

Banks applying the standardized FRTB approach will participate in the market risk comparison exercise starting in 2027.

Data collection for the new FRTB internal models is suspended until it becomes clear to what extent European banks will effectively adopt this approach. The EBA proposes moving the reference exercise from 2027 to the second half of the year.

The application of the framework will thus require a period in which banks, supervisors, and the EBA will simultaneously manage the old calculation, the new methods, temporary adjustments, and changes in reporting systems.

The documents do not estimate the administrative cost for banks nor the aggregate effect of the adjustments on the capital of the European sector.

They do not identify the institutions eligible for the multiplier and do not specify how many banks will continue to use the existing internal models.

The effect will depend on the structure of the portfolios, the approved methods, the difference between the old and new calculations, and the decision of each eligible institution to use or not the adjustment.

The Fundamental Review of the Trading Book represents the revised international standard for calculating the capital necessary to cover market risks. It was developed after the financial crisis to more strictly delineate portfolios, improve loss measurement, and reduce unjustified differences produced by internal models.

The EU has postponed the full introduction to maintain comparable conditions between European banks and those in jurisdictions where the application of the standard has been delayed. The delegated act from 2026 retains the date of January 1, 2027, but introduces temporary adjustments until the end of 2029.