Delegated Regulation on market risk prudential requirements for EU banks published in OJ

Commission Delegated Regulation (EU) 2026/1221 was published in the Official Journal of the European Union (OJ). The Regulation makes targeted amendments to the EU prudential framework for banks' market risk, specifically the Fundamental Review of the Trading Book (FRTB) under the Capital Requirements Regulation (CRR).

While most Basel III reforms have applied since 1 January 2025, the FRTB has been deferred on several occasions, most recently to 1 January 2027 in response to uncertainty around implementation timelines and potential deviations from the Basel standards in other major jurisdictions.

This Delegated Regulation sets out amendments intended to support a level playing field for EU banks competing internationally in trading activities by offsetting the negative capital impact of the FRTB for a period of three years – until 31 December 2029, in aspects of the framework where deviations in other jurisdictions have been identified or are likely, including:

• The profit and loss attribution test (PLAT): to allow banks to calculate the PLAT only for monitoring purposes during the three-year period, with no direct impact on the own funds requirements.
• The non-modellable risk factors (NMRFs) framework: to modify the conditions on the number of verifiable price observations needed for a risk factor to be considered modellable and hence be capitalised under the expected shortfall calculation.
• Internal default risk model requirements: applying a multiplier equal to 0 to the probability of default of issuers/obligors that attract a 0 % risk-weight under the alternative standardised approach (allowing banks under the internal model approach to treat exposures to those issuers identically to how those exposures would be treated under the alternative standardised approach).
• The expected shortfall risk measure and the stress scenario risk measure calculations: allowing banks under the alternative internal model approach to temporarily calculate and disclose the values of the regulatory expected shortfall risk measure and stress scenario risk measure on a weekly rather than daily basis.
• Exposures to Collective Investment Undertakings: allowing and specifying thresholds for a partial look-through, while requiring a more conservative treatment for the part that cannot be looked through.
• The residual risk add-on (RRAO): applying multipliers for instruments that have future realised volatility as an underlying, that are options that can be exercised on a finite number of dates, or that are options on the difference between two constant maturity swap rates denominated in the same currency, where those instruments attract an RRAO charge only for those reasons.
• Default risk under the alternative standardised approach: recognising economic hedges between an equity derivative and a cash position of the same underlying.
• The output floor: limiting the phase-in of the own funds requirements for market risk under the alternative standardised approach, and allowing banks that apply the simplified standardised approach to similarly benefit from the phase-in.
• Additional proportionality for banks with small trading book businesses: allowing use of the simplified standardised approach for their non-trading book positions subject to foreign exchange risk and commodity risk.
• Limiting capital impacts: allowing credit institutions adversely impacted by the implementation of the new market risk rules, even after applying the targeted amendments, to limit that capital impact for the three-year period.

The Regulation entered into force on 12 September, with the amendments applying from 1 January 2027.

Return to main website.