EBA no-action letter and technical considerations to support implementation of the market risk framework for EU banks

The European Banking Authority (EBA) has published a no-action letter on the application of the boundary between the trading book and banking book under the Fundamental Review of the Trading Book (FRTB) framework. It also published technical clarifications on issues arising from the European Commission's (EC) third Delegated Act modifying the calculation of own funds requirements for market risk under the FRTB.

The Delegated Act, adopted on 4 June, seeks to introduce targeted operational relief measures, and define targeted multipliers, that modify the implementation of the FRTB framework in the EU from 1 January 2027 to 31 December 2029, in light of delays of the implementation of that framework in other jurisdictions.

In its no-action letter, the EBA recommends that competent authorities do not prioritise supervisory or enforcement action relating to: (i) the provisions governing the boundary between the banking book and the trading book and internal risk transfers between these books; and (ii) related reporting requirements. This is intended to avoid firms having to operate parallel trading book boundary regimes for different purposes and allow institutions not using the multiplier in the Delegated Act to also base the calculation of their own funds requirements for market risk on the CRR2 boundary framework. The EBA advocates for a legislative proposal from the EC to provide the necessary legal certainty as concerns the application, temporary suspension of application or modification, as applicable, of Articles 104, 104a, 106(2) to (7), 204a and 325j(5) of Regulation (EU) No 575/2013 from 1 January 2027 to 31 December 2029, and to revise the start date for the reporting of information on the composition of the trading book and reclassifications between books based on the FRTB boundary framework, to align with the start date for the application of the FRTB boundary for the purposes of the calculation of the own funds requirements for market risk. The EC's Communication of 17 July confirmed its intention to proceed with a legislative proposal in the first quarter of 2027.

The EBA also sets out technical considerations on material implementation issues for the application of the market risk framework as modified by the Delegated Act which includes, amongst others, eligibility to use the overall multiplier and notifications to national competent authorities for use of the multiplier, application of the overall multiplier of Article 495v in conjunction with the output floor, and reporting and disclosure requirements.

The EBA's no-action letter and technical considerations will become relevant if and once the Delegated Act enters into force.

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