Recent survey findings reveal that a substantial number of participants are advocating for a further one-year extension in the implementation of the Fundamental Review of the Trading Book (FRTB) regulations. This feedback comes from two prominent lobby organizations in response to a European Union (EU) consultation. The delay in the FRTB rollout is largely attributed to the United States not reaching a consensus on its own comprehensive capital rules, known as the Basel Endgame.

The Push for a Delay

The European Commission had initially slated the FRTB changes for implementation in 2026 to ensure that EU banks do not fall behind their international counterparts. However, many financial institutions within Europe are now requesting an additional deferment, claiming that the previous postponement did not provide sufficient time for adaptation.

• Majority Support: A survey conducted by the Institute of International Finance (IIF) and the International Swaps & Derivatives Association (ISDA) indicated that 21 out of 32 global banks favored another delay.
• Diverging Interests: This issue has sparked a divide between Europe’s largest banks, which support the extension, and smaller institutions that argue it would result in financial losses.

Perspectives from the Financial Sector

While a minority of respondents preferred to maintain the current implementation timeline to avoid further operational challenges, the overwhelming support for a delay reflects significant concerns within the banking sector. The IIF and ISDA noted that only a few banks, including BNP Paribas, Deutsche Bank, and Intesa Sanpaolo, are pushing for immediate implementation.

In a separate communication, the European Banking Federation urged the EU to explore reforms that could mitigate the capital impact of these regulatory changes. They also suggested a staggered implementation, allowing some banks to proceed in 2026 while others could wait until 2027. However, the Commission has voiced opposition to this proposal.

Insights from Industry Leaders

Jean-Laurent Bonnafé, CEO of BNP Paribas, commented on the evolving situation during a recent earnings call. He indicated that the implementation of the FRTB may eventually adopt a more neutral approach compared to the original strategy. Bonnafé mentioned the possibility of starting with another delay, followed by a reassessment of the regulatory framework.

Originally set for a 2022 rollout, the full Basel rules have faced numerous setbacks. While the EU introduced most elements of the package earlier this year, it decided to hold off on the trading book components pending further clarity on the U.S. regulatory stance.

Global Context of Regulatory Changes

As the EU navigates these complexities, other regions have made varying progress:

• United Kingdom: Announced three delays for the complete Basel package.
• United States: The timeline remains uncertain with new regulatory officials in place.
• Switzerland, Canada, and Japan: Have fully implemented the Basel rules.

The ongoing discussions surrounding the FRTB illustrate the intricate balance between regulatory compliance and the operational realities faced by financial institutions. As the situation develops, stakeholders will continue to advocate for solutions that best serve the banking community.