On May 8, 2025, EU CMSN issued final Reg 2025/878 in the Official Journal of the EU.
Regulation in force on 20th day following that of its publication in OJ, May 28, 2025.
On Aug. 13, EBA revised RTS on FRTB, changing to align with CRR3.
EBA published final draft technical standards (RTS) on market risk as part of its roadmap for the implementation of the banking package in the European Union.
Follows EBA Dec. 2023 consulted on amending RTS on FRTB, credit risk, see #195290.
Follows EBA Dec. 2023, EU banking package implementation roadmap, see #195277.
Follows EU CNCL Jun. 2023 confirmed provisional agreement, Basel III, see #177370.
Revisions to Align with CRR3
EBA aims to align these RTS with the Capital Requirements Regulation (CRR3) and ensure stability in the applicable regulatory framework, as part of its banking package.
CRR3 introduced a number of changes to the fundamental review of the trading book (FRTB) and included EBA mandates to amend existing RTS to fit with new Level 1 text.
Specifically, EBA has been mandated to review the RTS on the treatment of foreign-exchange and commodity risk in the banking book, and other assessments.
Market Risk and Assessments
Includes RTS on profit/loss attribution test, and risk factor modellability assessment.
As per profit and loss attribution test, the RTS remove the aggregation formula for computing the total own funds requirements for market risk for an institution.
This was by using the alternative internal model approach as the formula has been now introduced in the CRR3, and EBA also sets out risk factors of modellability.
In relation to risk factors' modellability assessment, the RTS ensure that institutions are able to identify how far they rely on a third-party vendor for such an assessment.
In relation to the treatment of foreign exchange and commodity risk in the non-trading book, the RTS ensure that translation risk is suitably captured by institutions.
FX and Commodity Risk
As per RTS on FX and Commodity risk in the banking book, the amendments include requirements ensuring that institutions can identify positions subject to FX risk only.
This is due to the translation risk resulting from the consolidation process, and ensuring that institutions using internal models have clear policies in place.
These policies should clarify the positions that are managed by classical trading desks, and those positions that are managed in the context of a notional trading desk.
Clarifying Amendments
Amendments are intended to provide clarification rather than be substantive in nature.
Based on consultation feedback on amending RTS on FRTB and credit risk, one response was received, which agreed with the amendments to the RTS overall.
The respondent raised one concern on applicability of some requirements included in the RTS to a standardized approach, noting trading desks requirements in the CRR.
Respondent noted that trading desk requirements only apply to institutions using an internal model, so EBA amended the proposal to reflect the point raised, accordingly.
Effectiveness
Draft RTS must now be adopted by EC; will enter in force 20 days after OJ publication.
Feb. 2025 EC Adoption
On Feb. 3, 2025, EU CMSN adopted final draft standards (C(2025)595) on market risk.
The technical standards remove aggregation formula for computing total own funds requirements for market risk for an institution using the alternative internal model approach as formula has been now introduced in Reg 575/2013 via Reg 2024/1623.
As regards the risk factors’ modellability assessment, the technical standards ensure that institutions are able to identify how far they rely on a third-party vendor for the purpose of assessing the modellability of a risk factor.
Finally, as regards the treatment of foreign exchange and commodity risk in the non-trading book, the standards ensure that translation risk is duly captured by institutions in light of the provisions introduced in Article 325b of Reg 575/2013.
Regulation in force on 20th day after publication in European Union Official Journal.
May 2025 Official Journal
On May 8, 2025, EU CMSN issued final Reg 2025/878 in the Official Journal of the EU.
Regulation in force on 20th day following that of its publication in OJ, May 28, 2025.
