EU eases market-risk capital rules with temporary FRTB relief measures

The European Commission has adopted Commission Delegated Regulation (EU) 2026/1221, amending Regulation (EU) No 575/2013 (the Capital Requirements Regulation, CRR) to introduce temporary targeted operational relief measures and targeted multipliers for the calculation of institutions’ own funds requirements for market risk. Signed in Brussels on 4 June 2026 by Commission President Ursula von der Leyen, the regulation was published in the Official Journal of the European Union (L series) on 11 September 2026 and applies from 1 January 2027.

The measure responds to delays and deviations in the international implementation of the Fundamental Review of the Trading Book (FRTB) standards developed by the Basel Committee on Banking Supervision (BCBS). Because major non-EU jurisdictions have not yet applied the FRTB rules, the Commission warns of distortions to the international level playing field for EU banks’ trading activities. The relief is time-limited to three years, expiring on 31 December 2029, the maximum period allowed under Article 461a(2) of the CRR.

Temporary relief for internal models

Several transitional provisions ease the burden of the alternative internal model approach (AIMA). The profit and loss attribution test (PLAT) may be run only for monitoring purposes, without a direct impact on own funds requirements. Institutions may also calculate and disclose the expected shortfall and stress scenario risk measures on a weekly basis rather than daily.

• Non-modellable risk factors (NMRFs) may be assessed as modellable with at least two verifiable prices, with a liquidity horizon of 250 divided by the number of prices.
• For newly issued instruments, the minimum number of verifiable prices is prorated for up to 12 months after first trading.
• A multiplier of 0 applies to the probability of default of issuers or obligors that attract a 0% risk weight under the alternative standardised approach.
• For collective investment undertakings (CIUs), institutions may look through at least 50% of underlying positions by market value, on a quarterly basis.

Targeted multipliers and standardised approach

The regulation also recalibrates the alternative standardised approach. A multiplier of 0 is applied to the residual risk add-on (RRAO) for instruments referencing future realised volatility, options exercisable on a finite set of dates, and options on the difference between two constant maturity swap rates. The tenor correlation parameter for EU Emissions Trading System (EU ETS) carbon trading delta commodity risk is divided by 99.1%.

• A phase-in multiplier of 0.9 applies to own funds requirements under the sensitivities-based method and the simplified standardised approach.
• Institutions may recognise economic hedges between equity derivatives and cash positions of the same underlying for default risk.
• Institutions with small trading books may use the simplified standardised approach for non-trading book positions subject to foreign exchange or commodity risk.
• ACTP index positions may be decomposed and netted against sub-constituent risk factors.

Bank-specific multiplier

Institutions adversely impacted by the new market-risk rules may apply a bank-specific multiplier lower than or equal to 1 to their own funds requirements, calibrated quarterly against the Basel 2.5 benchmark in force on 8 July 2024. Those choosing the multiplier must notify their competent authority, continue reporting and disclosing under the earlier framework, and may stop using it at any time but cannot resume it later.

The regulation enters into force the day after publication and applies from 1 January 2027, aligned with the start of the FRTB-based market-risk requirements under Regulation (EU) 2024/1623. For EU banks, the package provides regulatory certainty and a smoother transition to the new framework, while preserving a level playing field until major jurisdictions finalise their own FRTB implementation.

Source: Official Journal of the European Union, L series, 11.9.2026, L 2026/1221 (official reference: CELEX L_202601221).