EU delays Basel III market risk rule to 2027 as global banking alignment falters

Why the European Commission postponed the FRTB to 2027

In a significant move aimed at preserving the global competitiveness of European financial institutions, the European Commission has adopted a delegated act postponing the implementation of the Fundamental Review of the Trading Book (FRTB) by an additional year. The new date of enforcement across the European Union is now set for 1 January 2027, marking the second consecutive delay to this complex piece of the Basel III regulatory framework.

The FRTB, which seeks to overhaul how banks calculate capital for market risk, was initially scheduled to take effect in 2025. However, it was previously deferred to 2026 in order to keep pace with global regulatory alignment. The latest extension reflects growing concerns within Brussels that a premature rollout could undermine the competitive parity of EU-based banks operating in international capital markets.

This announcement follows a broader review of international developments and feedback from industry stakeholders during a recent public consultation. With other major jurisdictions including the United States, the United Kingdom, and certain Asia-Pacific economies lagging behind in their own implementation timelines, the Commission opted to delay the FRTB to avoid unilateral disadvantage.

What the Fundamental Review of the Trading Book means for EU banks

The Fundamental Review of the Trading Book is one of the most technically intricate and far-reaching reforms within the Basel III framework. It replaces the outdated Value-at-Risk model with an Expected Shortfall approach for capitalizing trading book exposures. By doing so, it aims to more accurately align regulatory capital with actual market risk, enhance transparency, and reduce opportunities for arbitrage between banking and trading books.

Unlike other elements of Basel III that deal with credit or operational risk, the FRTB directly affects capital markets activity—including trading desks, derivatives pricing, and internal models used by banks. The implementation of the FRTB has major implications for firms with significant trading operations, particularly those active across multiple jurisdictions.

According to senior EU policy analysts familiar with the rulemaking process, the FRTB is not merely a compliance update but a fundamental shift in market risk supervision, which requires deep recalibration of infrastructure, model approvals, and IT systems within banks.

How Basel III timelines have evolved across global jurisdictions

The broader Basel III reforms emerged in response to the 2008 global financial crisis, with the objective of enhancing the resilience of global banking institutions. These rules were negotiated under the Basel Committee on Banking Supervision and subsequently adopted across major global jurisdictions.

In the European Union, the Basel III framework is enshrined in two legislative instruments: the Capital Requirements Regulation (CRR) and the Capital Requirements Directive (CRD). Together, these form the EU’s 2024 Banking Package, most of which came into effect on 1 January 2025.

However, the FRTB component was treated as a special case due to its international implications and technical complexity. The 2024 Banking Package included a provision allowing the Commission to defer or amend the FRTB timeline via delegated act. In 2023, the Commission used this authority to postpone the FRTB to 2026. Now, amid mounting global delays, the Commission has exercised the same provision to shift the timeline further to 2027.

Why investor groups support the delay in FRTB implementation

Industry response to the delay has been cautiously supportive. According to internal notes from financial trade associations, European banks had expressed concern that implementing FRTB ahead of peers like the U.S. Federal Reserve or the Bank of England could increase regulatory costs and put them at a pricing disadvantage in cross-border trades.

Banking groups also highlighted the risk of fragmentation in international capital markets, should major financial centers diverge on their market risk rules. This sentiment appears to have informed the Commission’s decision, which emphasized the need for coordinated global action.

The Commission, in its formal communication, underlined its commitment to ensuring that EU banks are not penalized for being early movers, particularly in a field as competitive and sensitive as global trading.

What European banks can do with the extra year of preparation

From an operational standpoint, the delay offers additional runway for European banks to refine their internal risk models, improve data governance, and navigate model approval processes under national supervisors. Institutions using internal models for market risk will benefit from the extra year to conduct model validation, backtesting, and harmonize approaches across legal entities and trading desks.

It also buys time for supervisors such as the European Banking Authority (EBA) and national competent authorities to finalize supervisory guidelines and monitor convergence across member states. Internal estimates from several Tier 1 banks indicate that FRTB compliance could increase market risk capital requirements by 20–30% depending on asset class and desk structure, making calibration a delicate issue.

How this delay aligns with the EU’s competitiveness agenda

While the delay marks a deviation from earlier timelines, the European Commission maintains that it is still firmly committed to full Basel III implementation. The decision reflects a pragmatic balancing act between regulatory integrity and economic competitiveness. In its Savings and Investments Union (SIU) strategy paper, the Commission emphasized the importance of integrating EU capital markets and avoiding regulatory divergence that could distort intra-European and global activity.

EU policymakers reiterated that implementation delays in other jurisdictions posed a clear threat to international regulatory parity. The Commission stated that “given that recent international developments have resulted in further postponements globally, it would be premature and counterproductive for the EU to enforce FRTB alone.”

What happens next in the FRTB approval process

The delegated act now enters a formal scrutiny period in the European Parliament and the Council, where lawmakers have up to three months (extendable by another three) to review and potentially reject the measure. While such a rejection is rare, the institutional review provides a political backstop and ensures transparency.

During this period, the European Commission is expected to intensify its engagement with international partners, especially within the Basel Committee, to encourage synchronization and possibly coordinate a new global FRTB roadmap.

Banks, meanwhile, will continue their internal FRTB programs while adapting timelines. Supervisors may use the additional year to initiate further impact assessments, publish technical standards, or stress-test firms under hypothetical FRTB-compliant capital regimes.

Can the 2027 deadline for Basel III market risk rules hold firm?

While this new delay offers breathing room, many analysts remain cautious. The implementation of complex capital rules such as FRTB requires more than time—it demands political commitment and alignment across agencies. If major jurisdictions further delay or dilute their own versions of the FRTB, the risk of regulatory fragmentation may persist.

However, the European Commission’s move may encourage more coordinated dialogue within international bodies such as the Financial Stability Board (FSB) and International Organization of Securities Commissions (IOSCO). For now, the 2027 timeline stands as a tentative compromise—providing time for global realignment without fully derailing the progress of Basel III.

Market analysts say the EU may revisit this timeline again in 2026 if international convergence remains elusive. But with the majority of Basel III already in force, the bloc appears committed to ensuring that prudential oversight evolves with the realities of global capital markets, rather than in isolation.