Scrutiny of delegated acts and implementing measure

Exchange of views on the Commission Delegated Regulation of 24.07.2024 amending Regulation (EU) No 575/2013 (CRR) with regard to the date of application of the own funds requirements for market risk

Key takeaways

The European Commission adopted a delegated act to delay the Fundamental Review of the Trading Book (FRTB) by one year due to uncertainties in the US and UK, aiming to maintain competitiveness while protecting the Capital Markets Union (CMU).
ECB acknowledged the delay but emphasised there was no technical need for it, urging that banks use the extra time to fully prepare for implementation without reducing ambition.
EBA understood the decision that led to the delay to ensure a level playing field internationally, but also acknowledged that there were technical reasons why not to move forward with it. There is the risk to send a mixed signal on the EU's commitment to Basel III.
MEP Jonas Fernández stressed that the EU must balance competitiveness with financial stability, supporting the one-year delay but warning against further postponements.

Chair Aurore Lalucq (S&D, France)

The delegated act was adopted by the Commission on 24 July 2024, and a a 3-month scrutiny period was applicable.

Almoro Rubin De Cervin. Head of Unit, DG FISMA, European Commission

Basel III rules were planned to enter into force on 1 January 2025, and the implementation of those rules was key;
Regarding market risk, co-legislators agreed on giving powers to the Commission to adopt a delegated act to either delay the application of the market risk framework, or to make targeted changes taking into account international developments such as timelines and deviations in other jurisdictions;
Based on that mandate, the Commission adopted in July 2024 a delegated act to delay the Fundamental Review of the Trading Book (FRTB) by 1 year;
He referred to the current international situation, and the existing uncertainty coming from the US;
- The Federal Reserve had recently announced a re-proposal and outlined how the new text would look like;
- - Nevertheless, the proposal had not materialised, and uncertainty on its finalisation increased;
  - The initial intention was to finalise all work by mid-2025, which would imply an implementation date at US level at the earliest in July 2026, if not 1 January 2027;
- As for the UK, the country had announced a final package on credit risk, but also set a starting date for January 2026;
- In order jurisdictions the situation was mixed: progress was observed in Canada and Japan, but they were currently responding to the US delays with some tweaks;
- - Other countries like Switzerland were moving forward;
When the delegated act was adopted, the uncertainty at the UK and US was much bigger, and the 1-year delay correctly anticipated delays in the US and UK;
On the impact, market risk was at a relatively small portion of bank's exposure, but the activities would be affected if they were targeted by an uneven implementation;
- The European banks would become less competitive in their trading activities;
- If the difference in requirements was limited and too high, the impact would be limited as well;
- If the difference lasted long, banks would lose market share in trading financial instruments, and corporates, pension funds and other clients would turn to other less regulated banks;
While in the short term the implications might seem limited, in the medium term this could have a negative impact on the Capital Markets Union (CMU);
he hoped the Parliament would support the delegated act;
the Parliament had to try to avoid increasing uncertainty among market participants and supervision.

Lars Overby, European Banking Authority

The EBA had worked intensively on Basel III;
The EBA supported the Commission's delegated act, and would like to highlight the balance between two aspects: prudential and competitiveness;
Banks had already made significant progress in the implementation, originally as a reporting requirement;
- The postponement of the FRTB would entail that banks would have to report both the old and new framework, having an added burden;
EBA was strongly committed to a timely implementation of Basel, and postponing the implementation of the FRTB in Europe did not send the right signal;
He noted there were technical reasons why not to move forward with it, but at the same time there were broader considerations at play, that were also recognised by co-legislators when they gave the Commission the power to adopt a delegated act;
Both the US and UK would implement the FRTB framework later than originally planned, and the delay at EU level potentially favoured a level playing field across international banks;
He acknowledged that the Commission delegated act had to strike a balance, and noted that the idea was to keep the FRTB standardised approach as the baseline in the output floor;
- the goal with this was to ensure that the signal to the EU was the commitment to Basel implementation;
he considered that the proposal presented a fair balance;
regarding timing, the date of application of the CRR3 was getting close, and welcomed the timing for the scrutiny period of the delegated act;
- he hoped it would be possible to provide clarity to banks as soon as possible so that they could prepare accordingly.

Florian Weidenholzer, head of the Supervisory Policy division in the European Central Bank

This topic was significantly relevant because market risk could cause losses for individual banks, and ultimately for the sector;
The new rules agreed at the Basel table marked a significant improvement and showed the resilience of banks;
- They came with prudential conditions that banks had to comply with;
The ECB acknowledged the reasons why co-legislators made the decision to adopt the delegated act, but from a technical perspective, there was no specific need to delay the implementation;
- Banks and supervisors had made significant progress in terms of preparation and implementation;
- From the perspective of banking resilience, it would be desirable to see the whole package of measures implemented in a timely fashion;
The ECB was fully aware that the Commission and the Parliament had to consider broader perspectives, beyond the supervisory one;
The ECB considered that the international standards had a faithful implementation across jurisdictions;
The ECB stood ready to see progress by other fellow supervisors;
The ECB would closely supervise the changes proposed by different jurisdictions to make sure that risks were properly managed;
It was key that the delay did not lead to banks being less ambitious. Instead, the extra time should ensure that banks were in a good position to comply with the agreed rules;
- Preparations for implementation should continue at full speed either way;
He welcomed that the Parliament brought the topic to the table in a timely manner.

Q&A session

Jonás Fernández (S&D, Spain)

The delegated act was in the CRR in order to react to other jurisdictions' decisions outside of the EU;
He referred to how the EU should respond to other developments taking place in different jurisdictions;
- He agreed with the importance of maintaining a level playing field, but there was a principle of financial stability that was key as well;
- - if third-country jurisdictions devaluated the Basel III implementation in the future, once again there would be voices calling to postpone other Basel III features within the EU;
The principle of level playing field should be evaluated together with the principle of banking stability;
The goal of increasing competitiveness should not lead to a less regulated banking sector, just because other jurisdictions decided to delay Basel III;
He welcomed the fact that the delegated act delayed the implementation of the FRTB for a year, instead of 2;
- He agreed with the idea that delaying a decision on the delegated act should not occur, since the scrutiny period was getting close to the deadline;
If other jurisdictions decided to deviate further from Basel III, the EU should find a way to protect itself from the added risks caused by their non-compliance.

Ralf Seekatz (EPP, Germany)

The EU had competitive disadvantages and had to limit them;
Von der Leyen mentioned that competitiveness was on top of the Commission's agenda;
He asked whether there would be financial consequences if the Parliament did not vote in favour of the delay of the FRTB;
He referred to the US, who would delay some Basel III rules potentially until 2027, and asked for more details on other jurisdictions.

Gilles Boyer (RE, France)

He referred to the importance of having a level playing field and to ensure competitiveness in the EU;
- He asked whether the delegated act was enough to ensure competitiveness;
He questioned whether other methods should be considered as well, that could ensure competitiveness while at the same time maintained banking stability.

Almoro Rubin De Cervin. Head of Unit, DG FISMA, European Commission

With regard to what where other jurisdictions doing regarding Basel III, he mentioned that countries like Canada, who had decided to implement the framework, took a decision to correct their own implementation and delay some elements;
Looking forward, it was important to reflect on how to respond to international developments;
He agreed with the importance of striking a balanced between maintaining competitiveness and ensuring banking stability.

Lars Overby, European Banking Authority

He agreed with MEP Jonas Fernandez on the fact that for competitiveness to be ensured, the banking sector had to be strong and resilient;
On competitiveness issues, he called for being cautious. It was important to have a clear idea of the path towards which other jurisdictions such as the US and the UK were moving.

Florian Weidenholzer, head of the Supervisory Policy division in the European Central Bank

Competitiveness had to be taken into account from a broad perspective, and not just from the market risk framework;
the ongoing CMU and Banking Union could also contribute to competitiveness;
Market risk was tricky, and could easily fly under the radar. It was important to set the focus there;
No matter there was a delay or not, it was key to maintain the momentum to ensure there was a good implementation of the standardised approaches.

Almoro Rubin De Cervin. Head of Unit, DG FISMA, European Commission

He hoped the Parliament could support the delegated act, in order to make a decision quickly.

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