The Association for Financial Markets in Europe (AFME) has called for the Bank of England Prudential Regulation Authority (PRA) to allow banks to temporarily opt out of amendments to the Basel standards.
Basel 3.1 is the latest iteration of the framework setting international standards for bank capital requirements. The key amendments are to the Fundamental Review of the Trading Book (FRTB), the market risk framework, notably the introduction of the Internal Model Approach (IMA), which allows banks to use their own internal models to calculate their capital requirements.
Due to the continued uncertainty over when the amendments will be implemented in some jurisdictions, in July the PRA proposed delaying the implementation of the FRTB IMA until 1 January 2028, while making targeted adjustments under the advanced standardised approach (FRTB-SA).
Responding to the PRA’s consultation on the proposed amendments to the market risk framework, AFME cautioned the PRA's proposal for different implementation timelines for FRTB-IMA and FRTB-SA will lead to significant operational complexities that risk undermining competitiveness.
“We recommend that the PRA introduce an opt-out, whereby firms using IMA may remain on the Basel 2.5 standardised approach framework for the non-modelled portfolios and the existing trading book boundary until FRTB-IMA is implemented,” the trade body said.
“This would achieve the PRA’s objective of proceeding with FRTB-SA implementation to the 1 January 2027 timeline for firms exclusively using the standardised approach and for firms who choose not to opt-out.”
