The amendments to the Capital Requirements Regulation (CRR2) introduced certain elements of the Basel standards on the trading book / non-trading book boundary framework, which will enter into application as of 28 June 2023.

As part of the on-going legislative process amending the CRR2, both the Council and the Parliament, in their respective positions, proposed to postpone the application date of the boundary provisions to 1st of January 2025. However, the legislators’ effort to postpone the application date of the boundary provisions is void if the legislative process ends after 28 June 2023.

The front-loaded application of the boundary provisions compared to the rest of the Fundamental Review of the Trading Book (FRTB) framework creates several significant operational issues:

• First, institutions would be subject to an operationally complex and fragmented two-step implementation of the boundary framework.
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• Second, they would be subject to an operationally burdensome and costly fragmented application of the rules for the reclassification of positions and internal-risk transfer between the trading and non-trading books.
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• Third, there are no jurisdictions at global level that envisaged such a two-step implementation of the boundary and internal-risk transfer frameworks. This would de-facto lead global institutions to be subject to very different regulatory requirements depending on where the risk management is performed, leading to fragmentation in the regulatory framework and, hence, in the financial markets, as well as potential unlevel playing field issues.
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Considering the positions recently adopted by the legislators, and to alleviate the operational burden that institutions would face with such a two-step implementation, the EBA published today an opinion stating that competent authorities should not prioritise any supervisory or enforcement action in relation to the new banking book – trading book boundary provisions.

Legal basis 

The legal basis for the EBA to issue that opinion is included in Article 9c of Regulation (EU) No 1093/2010[1] (EBA founding Regulation), which provides that the EBA may issue no-action letters, if it considers that the application of one of the relevant legislative acts is liable to raise significant issues, as provisions contained in such act may directly conflict with another relevant act, and if it has received relevant information and considers on the basis of that information that the application of the relevant provisions raises significant exceptional issues pertaining to market confidence, consumer, customer or investor protection, the orderly functioning and integrity of financial markets or commodity markets, or the stability of the whole or part of the financial system in the Union.

[1] Regulation (EU) No 1093/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Banking Authority) amending Decision No 716/2009/EC and repealing Commission Decision 2009/78/EC (OJ L 331, 15.12.2010, p. 12).

DOCUMENTS

• Opinion on the application of the provisions relating to the boundary between trading book and banking book
• EBA letter to John Berrigan, DG FISMA, on the Opinion its on the application of the new banking book-trading book boundary framework