FRTB change programmes have been in-flight globally for a while now, with most running for at least a few years. Until recently, most major jurisdictions had aligned around 2025-2026 FRTB implementation timelines. However, recent political developments have caused global regulators to pause their mandate. The aim is not to abandon reform, but to avoid acting in isolation and inadvertently creating fragmented markets. To quote the bank of England, deadlines are being extended to “…take into account competitiveness and growth considerations”. It is likely that changes to the FRTB will also be made given the European Commission’s (EC) launch of a consultation to gather feedback on possible changes to the FRTB.
In this climate of uncertainty, it’s unsurprising that firms are questioning their next steps. What’s the most pragmatic strategy to remain compliant? What are the potential risks and opportunities? How should firms respond? Let’s explore these questions together.
What is FRTB? A Quick Recap
The Fundamental Review of the Trading Book (“FRTB”) is a set of proposals produced by The Basel Committee on Banking Supervision (BCBS). These proposals articulate a set of market risk regulatory capital standards. They are set to improve the existing trading book framework and risk management practices. Also, helping banks to calculate their capital requirements more accurately.
Industry associations such as ISDA have responded enthusiastically to the European Commission’s (EC) consultation on possible changes to the FRTB. They commended the EC for its “…willingness to revisit the standards”. ISDA Chief Executive Officer, Scott O’Malia, points out that “most regulators have deviated from the global standards when drafting their rules, which suggests there may be flaws in the original calibration. Rectifying those flaws is a step in the right direction”.
In terms of the core content of the consultation, the European Commission is consulting on possible action within its mandate around three potential options:
- Implementing the FRTB as currently laid down in the Banking package, from 1 January 2026.
- Postponing the date of application by a further year (1 January 2027) or;
- Introducing temporary and targeted amendments to the market risk framework for up to three years.
Combinations of these options or other alternatives could also be envisaged provided they are within the commission’s mandate.
Shoring-up the regulation is a constructive use of time, however firms will need to monitor the outcomes of this consultation and swiftly impact-assess any amendments on their change programmes, modifying strategy as required.
1. Re-galvanising project teams:
In parallel to responding to the EC’s consultation, firms also have an opportunity to optimise their change programmes. This could look like holistically assessing a programme’s structure to determine whether the overall strategy is clear and robust and translates well into a slick governance structure to deliver outcomes. Is there effective PMO governance on a large programme? Do individual workstreams plans coalesce to tell an implementation story with a clear critical path? Are challenges faced by individual workstreams effectively summarised so that the programme manager can respond quickly and adequately to issues and senior management are fully updated on how the overall programme is performing – what its successes and issues are?
Firms who invest this time to reflect and efficiently re-plan will be better placed to implement FRTB regulation reforms in a more thoughtful, integrated manner.
Change programs without clear deadlines often lose momentum, leading to uncertainty fatigue, so it’s crucial for firms to maintain focus and momentum despite the delay. Clear internal communication is essential to avoid programme drift and keep teams focused. The programme should be supported by a well-structured and adequately resourced change team who continue to work on actionable tasks immediately. This approach will help maintain momentum and ensure firms can make necessary revisions and quickly transition back into FRTB implementation mode to deliver final adjustments within compressed timeframes once clarity is achieved.
2. Improving data quality:
Many firms have remarked on the importance of data quality in relation to FRTB implementations. Each firm will, by now, have an awareness of what its limitations and issues are in relation to data quality. Firms can look to fix some of these areas in need of remediation via tactical, in-house solutions or by considering automation tools, advanced analytics, and risk management software. The sharper the data that is input, the crisper and more accurate the outputs. Not sure where to start? Consultancy firms, like ours, can deploy teams to strengthen F2B data and model infrastructure to address such issues.
What threats does this present?
1. Shorter Transitional Period
Once clarity emerges around the US FRTB’s plans, there will likely be a re-shuffle of dates, but it remains to be seen whether the ultimate end date for full FRTB implementation remains January 1, 2030. This provides the key rationale for (in the least) maintaining efforts within FRTB programmes to ensure that, once clarity emerges, firms are well-positioned to still meet their regulatory deadlines.
2. Risk of non-compliance
It is not an option for firms to run the risk of regulatory non-compliance. Regulators may not look favourably on banks that stall progress or fall behind their peers, even in a delayed environment. This underscores the need for proactive regulatory engagement regarding FRTB implementation progress.
We recommend that firms use this period to engage with regulators, influence outcomes, stay updated on any further changes or clarifications regarding FRTB implementation and align their strategies. This will help firms remain compliant and avoid any last-minute surprises. It will also be prudent to engage in discussions with industry peers to share insights and best practices. Collaboration can provide valuable perspectives and help firms navigate the complexities of FRTB regulation implementation.
How can we help?
At Davies, we understand the unique challenges you face in navigating the regulatory landscape. With our extensive knowledge and experience, we can help you review your existing programmes and provide actionable recommendations to move forward more efficiently.
- Regulatory and Change Expertise: Our team has deep insights into the regulatory environment, ensuring you stay ahead of the curve. We are also adept at optimising the performance of existing change teams.
- Efficiency: We streamline your processes, reducing complexity and enhancing compliance. We can deploy teams at short notice to deliver remediation analysis.
- Tailored Solutions: We customise our approach to meet your specific needs, delivering agile or modular programmes as required.
Get in touch today to discover how we can help you stay ahead of the curve and optimise your change initiatives.
