Global Banking Regulations: FRTB, Basel III & EU Rule Updates

EU and US Diverge on Banking Regulations, Raising Competitiveness Concerns

European and US regulators are charting increasingly different courses in implementing the final components of the Basel III international banking standards, specifically concerning the Fundamental Review of the Trading Book (FRTB). While the European Commission has proposed a further one-year delay in implementing FRTB – pushing the application date to January 1, 2027 – recent moves by US authorities suggest a potentially less burdensome approach, sparking concerns about a leveling of the playing field for international banks.

The European Commission’s latest postponement, announced earlier this month, follows a previous one-year delay and reflects ongoing anxieties about the readiness of EU banks and the potential for misalignment with global jurisdictions. According to the Commission, the delay is necessary to “preserve the global level playing field for internationally active European banks in respect to their trading activities.” The FRTB aims to improve risk measurement in trading book activities, aligning capital charges more closely with actual risks. Most Basel III requirements already came into force on January 1, 2025, thanks to the 2024 Banking package, but FRTB has proven to be a sticking point.

Meanwhile, the United States is taking a different tack. Proposals released on March 19, 2026, indicate a potentially lighter regulatory touch. Caroline Liesegang, Head of Prudential Regulation and Research at the Association for Financial Markets in Europe (AFME), noted that the US proposals point to an increase in capital requirements, but one that is “broadly off-set by changes to G-SIB surcharges and reforms to the stress testing framework.” This suggests the overall impact on US banks may be limited, and could even result in reduced requirements for some firms.

This divergence is raising alarm bells within the European banking sector. AFME has highlighted that EU banks face a “more significant increase in capital requirements,” creating a competitive disadvantage. The US decision to remove the output floor for market risk is particularly concerning, as it deviates from international standards and could impact banks active in both markets. The situation is further complicated by the UK’s own adjustments to its Basel 3.1 market risk rules, with the Prudential Regulation Authority (PRA) proposing a delay to the implementation of the FRTB Internal Model Approach to January 1, 2028.

The staggered global rollout of FRTB, as noted by Moody’s, underscores the challenges in achieving a harmonized standard. While the core principles remain intact, the pace and shape of adoption vary significantly. The PRA’s phased approach – delaying the Internal Model Approach while proceeding with other elements of FRTB on January 1, 2027 – demonstrates a pragmatic recognition of the complexities involved and the need for international coordination.

The EU Commission is expected to receive support from EU countries for its Basel III plans, according to MLex, but the growing gap between European and US regulations is likely to remain a key point of contention. The differing approaches highlight the delicate balance between implementing robust financial regulations and maintaining the competitiveness of domestic banking sectors in a globalized financial landscape.

Looking ahead, stakeholders will be closely monitoring the finalization of the US proposals and the ongoing discussions surrounding FRTB implementation in the EU. Maintaining a level playing field between the US, EU, and UK frameworks will be critical to supporting competitiveness, efficient capital allocation, and financial stability. The European Commission aims to finalize a deal on FRTB bank capital rules by mid-June, but the path forward remains uncertain as regulators navigate shifting global dynamics and competing priorities.