On September 18, ISDA, the Association for Financial Markets in Europe, the Institute of International Finance and UK Finance submitted a joint response to the UK Prudential Regulation Authority consultation on adjustments to the internal model approach (IMA) for the market risk capital framework, known as the Fundamental Review of the Trading Book (FRTB).

The FRTB, and particularly the IMA, continue to pose challenges due to significant operational complexity and excessively conservative capital requirements that do not align with the underlying economic risk. The changes proposed by the PRA are therefore necessary and welcome.

International alignment remains critical in this area. Major parts of the UK consultation broadly align with the draft US proposals and the EU approach. However, there is a need for further revisions in some areas. The PRA intends to implement the FRTB-IMA on January 1, 2028, but ISDA recommends some flexibility should be retained.

In this context, the response focuses primarily on recommendations on the major elements raised in the consultation paper with some additional points the industry wanted to raise on the FRTB alternative standardized approach and the boundary between the trading book and the banking book.