ISDA/IIF Response to EC’s Consultation on the Market Risk Prudential Framework

On April 22, ISDA and the Institute of International Finance (IIF) submitted a joint response to the European Commission’s (EC) consultation on the application of the market risk prudential framework.

The associations believe the capital framework should be risk-appropriate and as consistent as possible across jurisdictions to ensure a level playing field without competitive distortions due to divergent rules. This is of particular importance for the implementation of the new market risk standard, known as the Fundamental Review of the Trading Book (FRTB). Key jurisdictions have increasingly diverged, both in the implementation timeline and the content of the rules.  Given the significant cross-border capital market activities that fall under the FRTB, divergence is a source of concern and certain components of the FRTB continue to pose challenges due to significant operational complexity and excessively conservative capital requirements that do not align with the underlying economic risk. As individual jurisdictions have developed or are developing different solutions to address similar concerns with the FRTB framework, the associations believe this should ideally be resolved internationally under the Basel Committee on Banking Supervision.

The industry unanimously recognizes that the regulatory changes proposed under the delegated act are essential as a minimum to address long-standing implementation issues within the FRTB. The associations’ members responded to a survey and a clear majority supports an additional one-year delay, alongside targeted changes in the FRTB framework. In light of the ongoing uncertainty in the US and the UK, a further one-year delay gives an opportunity for a consistent timeline for implementation of the market risk framework across the UK, US and EU. It also provides the opportunity to consider the proposed targeted changes to the FRTB standardized approach (FRTB-SA) and internal models approach in more detail and to react to further developments in other jurisdictions. A minority of respondents favor an implementation of the FRTB-SA on January 1, 2026, with the targeted relief measures proposed by the EC, to avoid continued operational complexities of running the FRTB (FRTB-SA for reporting purposes) and the current Basel 2.5 framework together.

The proposals in the EC’s consultation to introduce temporary and targeted changes are a step in the right direction. However, it is essential for the Basel Committee to thoroughly examine the inconsistencies in regulatory implementation across jurisdictions.

Documents (1) for ISDA/IIF Response to EC’s Consultation on the Market Risk Prudential Framework

Expanding the Universe of Eligible VM

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ISDA Response on Hedge Accounting Guidance

On August 14, ISDA responded to an exposure draft from the Financial Accounting Standards Board (FASB). ISDA broadly supports the FASB’s proposed targeted improvements to hedge accounting, including allowing interest rate hedging of held-to-maturity (HTM) debt securities, recognizing all Secured...

Joint Response to EBA Consultation

On August 12, ISDA and the Association for Financial Markets in Europe (AFME) responded to the European Banking Authority’s discussion paper on certain taxonomy key performance indicators (KPIs) and other aspects of the Disclosures Delegated Act  under Article 8 of...

Response to JSCC on Clearing Fund Consolidation

On August 12, ISDA responded to the Japan Securities Clearing Corporation’s (JSCC) consultation on its proposal to consolidate clearing fund consumption, calculation and deposit segmentation across six clearing qualifications under the Financial Instruments and Exchange Act. ISDA members broadly support...