On 12 August 2024, the European Banking Authority (EBA) issued a no-action letter on the boundary between the banking book and the trading book and shared its considerations on technical questions and issues arising from the postponement.

Background

On 24 July 2024, the European Commission (Commission) adopted a Delegated Act in accordance with Article 461a of the Capital Requirements Regulation 3, which postpones the use of the alternative approaches for the calculation of the own funds requirements for market risk by a year to 1 January 2026. The publication of that Delegated Act by the Commission was accompanied by a set of Q&As on some aspects of the postponement, including the application of the revised boundary between the banking and trading books, and the use of the alternative standardised approach in the context of the output floor calculations.

No-action letter

The EBA’s no action letter complements the Delegated Act by advising Member State competent authorities not to prioritise any supervisory or enforcement action in relation to the application of the provisions on the boundary between the non-trading and the trading book, until the entire Fundamental Review of the Trading Book standard is implemented in the EU and is used for calculating own funds requirements for market risk. The EBA also clarifies that the points it made in another no-action letter on the same topic issued in 2023 should remain applicable.

Technical questions

The EBA notes that questions and issues may arise given the Delegated Act and as such it has issued a document that discusses certain issues that have been identified at this stage. These issues relate to:

  • Approach to determining the market risk contribution to the floored risk weighted exposure amounts.
  • Structural foreign exchange positions.
  • ‘Main risk driver’-approach for the calculation of the market risk thresholds.
  • Change in scope of the positions subject to own funds requirements for market risk due to recognition of credit valuation adjustment hedges.
  • Disclosures.
  • Reporting.
  • ‘Prudential boundary’ approach of the operational risk framework.