The International Swaps and Derivatives Association (ISDA) published welcome remarks by Mark Gheerbrant at its annual Trading Book Capital event, setting out ISDA’s push for proportionate, risk-sensitive Basel III capital requirements for trading activities and framing 2026 as a key year for jurisdictions still finalising implementation. The remarks pointed to US regulators revising the Basel III endgame proposal, with a new proposal expected in the coming months. In the European Union, ISDA highlighted the European Commission’s targeted consultation on changes to the Fundamental Review of the Trading Book (FRTB), including temporary adjustments to the standardized and internal models approaches and the use of a multiplier to limit capital increases for negatively affected banks for three years, while arguing that durable, risk-sensitive solutions are preferable to temporary relief. For the United Kingdom, the speech noted Basel 3.1 implementation due at the start of 2027 and the Prudential Regulation Authority’s proposal to delay rollout of internal models until the following year. ISDA flagged reduced viability of internal models under the FRTB, citing a survey in which 10 of 26 banks planned to use internal models only for a reduced scope of trading desks, and recommended recalibrating aspects of the framework including the profit and loss attribution test, the risk factor eligibility test and the treatment of non-modellable risk factors. The remarks also noted the extension of ISDA’s Capital Models Benchmarking initiative to support internal models, and work on climate scenario analysis for trading books, including market risk shocks linked to short-term Network for Greening the Financial System scenarios, with a new paper planned for early next year; the European Commission consultation closes on January 6.
ISDA 2025-12-02
International Swaps and Derivatives Association presses for risk-sensitive trading book capital and FRTB recalibration as Basel III endgame revisions approach
The International Swaps and Derivatives Association (ISDA) stressed the need for proportionate, risk-sensitive Basel III capital requirements for trading, highlighting 2026 for jurisdictions finalizing implementation. ISDA noted US regulators' revisions to the Basel III endgame proposal, the European Commission's consultation on the Fundamental Review of the Trading Book (FRTB), and the UK's Basel 3.1 timeline, while recommending recalibrations to internal models and extending its Capital Models Benchmarking initiative.