Associations Urge Delay and Fixes for EU Market Risk Rules

The International Swaps and Derivatives Association, the Association for Financial Markets in Europe, and the Institute of International Finance urged European regulators to delay the implementation of new market risk rules to align them with global timelines.

In a response to the European Commission’s consultation on the application of the market risk prudential framework, the associations argued that the European Union must synchronize its schedule with the United States and the United Kingdom to prevent competitive distortions that would penalize internationally active banks. In the event that a delay is not granted, the Associations supported the European Commission's proposal to introduce a "capital neutrality multiplier" to mitigate sudden capital spikes. However, the groups emphasized that this multiplier should be calibrated to specific banks based on impact, rather than applied as a blunt, industry-wide solution.

In addition, the associations contended that the current framework for non-modellable risk factors is unworkable and actively discourages the adoption of sophisticated risk models. They recommended discontinuing the current design—which they argued ignores diversification and produces excessively conservative outcomes—in favor of a simplified surcharge. Further, they urged regulators to utilize the "profit and loss attribution test" solely as a monitoring tool rather than a strict pass/fail requirement, noting that the test currently penalizes otherwise well-hedged portfolios.