FRTB German Implementation

The capital-relevant application of FRTB in Germany has been postponed to 1 January 2027. This date results from the European Commission delegated act of September 2025, which extended the original deadline by a further year. German banks should complete their readiness assessment now, choose between the standardised approach and internal models, and begin technical implementation. The Commission has also proposed ten simplifying transitional measures to apply temporarily for three years. ADVISORI supports the creation of a realistic milestone plan that accounts for BaFin-specific requirements.

BaFin has developed its own interpretive guidelines for FRTB requirements that go beyond international Basel III standards. These include specific procedures for internal model approval, trading book boundary requirements, and extended documentation obligations. German banks must also ensure integration with existing regulatory reporting structures and comply with BaFin-specific reporting formats. The BaFin proportionality principle allows smaller institutions to use simplified approaches. ADVISORI knows these requirements from practice and guides BaFin-compliant implementation.

CRR III provides three approaches: the Simplified Standardised Approach (SSA), the Alternative Standardised Approach (ASA), and the Alternative Internal Models Approach (AIMA). The choice depends on trading book size, position complexity, and available resources. AIMA offers potentially lower capital requirements but demands extensive model validation and BaFin approval. ASA represents a good balance of accuracy and effort for many mid-sized German banks. ADVISORI conducts comparative analyses and evaluates the own funds impact of both variants.

CRR III fundamentally recalculates own funds requirements for market risk through FRTB. The previous Value-at-Risk is replaced by Expected Shortfall, which better captures tail risks. The new trading book boundary tightens position allocation. For German banks that rely heavily on internal models, capital requirements may increase significantly. The European Commission has proposed relief measures, including multipliers to temporarily limit the increase. ADVISORI calculates institution-specific impacts and identifies optimisation potential.

FRTB places high demands on data quality and granularity. The sensitivities-based approach requires precise risk factor data at individual position level. The fund look-through requirement demands transparency to individual instrument level for fund positions. German banks must also ensure consistency between trading book data and regulatory reporting data. Misclassifications in Residual Risk Add-Ons can lead to unnecessary capital surcharges. ADVISORI supports the establishment of robust data management processes that meet BaFin requirements.

The new trading book boundary under CRR III significantly tightens the division between trading book and banking book. Banks must define clear allocation criteria, strictly document reclassifications, and complete the supervisory approval process. ADVISORI analyses the existing position allocation, identifies action items, and develops practical boundary processes. We account for BaFin expectations regarding trading book boundary governance and train the responsible teams.

The integration of ESG factors into market risk management is becoming increasingly important in FRTB implementation. The ECB and BaFin expect banks to capture and assess climate risks and transition risks in their trading portfolios. The EU Taxonomy and German sustainability standards influence the treatment of green financial instruments under FRTB. ADVISORI supports the development of risk management approaches that cover both FRTB requirements and the growing ESG expectations of German supervisors.