FRTB Realignment of the Trading and Banking Book Boundary

The FRTB trading book realignment comprises five core operational steps: First, a comprehensive inventory of the existing desk structure and all positions across trading and banking books. Second, quantification of capital impacts under various boundary scenarios. Third, development of a target structure balancing regulatory requirements with capital efficiency. Fourth, desk restructuring including adjustment of responsibilities and reporting lines. Fifth, implementation of monitoring processes and governance structures for ongoing CRR III compliance from 2027.

FRTB-compliant desk restructuring begins with assessing the current trading desk structure against regulatory requirements for Regulatory Trading Desks. Each desk requires a responsible head trader, an independent trading strategy and dedicated risk management. The restructuring involves merging or splitting existing desks, reassigning positions, adjusting internal risk transfer processes and establishing desk-specific P&L attribution. ADVISORI supports this process with proven governance frameworks and change management methodologies.

Capital effects depend on the specific portfolio, applicable calculation approach, permissible book designation and relevant transitional treatment. These factors do not support general surcharges of 30 to 60 percent or savings of up to 20 percent.

A credible assessment requires comparable inventories and reference dates, documented assumptions, a regulatory basis for designation and a traceable before-and-after calculation. Separate designation effects from changes to the calculation approach, models or data quality. A calculation does not establish that a transfer is permissible or has supervisory approval.

The Basel RBC25 target framework prohibits switching for regulatory arbitrage and contains specific rules on capital benefits from transfers. EU institutions must separately establish the applicable CRR version and transitional treatment. ADVISORI supports analysis and documentation of institution-specific effects. No particular capital saving is promised.

Primary source: Basel target framework RBC25.

A realistic FRTB transition plan spans three phases: The analysis phase (3 to 6 months) covers inventory assessment, capital impact analysis and scenario development. The implementation phase (6 to 12 months) encompasses desk restructuring, system modifications, data migrations and process changes. The stabilisation phase (3 to 6 months) includes parallel running, supervisory coordination and fine-tuning. Clear milestones, defined responsibilities and structured change management are essential for timely completion before the deadline.

The trading-banking book migration requires adjustments to several core IT systems: position management and booking logic must reflect the new assignment criteria, risk calculation systems need desk-specific configurations for SA and IMA, and regulatory reporting must meet granular FRTB reporting requirements. Particularly critical are data quality for historical trading data, availability of granular position data and full traceability of all reclassifications. ADVISORI conducts a structured IT gap analysis and supports the technical migration.

Pure boundary classification determines which positions belong in the trading or banking book — realignment goes significantly further. It encompasses the operational transformation of the entire desk structure, adaptation of processes and governance, migration of existing positions and implementation of sustainable monitoring mechanisms. While classification is a one-off regulatory assignment, realignment represents an ongoing transformation process that equally affects organisational structure, IT systems and business strategy.

Lasting FRTB compliance after realignment requires multi-tiered governance structures: a senior Boundary Committee for strategic decisions on trading-banking book assignments, clear escalation processes for borderline positions and reclassification requests, continuous monitoring of desk profitability and P&L attribution, regular reviews of boundary criteria for new products, and comprehensive documentation of all decisions for supervisory examinations. ADVISORI supports the design and implementation of these governance frameworks.