AFME, together with ISDA, IIF and UK Finance, has responded to the Prudential Regulation Authority's consultation on targeted adjustments to the Fundamental Review of the Trading Book (FRTB) Internal Models Approach (IMA). The response welcomes the PRA's efforts to improve the operational effectiveness of the framework while supporting greater international consistency across major jurisdictions.
The industry emphasises the importance of maintaining a globally aligned market risk framework that supports competitiveness, efficient capital allocation and the continued participation of UK firms in international capital markets. The response highlights areas where further alignment with EU and US approaches could help reduce complexity and improve the attractiveness of internal models.
Key recommendations
Recognise diversification benefits between Internal Models Approach (IMA) and Alternative Standardised Approach (ASA) portfolios.
Introduce a Type 1 and Type 2 framework for Non-Modellable Risk Factors (NMRFs).
Simplify Risk Factor Eligibility Test (RFET) requirements and reduce unnecessary operational burdens.
Improve the risk sensitivity and practicality of market risk capital calculations.
Support greater international consistency across UK, EU and US FRTB implementation.
AFME supports a market risk framework that is risk-sensitive, operationally workable and internationally competitive, helping to encourage broader adoption of internal models under Basel 3.1.