Market risk and CVA capital: what changes from 2027 · RiskAtoms Academy

By the end you will be able to

1State when the FRTB and the new CVA rules start in the UK, the EU and the US, each with its source and date.
2Compare the old UK CRR with the new rules, item by item, on a bank's book, in amounts and percentages.
3Explain the transitional pieces: the UK's interim year for internal models and legacy CVA exemptions, and the EU's postponements and 2026/1221 relief.
4Say what is final and what is still proposed as at 3 November 2026.

Why it matters

On 31 December 2026 RiskAtoms Bank plc holds £1.18m of CVA capital: the old rules exempt two of its four counterparties and weigh the other two lightly. On 1 January 2027 the PRA's new framework applies. If the bank keeps its old trades exempt, the charge is £1.43m; on 1 January 2030, when that option ends, it is £3.07m. Its market risk moves from a patchwork of position charges to the £39.7m standardised approach of this module. The same book, three charges, depending on the date.

Core explanation

Three jurisdictions, four dates

Illustrative dataRiskAtoms Bank plc's capital book

The same made-up UK bank as Level 3: £67bn of assets and £4bn of equity at 31 December 2025, in £ millions. Module 4.1 adds its regulatory layer: own funds, deductions, risk-weighted assets by risk type, buffers, the leverage exposure and MREL, computed from the Level 3 credit, trading, derivatives and operational risk books. Every figure is illustrative, not any bank's data.

Pro forma. The book applies Basel 3.1, the 2017 finalisation of Basel III, to the 31 December 2025 balance sheet. On that date the bank still reported under the old UK CRR. The UK applies Basel 3.1 from 1 January 2027, and the internal model approach for market risk from 1 January 2028 (PRA PS1/26, paras 1.23 and 1.24). So the book shows the bank as it would look under the new rules.

The CVA data. The four netting sets of the Level 3 derivatives book (Module 3.4): Halvergate Moor Manufacturing (HAL), Corriemoor Bank (COR), Saltney Capital (SAL) and Ebbsworth Pension Trustees (EBB), all invented. Module 4.1 gave each its SA-CCR exposure and maturity, and set CVA RWA at £48.6m with the reduced basic approach. The bank has no CVA hedges; any hedge on these pages is added for illustration.

The market risk data. The Level 3 trading desk (Module 3.2), on the standardised approach of L4.3.02 to L4.3.04.

L4.1.08: Basel 3.1 from 2027: UK, EU and US set out the Basel 3.1 timetable. This lesson takes the market risk and CVA rules: what replaces what, when, and what it does to the book. Modules 4.1 and 4.3 apply the new rules pro forma, so the old rule is the one put back, one item at a time.

How the dates were set

TimelineMarket risk and CVA, 2019 to 2030

1 / 11

Jan 2019

Basel: revised market risk standard

The FRTB in its final form, later consolidated as MAR10 to MAR40 (L4.3.02: The sensitivities-based method: delta and vega).

The UK: old rule against new, item by item

Under the old UK CRR market risk is a set of charges by instrument type. From 2027 the bank uses the advanced standardised approach: one sensitivities calculation across the desk, plus default and residual risk. Firms with little trading may instead use the simplified standardised approach. The table puts the old rule back on each part of the book that can be compared directly. £m of capital.

Item	Old UK CRR (to 31 Dec 2026)	From 2027	Old	New	Change
FX: net USD £10m long	8% if the net position exceeds 2% of own funds (£79.9m), Art 351	SBM FX delta, 15% ÷ √2 for a specified pair (MAR21.87–21.88)	0.000	1.061	n/a
Commodities: Brent	15% of net + 3% of gross, Art 360	SBM commodity delta, 35% for liquid energy (MAR21, Table 11)	2.215	4.308	+94%
Gilt and £80m BBB bonds: spread and default	Specific risk 0% (gilt) and 8% (bonds), Art 336	CSR delta + DRC, each position stand-alone	6.400	19.348	+202%
CVA	Art 384 on COR and SAL; HAL and EBB exempt, Art 382(4)	Reduced BA-CVA on all four sets (MAR50.14)	1.180	3.886	+229%
Internal model (illustrative) illustrative	3 × √10 × (VaR + stressed VaR), Arts 364–366	IMA: ES, NMRF, DRC, desk tests (MAR33), from 2028	54.934	35.465	−35%

FX. The bank's net USD position of £10.0m is under the old de minimis of 2% of own funds (£79.9m), so the old charge is nil. The SBM has no such threshold.
Commodities. 18% under the old simplified approach becomes 35% for liquid energy: +94%.
Bonds. The old specific risk charge was 0% for the gilt (0% credit risk weight) and 8% for the BBB bonds (100% weight). The new rules split it into spread risk (CSR) and default risk (DRC, L4.3.04: Default risk charge and residual risk add-on): £19.35m on the two positions measured on their own, before the desk's diversification.
CVA. The old standardised method charged only COR and SAL, at 0.8% and 2% by credit quality step. SAL's 2% maps its internal BB rating to step 4, which Article 384 allows a bank that rates the counterparty under the IRB approach; on the standardised approach an unrated counterparty takes 1.0%. BA-CVA charges all four sets (L4.3.09: CVA capital: the basic approach): +229%.
Internal models. If the bank had a model permission: the old 3 × √10 × (VaR + stressed VaR) against the FRTB IMA of L4.3.08: Total market risk capital, −35%. The old figure leaves out the incremental risk charge, so the fall is overstated.

The UK's transitional pieces

Two parts of the UK change are phased. For market risk, 2027 is an interim period: firms keep existing IMA permissions and models, positions outside them move to the ASA, and the permissions lapse when the FRTB IMA starts on 1 January 2028 (PS1/26, paras 3.2, 3.4, 3.11). Every firm must still calculate the ASA, for the output floor (para 3.9). For CVA, the old exemptions for non-financial counterparties, pension schemes and sovereigns go, but the legacy exemption keeps trades that were exempt out of the charge until 1 January 2030, with an add-on for the lower SA-CCR α (PS17/23, paras 4.3, 4.17). New trades with the same counterparties are in from day one. On the book every trade is legacy, so HAL and EBB stay out until 2030.

Sort itWhen does it apply in the UK?

Sort each change by the date it takes effect for a UK bank (as at 3 November 2026).

The FX charge loses its 2%-of-own-funds de minimis
Pension funds get a BA-CVA risk weight of 3.5% (investment grade)
Expected shortfall models replace VaR and stressed VaR
Trades that were CVA-exempt under the old Article 382(4) enter CVA capital
The SBM charge is multiplied by 0.9

The EU: postponed twice, then relieved

CRR3 has applied since 1 January 2025, including its new CVA framework, but the Commission used its power under Article 461a to defer the FRTB own funds requirements by delegated regulation, twice: to 1 January 2026 (2024/2795) and to 1 January 2027 (2025/1496). Until then banks keep the market risk rules as in force on 8 July 2024. From 1 January 2027 the FRTB applies with temporary relief to 31 December 2029 (2026/1221):

a multiplier of 0.9 on the SBM, and on the simplified standardised approach (Article 495s);
a multiplier of 0 on the residual risk add-on for three kinds of instrument, such as options on the spread between two CMS rates (Article 495p);
an optional multiplier for banks whose requirement, as of 31 March 2027, would exceed the old one, recalibrated every three months (Article 495v);
relief for internal models: the P&L attribution test, modellability, default risk and averaging (Articles 495i–495m).

On the book, 0.9 × 33.412 brings the standardised charge from £39.657m to £36.316m. The two illustrative RRAO items (a weather swap and a digital put) are not among the three kinds, so the RRAO stays.

The formal version

The old rules in symbols (UK CRR Articles 351, 360, 336, 384, 364–366), and the measure of change used throughout, a percentage of the old charge (M-A01: Percentages):

\begin{aligned} K^{\text{old}}_{\text{FX}} &= \begin{cases} 8\% \times |\text{NOP}| & |\text{NOP}| > 2\% \times \text{own funds} \\ 0 & \text{otherwise} \end{cases} \\ K^{\text{old}}_{\text{comm}} &= 15\% \times |\text{net}| + 3\% \times \text{gross} \\ K^{\text{old}}_{\text{CVA}} &= 2.33\sqrt{h}\,\sqrt{\Big(\sum_i 0.5\,w_i M_i\,\text{EAD}_i\Big)^2 + \sum_i 0.75\,w_i^2 \big(M_i\,\text{EAD}_i\big)^2}, \quad h = 1 \\ K^{\text{old}}_{\text{IMA}} &= \max(\text{VaR}_{t-1},\ m_c\,\overline{\text{VaR}}_{60}) + \max(\text{sVaR}_{t-1},\ m_s\,\overline{\text{sVaR}}_{60}), \quad m_c, m_s \ge 3 \\[4pt] \text{change} &= \frac{K^{\text{new}} - K^{\text{old}}}{K^{\text{old}}} \times 100\% \end{aligned}

NOP: net open position in a currency. The CVA weights $w_i$ run from 0.7% (credit quality step 1) to 10% (step 6); EAD is discounted by $(1-e^{-0.05M})/(0.05M)$ , and hedges (none here) reduce it.
VaR at 99% over 10 days; the multipliers rise above 3 with backtesting overshootings. The new rules are in L4.3.02: The sensitivities-based method: delta and vega to L4.3.10: CVA capital: the standardised approach.
The change is undefined when the old charge is nil, as for FX here.

Try it

Start in the UK on 31 December 2026 and step through the dates. Then switch to the EU in 2027 and 2030 to see the 0.9 come and go, and to the US, where nothing has changed yet.

Try itWhich rules, where and when?

Jurisdiction

Date

Basel 3.1 starts: FRTB standardised approach and the new CVA framework; existing internal models stay for one year.

Area	Rule	On the book	Source
Market risk, standardised	Advanced standardised approach (SBM + DRC + RRAO); smaller firms may use the simplified approach	£39.657m, RWA £495.7m	PS1/26 1.23, 3.4
Internal models	Existing IMA permissions continue for the year, with the old models	The bank has none: whole book on the standardised approach	PS1/26 3.4
CVA	BA-CVA; legacy trades with formerly exempt counterparties optionally exempt	£1.433m on COR and SAL, RWA £17.9m, plus the α add-on (not computed)	PRA CVA Part; PS17/23 4.17

Status as at 3 November 2026. IMA figures are illustrative: the bank has no model permission. EU rows show the same book as if it were held by an EU bank.

Worked example

Each item on RiskAtoms Bank plc, old and new

£ millions of capital; Basel 3.1 book with one old rule back each time.

Item by item

Step 1 of 6

1
FX
$\begin{aligned} \text{NOP} &= 30.00 - 20.00 = 10.00 < 2\% \times 3{,}994.7 = 79.89 \;\Rightarrow\; K^{\text{old}} = 0 \\ K^{\text{new}} &= 1.061 \end{aligned}$

The comparisons do not add up to the bank's old-rule total, which the book cannot rebuild: the old general interest rate and equity charges are not in it. The 1-day VaR uses the last 250 days; the stressed VaR, the Level 3 stress window; the 60-day averages are taken equal to the latest figures.

Regulatory lens

Status as at 3 November 2026 as at 3 Nov 2026. Each date below carries its source.

	What	When	Source
UK	Basel 3.1, including the FRTB standardised approaches (ASA, SSA) and the new CVA framework	1 January 2027	PRA PS1/26 (20 January 2026), para 1.23
UK	FRTB internal model approach (IMA)	1 January 2028	PRA PS1/26, paras 1.24 and 3.4 (proposed in CP17/25, 15 July 2025)
UK	Optional CVA exemption for legacy trades with the counterparties exempt under the old Art 382(4)	until 1 January 2030	PRA PS17/23 (12 December 2023), para 4.17
EU	CRR3 market risk (FRTB) own funds requirements: first postponement, to 1 January 2026	1 January 2026 (superseded)	Commission Delegated Regulation (EU) 2024/2795 of 24 July 2024 (as described in the Commission's news of 12 June 2025)
EU	Second postponement, to 1 January 2027	1 January 2027	Commission Delegated Regulation (EU) 2025/1496 of 12 June 2025 (OJ 19.9.2025), cited in Regulation (EU) 2026/1221
EU	Temporary adjustments from 1 January 2027 to 31 December 2029: 0.9 multiplier on the SBM (Art 495s), RRAO relief (Art 495p), optional multiplier where the requirement as of 31 March 2027 exceeds the 8 July 2024 one, recalibrated every three months (Art 495v)	1 January 2027 to 31 December 2029	Commission Delegated Regulation (EU) 2026/1221 of 4 June 2026 (OJ 11.9.2026)
US	Joint proposal to implement Basel III endgame, including FRTB market risk and CVA (re-proposal); comments closed 18 June 2026	Proposed 19 March 2026; no final rule found as at 3 November 2026	Federal Reserve press release and fact sheet, 19 March 2026; OCC Bulletin 2026-9

In the UK

Final rules made in PS1/26 (20 January 2026): Basel 3.1, including the ASA, the SSA and the CVA Part, from 1 January 2027; the IMA from 1 January 2028. The CVA exemptions' removal and the 2030 legacy option are in PS17/23 (12 December 2023). As at 3 November 2026 nothing announced moves these dates.

In the EU

FRTB own funds requirements apply from 1 January 2027 (Article 520a as replaced by 2025/1496). The relief of 2026/1221 runs from 1 January 2027 to 31 December 2029. CVA has followed CRR3 since 1 January 2025.

In the US

Proposals of 19 March 2026, comments closed 18 June 2026. As far as we could find on the agencies' sites, no final rule had been adopted by 3 November 2026, and the proposals give no start date in the fact sheet or board memo.

Spark Atoms

Spark AtomA start date that moved twice

The EU's FRTB own funds requirements were due with CRR3 on 1 January 2025. Two delegated acts moved them a year each, both citing the risk of an uneven playing field while other major jurisdictions were late (2025/1496, recitals 2–3). When the third act came, in June 2026, it did not move the date but softened the rules instead.

Spark AtomNothing, then £1.06m

The old FX rule ignored a net open position below 2% of own funds: for this bank, anything under £80m. The SBM charges from the first pound, so the bank's £10m of dollars go from no capital to £1.06m.

Key takeaways

UK: the ASA (or SSA) and the new CVA Part from 1 January 2027; FRTB IMA from 1 January 2028, with old IMA permissions until then; legacy CVA exemptions optional until 1 January 2030 (PS1/26, PS17/23).
EU: FRTB from 1 January 2027 after 2024/2795 and 2025/1496; 2026/1221 adds a 0.9 SBM multiplier and other relief to 31 December 2029. CVA under CRR3 since 2025, exemptions kept.
US: proposed on 19 March 2026; not final as at 3 November 2026.
On the book: FX 0 → 1.06, Brent +94%, bonds 6.4 → 19.3, CVA 1.18 → 3.89 (UK 3.07 from 2030).
The EU's 0.9 takes the book's SA from £39.66m to £36.32m until 2029.

Reaction

Check what stuck

Glossary

Old UK CRR: The old UK CRR: the EU Capital Requirements Regulation as it stood when the UK left the EU, kept in UK law and amended since. Its market risk and CVA articles apply until 31 December 2026.
Advanced standardised approach (ASA): Advanced standardised approach (ASA): the PRA's name for the FRTB standardised approach (SBM, DRC and RRAO). The EU calls it the alternative standardised approach.
Simplified standardised approach (SSA): Simplified standardised approach (SSA): a recalibrated version of the old standardised rules, kept for firms with limited trading (PS17/23, para 3.2).
Interim period: The interim period: 2027 in the UK, when the standardised approaches have started but the FRTB internal model approach has not. Existing IMA permissions continue until it ends.
Legacy CVA exemption: Legacy CVA exemption: the UK option to keep trades that were exempt from CVA capital under the old Article 382(4) exempt until 1 January 2030, with an add-on for the lower SA-CCR α.
Delegated regulation: Delegated regulation: an act the European Commission adopts under powers in a regulation, here CRR Article 461a, to change details such as a start date.
De minimis: De minimis: a threshold below which a rule asks for nothing. The old FX charge applied only when the net open position exceeded 2% of own funds.

Deep Dives & Origins

Deep Dives

Prudential Regulation Authority, PS1/26 Implementation of the Basel 3.1 final rules, January 2026, chapter 3: the IMA delay and the interim period. Intermediate.
Commission Delegated Regulation (EU) 2026/1221, Articles 495i–495v: the EU's market risk relief to 2029. Advanced.

Origins

Prudential Regulation Authority, PS1/26, 20 January 2026, paras 1.23, 1.24, 3.2–3.11.
Prudential Regulation Authority, PS17/23, 12 December 2023, paras 3.2, 4.3, 4.17.
Prudential Regulation Authority, PRA Rulebook: Credit Valuation Adjustment Risk Part, rule 4.4, from 1 January 2027.
UK CRR (Regulation (EU) No 575/2013 as it applies in the UK), Articles 336, 351, 360, 364–366, 382 and 384, legislation.gov.uk.
Commission Delegated Regulations (EU) 2024/2795 (24 July 2024), 2025/1496 (12 June 2025) and 2026/1221 (4 June 2026), Official Journal of the European Union.
Regulation (EU) No 575/2013 (CRR), Articles 382, 382a and 385, as amended by Regulation (EU) 2024/1623.
Board of Governors of the Federal Reserve System, press release and fact sheet, 19 March 2026, and board memo of the same date.
Basel Committee on Banking Supervision, MAR50 (version effective 1 January 2023) and press release of 8 July 2020, bis.org.

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