2026 Regulatory Shifts: Why “Business as Usual” No Longer Works

The regulatory environment in 2026 is undergoing a new phase of complexity. Issues such as the convergence of margin reform under European Market Infrastructure Regulation (EMIR 3), fragmented implementation of Fundamental Review of the Trading Book (FRTB), evolving treatment of non-modellable risk factors, and a new wave of geopolitical stress testing are all challenging firms’ regulatory playbooks. 

In a Numerix webinar, Franck Rossi, VP of Product Management – Risk, explored how these developments are reshaping capital efficiency, internal model strategy, and risk governance across jurisdictions. The message is clear: regulatory initiatives in 2026 are directly influencing business models, capital allocation, and competitive positioning. 

Below are the key regulatory themes every bank should be focusing on as the year continues to unfold. 

Standard Initial Margin Model (SIMM) Counterparty Approval Under EMIR 3 

Under EMIR 3, the European Banking Authority (EBA) is calling on financial and non-financial counterparties using the International Swaps and Derivatives Association (ISDA) Standard Initial Margin Model (SIMM) for non-centrally cleared OTC derivatives to seek formal approval.   

This model itself is not new. The ISDA SIMM has been in place for years. What is new is the supervisory expectation that counterparties under EBA oversight obtain validation for their initial margin models. 

For existing trades, the expectation is largely to remain with the status quo unless a new ISDA methodology is introduced. However, if methodology changes occur, institutions may need to revalidate. 

Fragmented FRTB: A Global Patchwork 

FRTB was designed as a globally harmonized market risk framework. In practice, its implementation is anything but synchronized. 

Some jurisdictions—such as Japan, Canada, and parts of Asia—are already live, while the EU is targeting 2027. The UK plans phased implementation, with Internal Model Approach (IMA) adoption extending into 2028. The U.S. timeline remains uncertain at this time. 

This fragmentation has competitive implications: 

• EU authorities have introduced bank-specific multipliers to cap capital increases. 
• The UK is allowing transition flexibility between the Standardized Approach (SA) and IMA. 
• In the U.S., questions remain about overlap with Dodd-Frank stress testing and global market shock scenarios. 

The natural question is whether the Basel Committee on Banking Supervision will intervene to address divergent timelines and interpretations. For now, local discretion appears to prevail. 

For global banks, this means navigating multiple regulatory realities simultaneously— each affecting capital, reporting, and trading strategy differently. 

FRTB Modeling Approaches: IMA vs. SA 

Many institutions default to the SA under FRTB due to operational complexity of the IMA. But is that strategically optimal? 

The IMA is designed to better capture true risk dynamics—volatilities, correlations, stress calibration—compared to the SA’s prescribed sensitivities and parameters. In many cases, the IMA can align capital more closely with actual portfolio risk, potentially lowering capital requirements. 

Adopting the IMA can also differentiate a bank strategically, highlighting advanced risk management capabilities and modeling sophistication in the marketplace. Yet, a key limitation remains: Non-Modellable Risk Factors (NMRFs), which can constrain the model’s applicability and benefits. 

Role of Flexible NMRFs 

Under FRTB, risk factors that fail modelability tests trigger punitive capital charges. For market makers and firms active in less liquid products, this can materially increase capital requirements. 

Japan has introduced “flexible NMRFs” to mitigate competitive disadvantages. Under this approach: 

• Proxy substitution for risk factors is permitted, even if eligibility tests are not perfectly met. 
• Longer transition periods are allowed to improve market data availability and observability. 

This flexibility is designed to promote IMA adoption while maintaining prudent oversight. It also avoids excessive capital burdens on illiquid products that may not reflect true economic risk. 

A prominent example is Nomura, which went live with FRTB-IMA under an agreement with the Japanese regulator. The reported result: approximately one-third lower capital requirements compared to SA, with consideration now being given to expanding IMA coverage to their FX desks. 

European regulators are closely watching these developments. If flexible interpretations of NMRFs expand beyond Japan, more banks may revisit the IMA decision. 

Stress Testing Transparency  

In the United States, model transparency is under renewed scrutiny. The Federal Reserve’s Stress Capital Buffer (SCB) framework sets capital requirements for the largest U.S. banks based on severely adverse scenarios, and official guidance explains how the stress test process and SCB calculation operate.  

Historically, however, banks have criticized the opacity of supervisory models. The key question now is whether increased transparency builds confidence or creates incentives for reverse engineering. Greater transparency may improve predictability, but it may incentivize firms to manage to the model instead of the risk. 

Material Risk: Beyond Metrics 

Regulatory supervisors are also emphasizing “material risk” identification beyond quantitative thresholds. 

Following the collapse of Silicon Valley Bank, regulators have focused on risks that may not immediately breach formal metrics but do pose structural threats. The lesson is that compliance with ratios is not sufficient if governance fails to recognize underlying vulnerabilities. 

Banks are now expected to: 

• Escalate and report emerging issues and breaches promptly 
• Document qualitative risk judgments 
• Highlight risks not adequately captured by standard metrics 

The supervisory message is clear: risk management must combine quantitative analytics with experienced judgment. 

Geopolitical Stress Testing: A New Dimension 

Geopolitical instability, from ongoing conflicts to shifting alliances, has moved to the center of supervisory attention. 

In response, the European Central Bank (ECB) has introduced geopolitical stress testing exercises requiring banks to: 

• Identify the most relevant geopolitical scenarios 
• Quantify impacts leading to at least 300 bps of Common Equity Tier 1 (CET1) depletion 
• Detail liquidity and funding consequences 

Unlike traditional macroeconomic stress tests, geopolitical risk is viewed by supervisors as a crosscutting driver that can transmit shocks across market, credit, liquidity, and operational risk channels. Integrating these into enterprise risk frameworks is becoming a regulatory expectation. 

Strategic Imperatives for 2026 

Navigating 2026 regulatory changes requires banks to align compliance with strategy, capital efficiency, and resilience. Key priorities include: 
 
• Prepare for SIMM approval if operating under EBA supervision. 
• Reassess FRTB-IMA strategically, especially as flexible NMRF interpretations evolve. 
• Embed regulatory exercises into enterprise risk management, including stress testing, material risk governance, and geopolitical risk analysis. 

Regulation in 2026 is not just about compliance—it is a lever for competitive positioning and integrated risk management, where capital efficiency and balance sheet stability ultimately converge.  

Watch our on-demand webinar for additional insights into these themes: 2026 Regulatory Update: Margin, Market Risk, Stress Tests & Geopolitics