On September 12, the regulator published policy statement 9/24 – setting out near-final UK rules on implementing the Basel 3.1 reforms. The first set of rules were issued in December 2023. The latest policy statement had two core takeaways; reduces capital requirements for certain sectors and a six-month implementation delay to 1 January 2026, with a transitional period of four years ensuring full implementation of rules by January 2030.
In this article we focus on the key changes to:
We discuss credit risk – standardised approach further here.
On the Strong and Simple regime, the PRA has published CP7/24, aiming to simplify the capital requirements for Small Domestic Deposit Takers (SDDTs) while maintaining their resilience. We discuss this further here.
The PRA estimates that Tier 1 capital requirements remain largely unchanged by final rules, with total increase less than 1%. However, firms will need to assess the impact for their own business model, portfolio, and products as average impacts can be misleading.
Pillar 2A infrastructure and SME lending adjustments will offset Pillar 1 impact of removing support factors.
More proportionate risk weights for some asset classes like unrated corporates, commercial real estate loans to SMEs.
New risk sensitivity in standardised approaches and output floor will limit capital benefits of IRB models.
There’s limited expected impact on pricing/availability of infrastructure and SME lending due to new Pillar 2A adjustments.
More level playing field between SA and IRB banks, especially for retail mortgages.
Improved competitive position of UK v international peers during transitional period.
Implementation date moved back to Jan 1, 2026; full phase-in by Jan 1, 2030.
Need to prepare for revised Basel 3.1 SA calculations for output floor.
Major model updates needed for IRB banks to comply with new PD/LGD/EAD input floors and restrictions.
Significant reporting and disclosure changes, need to monitor final taxonomy.
Basel 3.1 implementation will have a considerable impact on strategy. There’s a lot to think about. As the second set of the near-final rules are here, work should be underway.
Attention to detail is key – how do the detailed rule changes your firm’s strategy, at the portfolio and product level? And are the rule changes embedded into data flows and exposures?
With such a broad scope, successful implementation relies on finding synergies with other regulatory approaches, and the SDDT regime, to reduce duplication and embed lasting change.
The PRA has made its expectations on Basel 3.1 clear – firms shouldn’t expect a soft-landing approach to compliance on 1 January 2026.
To learn more about the Basel 3.1 reforms and the impact on your firm, contact our team: Kantilal Pithia, Ramesh Parmar, Charles Ebeniang, Imran Ahmad, Sonam Nawani, or Riad Fawzi.
