PRA postpones Basel 3.1 implementation by six months
12 September 2024 UK
Image: doethion/stock.adobe.com
The Prudential Regulation Authority (PRA) has postponed the implementation of its near-final Basel 3.1 rules for an additional six months.
The package of reforms for Basel 3.1 was outlined by Phil Evans, director of Prudential Policy Directorate at the Bank of England (BoE), in a speech held at UK Finance.
He indicated that the package supports the UK’s growth and competitiveness, the resilience of the banking system, and alignment with global standards.
In the speech, it was revealed that the new rules would now be implemented on 1 January 2026, with a four-year transitional period ending on 31 December 2029.
The decision was made to “support a smooth implementation of the package” and “considered feedback from the consultation as well as the implementation timelines of other jurisdictions”, Evans said.
The changes are particularly notable in the areas of lending to small firms and for infrastructure lending.
According to the BoE, some of the most material changes to the original proposals include lowering capital requirements for small and medium enterprise (SME) exposures, infrastructure exposures, and trade finance-related activities.
In addition, the proposals look to adjust the approach to calculating the output floor to improve the consistency between this and the standardised approach used by firms without model approval.
The Basel 3.1 package is the last element of the Basel III set, which the PRA played an active and influential role in designing. The parts of Basel III that remain to be implemented focus on the calculation of risk-weighted assets (RWAs).
The first part of the near-final rules was published in December last year, covering market risk, counterparty credit risk and other areas.
The second and last instalment of the near-final rules largely covers proposals relating to credit risk and output floor, as well as the link with the Strong and Simple regime.
The news follows the recently reviewed proposals for Basel III Endgame by the Supervision Board of Governors of the Federal Reserve System, which saw its vice president, Michael Barr, list the “broad and material changes” to the proposal, which he deemed as “warranted”.
In regards to the most recent proposals from the UK’s PRA, the BoE has made substantial amendments to its proposals in response to consultation feedback and evidence.
In his conclusion, Evans says: “We have aimed for risk weights that are neither too high nor too low, and in doing so provide a balance across a range of considerations.
“This includes advancing our primary objective and aligning with international standards. And it includes a significant role for considerations around competitiveness and growth and competition.
“Taking all of these factors as a whole, it has produced, in our view, a balanced approach to finishing Basel 3.1 in the UK.”
The package of reforms for Basel 3.1 was outlined by Phil Evans, director of Prudential Policy Directorate at the Bank of England (BoE), in a speech held at UK Finance.
He indicated that the package supports the UK’s growth and competitiveness, the resilience of the banking system, and alignment with global standards.
In the speech, it was revealed that the new rules would now be implemented on 1 January 2026, with a four-year transitional period ending on 31 December 2029.
The decision was made to “support a smooth implementation of the package” and “considered feedback from the consultation as well as the implementation timelines of other jurisdictions”, Evans said.
The changes are particularly notable in the areas of lending to small firms and for infrastructure lending.
According to the BoE, some of the most material changes to the original proposals include lowering capital requirements for small and medium enterprise (SME) exposures, infrastructure exposures, and trade finance-related activities.
In addition, the proposals look to adjust the approach to calculating the output floor to improve the consistency between this and the standardised approach used by firms without model approval.
The Basel 3.1 package is the last element of the Basel III set, which the PRA played an active and influential role in designing. The parts of Basel III that remain to be implemented focus on the calculation of risk-weighted assets (RWAs).
The first part of the near-final rules was published in December last year, covering market risk, counterparty credit risk and other areas.
The second and last instalment of the near-final rules largely covers proposals relating to credit risk and output floor, as well as the link with the Strong and Simple regime.
The news follows the recently reviewed proposals for Basel III Endgame by the Supervision Board of Governors of the Federal Reserve System, which saw its vice president, Michael Barr, list the “broad and material changes” to the proposal, which he deemed as “warranted”.
In regards to the most recent proposals from the UK’s PRA, the BoE has made substantial amendments to its proposals in response to consultation feedback and evidence.
In his conclusion, Evans says: “We have aimed for risk weights that are neither too high nor too low, and in doing so provide a balance across a range of considerations.
“This includes advancing our primary objective and aligning with international standards. And it includes a significant role for considerations around competitiveness and growth and competition.
“Taking all of these factors as a whole, it has produced, in our view, a balanced approach to finishing Basel 3.1 in the UK.”
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