The Bank of England has introduced a series of measures aimed at maintaining financial sector stability while providing growth opportunities for mid-sized banks and building societies. The Prudential Regulation Authority (PRA) has launched a consultation on changes to its Basel 3.1 market risk rules, specifically the “Fundamental Review of the Trading Book” (FRTB). These proposals aim to implement most of Basel 3.1 by January 1, 2027, covering about 90% of risk-weighted assets in the UK.
From January 1, 2027, the Strong and Simple capital regime will also be implemented, benefiting firms with greater risk sensitivity and proportionality. The new internal model approach for market risk is set for introduction on January 1, 2028. Current internal model permissions can be used until December 31, 2027.
The PRA’s proposal includes minor adjustments to FRTB implementation to reduce operational burdens and ensure appropriate capital requirements. Plans are also underway to facilitate mid-sized banks’ competition in the mortgage market through a forthcoming Discussion Paper.
Sam Woods, CEO of the PRA and Deputy Governor for Prudential Regulation at the Bank of England, said: “Today’s announcements will give certainty to firms of all sizes about the future capital framework, bring in a simpler regime for smaller banks, make it easier for mid-sized banks to scale up in the mortgage market, and allow an extra year for part of the implementation of new investment banking rules.”
Updates have been made to the UK’s resolution framework based on experiences from Silicon Valley Bank UK’s resolution in 2023. Changes include raising MREL thresholds from £15-25 billion to £25-40 billion in total assets. These thresholds will be reviewed every three years starting in 2028.
HM Treasury supports these revisions as they ensure proportionate requirements on growing firms while managing financial stability risks. The PRA’s consultation proposes increasing the Resolution Assessment Threshold for reporting and disclosures from £50 billion to £100 billion in retail deposits.
Dave Ramsden, Deputy Governor for Markets and Banking at the Bank of England, commented: “We have considered and reflected industry feedback in today’s announcements. These changes are designed to foster growth and competition, recognising that smaller firms present lower risks to financial stability whilst also maintaining size-appropriate resolvability capabilities.”
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