The Bank of England (‘the Bank') has announced a package of
measures designed to maintain stability in the financial sector
while offering new growth opportunities for mid-sized banks and
building societies.
The Prudential Regulation Authority (the PRA) has today published
a consultation on changes to its Basel 3.1 market risk rules –
specifically the “Fundamental Review of the Trading Book” (FRTB).
The proposals will allow the PRA to deliver its commitment to
implement the vast majority of Basel 3.1 (covering approximately
90% of risk-weighted assets in the UK) on 1 January 2027, while
allowing time for greater clarity to emerge in other
jurisdictions on their own implementation of the aspects most
relevant for cross-border activities.
1 January 2027 will also be the proposed implementation date for
the Strong and Simple capital regime. Taken together the changes
mean UK firms of all sizes can benefit from greater
risk-sensitivity and proportionality from that point.
Specifically, the proposed changes would:
-
Set the date for the introduction of the new internal model
approach for market risk as 1 January 2028: firms with
internal model permission today can continue to use their
existing internal models until 31 December 2027;
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Allow all other aspects of Basel 3.1 to proceed on 1 January
2027;
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• Allow Strong and Simple to proceed on 1 January 2027,
allowing smaller firms
to benefit from a more proportional regime that gives them
greater room to grow.
In addition to these timing points, the proposal also makes
minor changes to the FRTB to smooth its implementation. These
include adding flexibility for investments in funds and
introducing a permissions regime for capitalising complex
risks, both under the standardised approach, in order to
reduce operational burdens on firms and ensure capital
requirements are appropriate.
The PRA has also announced prospective plans to make it
easier for mid-sized banks to compete in the mortgage market.
The regulator will publish a Discussion Paper in mid-summer
with options to help mid- sized banks to grow by adjusting
some barriers to gaining permissions to build Internal
Ratings Based Models for residential mortgages.
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.”
The Bank has also published updates to the UK's resolution
framework. They reflect the Bank's experience from the
successful resolution of Silicon Valley Bank UK in 2023 and
Parliament's introduction of a new mechanism for bank
recapitalisation that allows the Bank to use
industry-financed funds to recapitalise a firm, providing a
robust and proportionate foundation for managing firm
failures.
The changes include raising the indicative thresholds for the
minimum requirement for own funds and eligible liabilities
(MREL) from £15-25 billion in total assets to £25-£40
billion. This will provide greater clarity and flexibility on
whether a firm will need a transfer or bail-in strategy, with
the former no longer needing to hold MREL above minimum
capital requirements.
The thresholds will be updated every three years, starting in
2028, to reflect changes in nominal economic growth. HM
Treasury has confirmed that it considers the Bank's revised
MREL policy ensures that requirements on growing firms are
proportionate and support their growth, while managing
financial stability risks.
The PRA's consultation also includes a proposal to increase
the Resolution Assessment Threshold for reporting and
disclosures to £100 billion of retail deposits, up from £50
billion. This would ensure only the largest and most complex
firms would need to report and disclose their preparations
for resolution.
-
, Deputy Governor for
Markets and Banking at the Bank of England, said: “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.
“This will ensure a proportionate UK resolution regime that
is fit for purpose and ready to be used if required to
resolve firms in a way that protects depositors and public
funds.”
Notes to editors
-
The PRA intends to publish a Discussion Paper on Internal
Ratings Based Models in mid-summer 2025.
-
The PRA has today published a Consultation Paper on
adjustments to the Fundamental Review of the Trading Book
element of Basel 3.1, which closes on 5 September.
-
Under the assumption that Basel 3.1 and the Strong and
Simple capital regime are going to be implemented on the
same date, the Interim Capital Regime (ICR) would no
longer be required. The ICR was intended to provide
Strong and Simple firms with the option to remain subject
to current capital requirements, instead of implementing
the Basel 3.1 standards, until the implementation date of
the Strong and Simple capital regime.
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The Bank has today released several publications related
to MREL and the Resolution Assessment threshold. They
consist of:
-
The Bank's final policy in relation to setting MREL,
which has been updated in response to firm and
industry feedback following the consultation
published in October 2024, including raising the
total assets indicative thresholds for a transfer or
bail-in preferred resolution strategy from £15-25
billion to £25-£40 billion.
-
A PRA consultation paper proposing to update the
Resolution Assessment threshold (from firms with
£50bn in retail deposits to £100bn in retail
deposits), whilst also proposing updates on the
frequency of recovery plan reviews.
-
A PRA consultation paper proposing to amend MREL
Reporting requirements to reflect the MREL policy
changes and resulting in a net reduction in the
reporting burden on firms.
-
A PRA consultation paper on proposed revisions to
MREL disclosure requirements, as part of wider
changes to Pillar 3 disclosure.
-
-
In addition to the above, HM Treasury intends to
make several statutory instruments related to
resolution, which have been considered when
finalising MREL policy.
-
These publications should be read in conjunction
with the Bank's explanation of how the Bank
maintains a fit for purpose resolution regime,
which summarises how the resolution framework
applies proportionately to firms to reflect their
size, complexity, and potential level of risk to
public funds if they fail.
-
MREL is a requirement for firms to maintain a
minimum level of equity and eligible debt so they
can be ‘bailed in' or otherwise support a
resolution should a firm fail. This reduces the
likelihood that governments use public funds to
rescue failing firms and in effect ‘bail out'
their creditors, as was the case during the
global financial crisis.
-
The revised MREL policy sets out the responses to
the consultation paper originally published on 15
October 2024: Amendments to the Bank of England's
approach to setting a minimum requirement for own
funds and eligible liabilities (MREL) | Bank of
England.
-
The Resolvability Assessment Framework (RAF) is
the Bank's approach to assessing whether firms
operating in the UK with bail-in or transfer as
their preferred resolution strategy are prepared
for resolution. The overarching aim of the RAF is
to increase assurance that firms are, and can
demonstrate that they are, resolvable, and to
identify potential impediments to resolvability.
10.The consultation paper proposing to amend the
Resolution Assessment reporting and disclosures
threshold is the second update aimed at ensuring the
RAF continues to apply to the largest and most
complex firms, following PS1/25 on amendments to
reporting and disclosure dates which changed the
frequency of major UK firm RAF assessments.
