On 10 November 2026, the Prudential Regulation Authority (PRA) published its second policy statement in relation to amendments to the Large Exposures (LE) framework (PS20/26).

Background

In CP14/24, the PRA consulted on amendments to the LE framework, taking into consideration internationally agreed Basel standards and their implementation across jurisdictions. The proposals in CP14/24 included the calculation of exposure values for securities financing transactions, the treatment of trading book exposures, intragroup exposure limits and the application of the mandatory substitution approach. PS14/25 published on 17 July 2025, finalised several lower-impact and less complex proposals. PS20/26 sets out the PRA’s final policy following consideration of the responses to the consultation.

Summary

The PRA sets out the following in response to feedback on the proposals in CP14/24, in particular:

  • Exposure values for securities financing transactions: The PRA will remove the option to use internal models to calculate exposure values for securities financing transactions, requiring a more consistent and conservative approach based on the Financial Collateral Comprehensive Method. Although respondents warned this could materially increase measured intragroup exposures, the PRA considers internal models inconsistent with the LE framework’s role as a simple, transparent backstop. To mitigate the impact, the higher Non-Core Large Exposures Group (NCLEG) limit will increase from the proposed 250% to 350% of Tier 1 capital.
  • Limits to LEs: The PRA has moderated its proposal to abolish the trading book excess allowance for third-party exposures. Firms may instead hold trading book exposures up to 85% of Tier 1 capital for up to 10 business days, subject to conditions and additional capital requirements. For intragroup exposures, the trading book excess allowance will also be 85%. The new higher NCLEG permission will allow qualifying trading book intragroup exposures up to 350% of Tier 1 capital, replacing the proposed firm-specific 250% ceiling. Non-trading book exposures remain capped at 100%.
  • Credit risk mitigation:  The PRA will make the substitution approach mandatory, requiring firms to recognise concentrations arising from collateral and other credit risk mitigation. However, targeted exemptions will apply to funded sovereign collateral, tri-party repos and certain qualifying central counterparty transactions. Cash collateral is excluded and mandatory substitution continues to apply to corporate collateral.
  • Rulebook and Basel 3.1: The PRA will consolidate its two LE Rulebook Parts. Further work on consequential changes arising from Basel 3.1 is planned during 2027.
  • Reporting: Existing LE reporting templates will remain unchanged, although reporting instructions will be amended to reflect mandatory substitution and the final policy.

Next steps

The PRA sets out that it is also continuing to assess several consequential LE framework changes arising from the implementation of Basel 3.1, including the treatment of certain off-balance sheet items and other areas affected by changes to the underlying credit risk framework. The PRA will consider these issues separately next year.