On 12 September 2024, the Prudential Regulation Authority (PRA) published a near-final Policy Statement, PS9/24: Implementation of the Basel 3.1 standards near-final part 2 (PS9/24). PS9/24 is the PRA’s second near-final Policy Statement and rules covering the implementation of the Basel 3.1 standards for credit risk, the output floor, reporting and disclosure requirements in response to Consultation Paper CP16/22 – the first, PS17/23, was published in December 2023.
In a related press release, the PRA notes that it estimates, based on latest data from firms, that the Tier 1 capital requirements for major UK firms will be “virtually unchanged” by the package set out in PS24/9, with an aggregate increase of less than 1% from January 2030 when the transitional arrangements come to an end.
Near-final PS9/24 is intended to give firms certainty on their future capital requirements and deliver a better balanced and risk-sensitive approach to calculating regulatory capital under the Basel 3.1 framework, as well as supporting financial and economic stability and the growth and competitiveness of the UK, while remaining aligned to international standards. The PRA flags that it, in preparing PS9/24, it had particular regard to growth and competitiveness considerations given that its new secondary growth and competitiveness objective has now come into force.
The near-final policy set out in PS9/24 includes several changes to the original proposals in CP16/22, including:
- Lower capital requirements for small and medium enterprise exposures.
- Lower capital requirements for infrastructure exposures.
- Lower capital requirements for trade finance-related activities.
- A simpler, more risk-sensitive approach to valuing residential property.
- An adjusted approach to calculating the output floor.
The near-final policy is relevant to PRA-authorised banks, building societies, PRA-designated investment firms, and PRA-approved or PRA-designated financial holding companies or mixed financial holding companies. However, as set out in chapter 9 of PS9/24 (Interim Capital Regime) it does not apply to UK banks and building societies that meet the Small Domestic Deposit Taker criteria and choose to be subject to the Interim Capital Regime.
Next steps
The PRA has decided to delay the implementation date for the Basel 3.1 standards by a further 6 months to 1 January 2026, with a 4-year transitional period ending on 31 December 2029. This delay is intended to support a smooth implementation of the package and also takes account of feedback from the consultation as well as the implementation timelines of other jurisdictions.