Banking and capital markets insights

Chief Risk Officers’ current challenges

Register for our next webinar where we will discuss how to navigate current risk management challenges, as well as a deep dive into managing AI risks.

Basel 3.1: Key submissions before January 2026

On 12 September 2024, the Prudential Regulation Authority (PRA) released the long-awaited near final rules for Basel 3.1 on Credit Risk, Output Floor, disclosures and regulatory reporting. As firms finalise their implementation plans, there are key submission dates they will need to work towards to ensure they are ready for Day 1 compliance on 1 January 2026.

UK FS regulatory affairs newsletter – Q3 2024

In the third quarter of 2024, our experts commented on a number of announced regulatory developments. Our quarterly FS regulatory newsletter is a comprehensive overview of topics relevant to firms that operate in the UK across all Financial Services sectors.

Basel 3.1 webinar series

Watch back on our Basel 3.1 webinar series, where our experts reflect on the Basel 3.1 final rules for Credit Risk and Output Floor, as well as what firms should prioritise from an operational perspective ahead of the implementation of Basel 3.1. This follows the publication of the Prudential Regulation Authority’s Basel 3.1 Policy Statement (PS9/24) in September.

Basel Committee’s 2024 Recalibration of IRRBB

In July 2024, the Basel Committee on Banking Supervision (BCBS) finalised the targeted adjustments to its standard on interest rate risk in the banking book (IRRBB).

Model risk management – Governance

In SS1/23 Model Risk Management (MRM) principles, the purpose of the Governance principle is to ensure firms have strong governance oversight with a board that promotes an MRM culture from the top through setting clear model risk appetite and clear accountability for model risk management.

Small Domestic Deposit Takers (SDDT) regime

Following the release of the PRA’s capital proposals in September, our experts provided an overview of the SDDT regime. This included reviewing the capital, liquidity and disclosure requirements, with a focus on the former.

Bank of England’s Basel 3.1 Policy Statement

The Policy Statement (PS9/24) contains the long-anticipated near-final policy proposals for Credit Risk and Output Floor under the forthcoming Basel 3.1 framework. We have outlined the key points from this Policy Statement for firms.

Bank of England’s SDDT Consultation Paper

The proposals for the capital requirements of the Bank of England’s SDDT Regime are finally here. We have outlined the key points from this Consultation Paper. Overall, we believe that the proposals would have noticeable benefits from a cost of compliance perspective. However, the impact on overall capital requirements is unlikely to materially change, with reductions in Pillar 2B buffers offset by...

Establishing a technology talent strategy

As financial services organisations increasingly focus on digital transformation, having the right expertise and skillsets is critical. However, it’s not simply a question of human capital. It requires developing a talent strategy that recognises the profound impact technology will have across the organisation.

Ethical risks of AI in financial services

The role of artificial intelligence (AI) in financial services continues to exercise C-suite minds. Not least, how to balance AI’s benefits to enhance the customer experience and improve back-office operations with the ethical challenges that AI presents.

Emerging technology and sustainability reporting

The financial services sector is increasingly looking to technology to help tackle the rising levels of regulation they face.

The cuts are coming! But how many and how fast?

In Business School, they tell you about accounting, business valuations, business strategy, interest rate theory, asset management, economics, currency parities, valuing options, alpha, beta, delta, theta and so, so much more. What they don’t tell you is that real portfolio management largely consists of following and dissecting the word of central bankers. ‘Don’t Fight The Fed’ is a time-tested principle,...

Nvidia has us talking in derivatives

When financial professionals discuss derivatives, they usually talk about futures, swaps, and options. However, Nivida’s price falling 7% after posting second-quarter results that were ahead of consensus estimates seems to have the markets talking in derivatives, in a very different way.

The winter (?) of our discontent

Money management is less about managing returns, which one can’t really control, and more about managing risks. The manager who underestimates risks can be caught off-guard when they spike. The manager who overestimates them can leave a lot of money on the table, to the dismay of their clients.

Basel 3.1 Final Rules – What to look out for

The near-final Basel 3.1 rules on Credit Risk and Output Floor are expected on 12 September 2024. Ahead of this, we think there are several areas of the Bank of England’s proposals firms should be looking out for when the final policy is published. We discuss some of these below.

Credit Value Adjustment

The new Credit Value Adjustment (CVA) risk framework methodologies for calculating capital requirements will comprise of the Alternative Approach, the Basis Approach and the Standardised Approach.

Output Floor

One of the centrepieces of the revised Basel proposals is the updated Output Floor. The main aim of the Output Floor is to bring greater alignment between the capital requirements for the credit risk Standardised and Internal Models approaches.

An American Rate Bottleneck

Jackson Hole, Wyoming, is a valley in North America, wholly unremarkable in history for anything other than it was named by someone called Jackson who caught beavers. Yet once a year, when the US Federal Reserve meets there, the eyes of the economic and investment world are fixed on this tiny area in the Rocky Mountains.

Dissecting the market correction

In the last three weeks, global stocks have sold off, wiping out nearly $3tn or -4.5% of their global capitalisation, while global bonds have gained +3.5% by the close of Friday 2 August. Just this morning, Japanese stocks (which trade between 24:00 and 06:00 in UK hours) fell by -12.4%, the worst single-day drop since 1987.

Bank of England cuts interest rates since 2020

As expected, the Bank of England (BOE) has cut interest rates by 0.25%. This is the first rate cut in more than four years and it appears that the Bank of England is finally prioritising growth over inflation.

This world is getting more volatile

John Buchan (1875-1940), First Baron Tweedsmuir, author of “The Thirty-Nine Steps” and General Governor of Canada once said: ''You think that a wall as solid as the earth separates civilization from barbarism. I tell you the division is a thread, a sheet of glass. A touch here, a push there and you bring back the reign of Saturn.''

Mapping digital transformation

Financial services organisations see digital transformation as a top priority. While the competitive landscape has been evolving following the arrival of digital-first challenger banks and fintech players, emerging technology and rising mobile service demands from tech-savvy consumers are now pushing traditional players to innovate, rethink business models and how to accelerate and scale their technology...

Financial services: confidence on the rise

Optimism in the financial services sector is riding high. So why is the financial services sector so confident and what needs to happen to ensure growth aspirations remain on track?

Prepare for the FCA and PRA’s proposed D&I regime?

Both the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) have highlighted Diversity and inclusion (D&I) as critical to their work on culture and governance. Benefits from D&I in the workplace include positive outcomes in risk management, good conduct, healthy working cultures and innovation.

Model risk management - Principle one

In PS6/23 and SS1/23 – ‘Model risk management principles for banks’, the PRA outlines five Principles designed to support effective model risk management (MRM), the first of which relates to ‘model identification and model risk classification’.

European Banking Authority on PVA

The European Banking Authority (EBA) has published amendments outlining requirements for calculating Prudent Valuation Adjustments (PVA) on fair-valued financial instruments held by institutions.

Operational opportunities and challenges

With the introduction of the Strong & Simple (S&S) regime, UK banks will be predominantly categorised as under either the S&S regime or the Capital Requirement Regulation (CRR). For firms considering whether to apply to the S&S regime a thorough evaluation of the respective regulatory implications of either approach is required.

Implementing the IFPR: key lessons for firms

On November 27th, the Financial Conduct Authority (FCA) published a second and final report with further observations on how firms are implementing requirements on the Internal Capital Adequacy and Risk Assessment (ICARA) process and reporting under the Investment Firms Prudential Regime (IFPR).

Expectations ahead of final Basel 3.1 rules

Pending the release of the PRA’s Basel 3.1 final rules, our banking risk experts discuss the proposed changes to credit risk and output floor rules, as well as the near-final rules relating to market risk and operational risk.

Reporting assurance for small & medium-sized banks

The Prudential Regulatory Authority (PRA) has outlined its expectations for the preparation of regulatory returns in The Dear CEO Letter (DCEO), which focuses on the “Thematic findings on the reliability of regulatory reporting”. Dated the 10th of September 2021, the letter highlights the PRA’s expectations for banks to submit reliable and accurate regulatory returns, and for the regulatory reporting...

Effective regulatory reporting assurance

Banks are expected to have robust governance and controls processes for the production of their regulatory returns. In particular, the PRA outlined its expectation that banks should perform independent testing and validation of their regulatory returns to ensure they are reliable and accurate. With the PRA’s increasing focus on regulatory reporting demonstrated through SREP reviews and S166s reviews,...

Data implications of Basel 3.1

The Prudential Regulation Authority (PRA) continues to emphasise the importance of the reliability and accuracy of regulatory data for banks and building societies. Data risk is named a main priority within the 2024 Dear CEO Letter and through the Transforming Data Collection initiative between the Bank of England and the Financial Conduct Authority.

UK vs US - Comparing Basel 3.1 implementations

The US unveiled its take on the BCBS Basel reforms on July 27th, 2023, calling it the “Basel III Endgame” (referred to as Basel 3.1 in the UK). This article outlines the key disparities between the US and UK approaches to implementing these reforms.

BoE - insights for climate-related financial risks

On 17 April 2024, the Bank of England (BoE) published an article with useful insights for financial institutions on using scenario analysis to measure climate-related financial risks.

Solvent exit planning

In March, the Prudential Regulation Authority (PRA) published SS2/24 on solvent exit planning for non-systemic banks and building societies. This statement outlines the PRA’s expectations for non-systemic banks and building societies in the UK to prepare, as part of their business-as-usual (BAU) activities, for an orderly ‘solvent exit’. This requirement will come into force from 1 October 2025.

Financial reporting of European banks 2024

Does the perceived reduction in risk amongst European banks hint at early signs of optimism for the sector? Throughout 2023, we observed a global economic slowdown, ongoing geopolitical tensions, and the rapid rise of new technologies. As we analyse the year-end results of the 26 largest banks in Europe, what do these figures reveal about expected credit losses and how these institutions manage persistent...

Impact of the banking surcharge rate change

Recent modifications to the banking surcharge rules and the UK corporation tax main rate mean larger banks now face a combined tax rate of 28%, while many moderately sized banks may drop out of banking surcharge due to the increased £100m surcharge allowance available from 1 April 2023.

Our top ten risks for firms in 2023

Overall, firms weathered the initial turmoil of the Covid-19 pandemic reasonably well thanks to a combination of deployment of technology to provide flexibility in remote working, and, in the case of banks, balance sheets which have been substantially bolstered in the aftermath of the financial crisis.

Legislation day 2022

On Wednesday 20 July 2022, the government released draft legislation for the Finance Bill for 2022 and the results of consultations. We were expecting more draft legislation but there are some HMRC recommendations that cannot currently be signed off by ministers until we have a more stable government.

A Central Bank Digital Currency in the UK

Interest deductions for foreign banks

08 December 2021 This article delves into the interest deductions for foreign banks operating in the UK, outlining the background of the Capital Attribution Tax Adjustment, the five critical steps involved, and some helpful FAQs.

How much UK tax will banks pay on their profits?

Peering into the crystal ball, we wonder - how much corporate tax banks in the UK are going to have to pay after 1 April 2023? On that day, marking the first rate rise since 1974, the corporation tax rate goes up, from its current rate of 19% to the new rate of 25%.

Digital assets - Q4 2023

This edition of our newsletter summarises a selection of developments from the UK and Europe and provides key updates on matters we have discussed throughout 2023.

Banking – Q4 2023

There was a flurry of regulatory activity in the lead-up to the festive period. Final Basel 3.1 for Market Risk, Credit Risk, CVA and Counterparty Risk were published. The PRA also finalised its disclosure and liquidity requirements for the Strong and Simple regime. There were also significant publications relating to Diversity & Inclusion and the Remuneration regime.

Banking – Q3 2023

The regulatory environment for UK banks continues to be incredibly fast paced, exemplified by the developments in Q3 2023.

Digital assets – Q3 2023

A recent report from Immunefi suggested that cyberattacks targeting cryptoassets increased by 150% in Q3 2023 when compared to the same period in 2022.

IFPR – The first consultation paper

In December 2020, the FCA detailed some of their proposals for the Investment Firm Prudential Regime (IFPR), which will come into effect in January 2022.

BoE's regulatory capital frameworks

The Bank of England (the Bank) shared its latest thinking on climate-related risks and regulatory capital frameworks in a report released on March 13, 2023. The report elaborates on six key findings and identifies areas for future research and discussion. However, the Bank does not introduce any policy changes in response to the report. Instead, it suggests further analysis is needed before introducing...

The CFRF’s Scenario Analysis Guide for Banks

The Climate Financial Risk Forum (CFRF) has shared a non-regulatory practitioner’s guide for banks and building societies on how to use scenario analysis to assess the financial impact of climate change and inform their strategy and business decisions.

Recovery and resolution

The 2008 Global Financial Crisis revealed that major banks were in fact ‘too big to fail’. They had grown so large and complex that they needed state support given the unfathomable economic consequences of their collapse. As a result, financial regulators have introduced robust prudential measures to try to prevent such a crisis from happening again. A critical element of these post-crisis reforms...

Bank of England Climate and Capital conference

The Bank of England formally engaged with the international financial community to discuss the role of regulatory capital in the management of climate risks.

Unpicking the Basel Bufferati

PRA’s 2022 priorities for banks operating in UK

The Prudential Regulation Authority (PRA) has distributed a Dear CEO letter to all international banks and deposit takers active in the UK. This letter is to ensure there is a continuous focus guided by the PRA’s supervision and highlight the PRA’s planned work for next year; and should be read in conjunction with the feedback from individual PSM letters.

PRA’s strong and simple regime

For many years, the PRA has been applying a proportional approach to both regulating and supervising smaller banks, but there is a marked difference as supervision has been more pronounced.

Priorities of the Payment Services Regulator

On 13 January 2022, the Payment Services Regulator (PSR) published its first formal strategy. The implementation of this five-year strategy will materially impact Payment Service Providers (PSPs) through increased focus on accessibility, protection, and competition.

Integrity of regulatory reporting

The end of 2021 saw the PRA deliver on its warning in the September 2021 ‘Dear CEO’ letter, that they would take a tough stance on banks and building societies that fail to meet expectations around reliable regulatory reporting.

Updated reporting requirements for PRA firms

On 1 January 2022, the PRA’s Policy Statement PS22/21 'Implementation of Basel Standards' took effect.