Understanding Basel 3.1
On 1 January 2026, the Prudential Regulation Authority (PRA) is implementing the biggest changes to the capital regime for banks in over a decade. This reform package is commonly known as Basel 3.1.
CP14/24 - Large Exposures Framework
16 December 2024
The Prudential Regulation Authority (PRA) has released its Consultation Paper 14/24 (CP14/24), which includes significant proposals to enhance the UK’s large exposures framework.
With this paper, the PRA aims to implement the remaining Basel standards on large exposures, ensuring that large exposures are managed effectively to maintain financial stability and reduce systemic risk. The PRA invites stakeholders to provide responses to the proposals by January 17, 2025.
The key proposals include:
- A consistent approach for calculating securities financing transactions by discontinuing the use of internal models.
- Introducing mandatory substitution approaches for credit risk mitigation.
- The enhancement of the regulatory reporting requirements for large exposures.
Proposed changes to the reporting requirements | ||
S/N | Area | Summary |
| 1 | Use of internal models |
|
| 2 | Credit risk mitigation |
|
| 3 | Limits |
|
| 4 | Exemptions |
|
Implications for firms
Firms will need to review and enhance their operational capabilities to meet the new expectations. This might involve updating risk management practices, upgrading systems, and training staff. Specifically, firms will have to:
- Adopt a standardised approach for calculating securities financing transactions, which may require system updates.
- Review exposure levels and reevaluate trading strategies to ensure compliance with the new limits.
- Include exposures to the UK deposit guarantee scheme, which could increase their reported exposure levels.
Get in touch with our prudential risk specialists
To speak to one of our prudential risk experts about how the proposed changes to reporting requirements might impact your firm, get in touch using the form below.
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.
Our Consulting team
Huseyin Sahin Partner - Banking Risk Consulting - London
Anindya Ghosh Chowdhury Director - Risk and Regulatory Consulting - London
