PRA publishes near-final policy statement on Basel 3.1 standards implementation

The PRA has published a near-final policy statement which provides feedback to responses to various chapters in CP 16/22. In CP 16/22, PRA set out proposals to implement the parts of the Basel 3.1 standards that remain to be implemented in the UK, namely the final elements of the  standards concerning the measurement of risk-weighted assets. The proposals aimed to restore the credibility of RWA calculations by improving the measurement of risk in both the internal models approaches and SAs, and the comparability of risk measurement across firms.

The chapters relevant to the near-final policy statement, and the PRA proposals in brief, are:

  • Chapter 1: Overview
  • Chapter 2: Scope and levels of application – proposals include replicating the CRR scope of application, excluding Transitional Capital Regime firms and consolidation entities and replicating the CRR levels of application and CR provisions relating to prudential consolidation;
  • Chapter 6: Market risk – proposals include introducing new requirements for determining which positions should be allocated to the trading book and two new approaches for calculating market risk capital requirements, which replace the existing methodologies (the ASA and the IMA);
  • Chapter 7: Credit valuation adjustment (CVA) and counterparty credit risk – proposals include introducing three new approaches for calculating the CVA risk capital requirement to replace the existing methodologies and adjusting the calibration of the existing standardised approach for counterparty credit risk;
  • Chapter 8: Operational risk – proposals include implementing a new SA to replace the existing IM and standardised approaches and removing the mechanical link between operational risk capital requirements and historic operational risk losses (demonstrating that the proposals also exercised a national discretion within the international standards);
  • Chapter 10: Interactions with the PRA’s Pillar 2 framework
  • Chapter 13: Currency redenomination – proposals include converting certain euro (EUR) and US dollar (USD) references in the international standards to pound sterling (GBP).

In Q2 2024, PRA intends to publish a second near-final policy statement to provide feedback to response to the remaining chapters of CP 16/22.

A final rule instrument has not been made by PRA at this stage as HMT is required to first revoke the relevant parts of the CRR by way of SI before PRA can replace them in the PRA rules. Once the SI has been made, PRA intends to make all the final policy materials, rules and technical standards in a final policy statement.



Vida Fatemi