The PRA has published a consultation on the final element of Basel 3.1 implementation in the UK: the internal model approach to market risks.
Key proposals include:
- Extending the monitoring period for the profit and loss attribution test from one year to three, to provide enough time for the PRA to gather data to confirm the appropriate test calibration before it could apply to calculating capital;
- Adjusting the PRA’s treatment of activity that has limited trading data to include a more targeted approach to identifying risks that cannot be modelled. This will allow more modelling where appropriate, delivering a more risk-sensitive capital framework;
- Reducing barriers to transitioning to full approval by adjusting calculations for firms who use a mix of the internal models and standardised approaches, preventing a scenario where capital requirements could rise as firms move gradually; and
- Introducing a number of operational simplifications and amendments to make the operation of the internal model approach more proportionate.
The consultation closes on 18 September 2026.