On 30 November 2022, the Prudential Regulation Authority (“PRA”) published a consultation paper outlining its proposed approach to implementing Basel 3.1 (also commonly referred to as “Basel IV”). The consultation - (CP16/22 – Implementation of the Basel 3.1 standards | Bank of England) - closes on 31 March 2023. HM Treasury (“HMT”) also published its consultation on the same date in respect of Basel 3.1 but without touching on the substantive provisions, which are dealt with in CP16/22. HMT’s consultation invites views on (i) the articles of the Capital Requirements Regulation (“CRR”) which the PRA has requested HMT to revoke; (ii) consequential amendments required to ensure a coherent rulebook; and (iii) potential reforms to equivalence.

As expected, the PRA continues to strive for full implementation of the Basel 3.1 standards (with certain deviations and clarifications). This contrasts with the less stringent EU approach, which as a result of lobbying by EU banks introduces significant deviations. Despite the PRA’s efforts to enhance risk-sensitivity and comparability, some of its proposals, particularly with regard to corporate and real estate lending, have been criticised by the UK market with most responses being focussed on the potential impact of the PRA’s proposals on competitiveness with EU banks. UK banks have also queried the interaction of the UK Basel 3.1 proposals with the Edinburgh reforms and the UK government’s promise of a more dynamic, proportionate regulatory framework after Brexit.

For a high-level overview of the key PRA proposals and their expected impact, please download our flyer below. A subsequent client paper will follow with a high-level comparison of the PRA’s proposals as against the EU proposals commonly known as “EU CRR 3”.