The UK’s Prudential Regulation Authority (PRA) released a consultation on Basel 3.1 for adjustments to the market risk framework.
Among the PRA’s proposals are: delay FRTB-IMA implementation to 1 January 2028; implement operational simplifications to the treatment of collective investment undertakings (CIUs) under the Advanced Standardised Approach (ASA); introduce a permissions regime for the ASA residual risk add-on; and update reporting and disclosure requirements to align with the above proposals.
The global financial crisis revealed significant shortcomings in the pre-crisis regulatory framework, particularly with respect to the calculation of risk-weighted capital ratios. Investors lost confidence in capital ratios that were calculated in accordance with earlier iterations of the Basel standards, known as Basel I and Basel II.
In particular, the crisis revealed material weaknesses in the market risk framework. Market risk capital requirements proved insufficient to absorb losses. As an immediate response, the Basel Committee on Banking Supervision (BCBS) introduced a set of revisions to the market risk framework in July 2009, referred to as ‘Basel 2.5’.
The Basel 2.5 amendments were a necessary short-term fix, but they made the framework significantly more complex, and did not address all of the issues revealed by the crisis. The Basel 3.1 standards introduce a comprehensive set of amendments to the market risk framework, known as the Fundamental Review of the Trading Book (FRTB).
Since publication of “near-final rules” covering the entire Basel 3.1 package, there has been uncertainty about the timing of implementation of the Basel 3.1 package in some major jurisdictions. As a result, on 17 January 2025, the PRA, in consultation with HM Treasury (HMT), announced a delay to the implementation of the Basel 3.1 package in the UK by one year until 1 January 2027.
The delay was to allow time for clarity to emerge about plans for implementation in the United States, and taking into account competitiveness and growth considerations. At the time the PRA noted it would continue to monitor developments.
On 12 June 2025 the European Commission announced a planned one-year delay – until 1 January 2027 – to the EU implementation of the FRTB, citing the ongoing uncertainty around the timing of implementation in other major jurisdictions. Within the EU, the remaining aspects of the Basel 3.1 package had already been implemented on 1 January 2025.
To balance market considerations, and given continued uncertainty over the timing of the implementation of the FRTB in some other jurisdictions, the PRA proposes to delay the implementation of the FRTB-IMA for another year, until 1 January 2028.
“The internal model approach is predominately used by major trading firms, including international groups engaged in cross-border trading activity. It is therefore the most relevant part of the FRTB for cross-border coordination given the costs and complexity of running different models across jurisdictions,” the PRA wrote in the consultation.
“A delay to 1 January 2028 would allow additional time for coordination. All other elements of the FRTB, including the trading book boundary, the ASA, and the SSA, would be implemented on 1 January 2027 alongside the other parts of Basel 3.1. The PRA also proposes a small number of operational adjustments to the trading book boundary and the ASA to ensure efficient outcomes and to simplify their implementation and operation, which would take effect from 1 January 2027.”