The UK Prudential Regulation Authority released today near-final rules for parts of Basel 3.1, which are now set to live on 1 July 2025. Coverage areas include market risk, CVA and counterparty credit risk, operational risk and currency redenomination. Of note:
Market risk: to introduce 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 advanced standardised approach (ASA), a risk-sensitive approach for firms without permission to use an IM; and the internal model approach (IMA). The proposals retained and updated the existing SA as a simplified standardised approach (SSA) for firms with small or simple trading activities and retained the existing derogation for small trading book business, which permits firms with very limited trading activity to use the credit risk approach to measure market risk.
CVA and counterparty credit risk: to introduce three new approaches for calculating the CVA risk capital requirement to replace the existing methodologies: the fall-back alternative approach (AA-CVA) for firms with limited exposure to non-centrally cleared derivatives; the basic approach (BA-CVA); and the standardised approach (SA-CVA). The proposals also adjusted the calibration of the existing standardised approach for counterparty credit risk (SA-CCR) where the PRA considers it to be overly conservative, and removed certain existing exemptions from CVA capital requirements for transactions that the PRA considers have material CVA risk.
The full publication can be found at https://www.bankofengland.co.uk/prudential-regulation/publication/2023/december/implementation-of-the-basel-3-1-standards-near-final-policy-statement-part-1