The Prudential Regulation Authority has published its 2024/25 Business Plan, confirming that the Basel 3.1 package of capital reforms will begin implementation in the United Kingdom on 1 July 2025, with a transitional period extending through to 1 January 2030.
The Business Plan sets out the PRA's principal regulatory and supervisory priorities for the year ahead.
DESK-BASED STRESS TEST IN 2024
The Business Plan also confirmed that the PRA will support the Bank of England in conducting a desk-based stress test in 2024 in place of the Annual Cyclical Scenario, the Bank's concurrent stress-testing exercise. The Business Plan says the desk-based exercise will use the PRA's risk expertise along with models developed in the PRA and elsewhere in the Bank to test the resilience of the UK banking system under more than one adverse macroeconomic scenario.
Basel 3.1 itself addresses the residual variability that regulators identified in the risk-weighted asset calculations produced by banks using internal models, a variability that had undermined the comparability of capital ratios across institutions and jurisdictions. The reforms tighten the constraints on internal modelling, introduce an output floor that prevents risk-weighted assets from falling below a specified percentage of the standardised approach calculation, and revise the standardised approaches for credit risk, operational risk, and market risk.
EARLY ACCOUNT SCHEME TARGETS FASTER ENFORCEMENT
The 2024/25 Business Plan also highlights the Early Account Scheme, introduced in January 2024 through Policy Statement PS1/24, that is designed to accelerate the resolution of enforcement proceedings. Under the scheme, firms and individuals who are the subject of a PRA investigation may receive credit in the determination of any financial penalty or other sanction for providing early, full, and candid accounts of the conduct under review. The rationale is to reduce the duration and cost of enforcement cases for both the regulator and the parties involved.