The United Kingdom is proposing to soften key banking regulations linked to global Basel III standards while maintaining its planned implementation deadline of 2028, in a move aimed at balancing financial stability with competitiveness. The proposed changes, announced by the Bank of England’s Prudential Regulation Authority (PRA), are designed to make it easier for banks to calculate the amount of capital they must hold against risks arising from their trading activities.
The rules form part of the Fundamental Review of the Trading Book (FRTB), a major component of the Basel III framework introduced after the 2008 global financial crisis. The reforms were created to strengthen risk measurement in banks’ trading operations and ensure that institutions hold enough capital to absorb potential losses during periods of market stress.
Under the latest proposals, UK banks would find it easier to use internal models to determine the amount of capital required for their trading books instead of relying primarily on standardized methods. Internal models allow banks to assess risks based on their own data and methodologies, subject to regulatory approval. According to the PRA, the proposed adjustments would lower the overall capital burden while preserving strong prudential safeguards.
The regulator has launched a public consultation on the proposals, stating that its ongoing monitoring of the global rollout of FRTB highlighted several areas where targeted changes could improve the framework’s proportionality and operational effectiveness without weakening financial resilience. The move reflects a broader international trend, as regulators across major economies revisit the implementation of Basel standards.
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Changes To Basel III Rules
Earlier this year, the U.S. Federal Reserve proposed significant changes to Basel III rules, including easing restrictions surrounding the use of internal models for trading risk calculations. More recently, the European Union also announced temporary relaxations to certain parts of the framework, arguing that such measures are necessary to protect the international competitiveness of European banks.
The PRA estimates that the proposed UK changes could return between £1.9 million and £3.8 million in capital annually to individual banks. While the internal model provisions of the FRTB will still come into effect in January 2028, regulators are also planning to extend the transition period before a crucial test begins influencing banks’ capital requirements. This extension is expected to provide supervisors with additional time to evaluate how the framework operates in practice and ensure that the system remains sensitive to actual risks.
Sam Woods, Deputy Governor for Prudential Regulation and Chief Executive of the PRA, described the trading book reforms as the final piece of the post-financial crisis regulatory package. He noted that the additional implementation time has allowed UK regulators to observe how similar rules are being adopted internationally while ensuring that banks operating in the UK remain adequately capitalized.
The rest of the UK’s Basel regulatory package is scheduled to take effect in January 2027, marking the completion of a sweeping overhaul of banking regulations introduced in response to the global financial crisis. The latest proposals signal the UK’s intention to uphold robust financial standards while ensuring that its banking sector remains competitive in an increasingly complex global market.
