UK Basel 3.1: Credit risk standardised approach – exposures in default
On 20 January 2026, the PRA published Policy Statement (PS) 1/26, setting out the final Basel 3.1 policy package. This comprises PRA Rulebook instruments, supervisory statements, statements of policy, and the associated reporting and disclosure templates and instructions.
The package largely confirms the near-final policy, with only minor amendments, corrections and clarifications (alongside targeted market risk updates consulted on separately).
Basel 3.1 will take effect on 1 January 2027, while the FRTB Internal Model Approach will come into effect on 1 January 2028.
A summary of the changes relating to ‘exposures in default’ under the credit risk standardised approach is provided below.
Key changes to exposures in default, include:
To assess the specific credit risk adjustments threshold (20%) the outstanding amount of the facility is to be considered, instead of the unsecured part of the exposure value used currently.
A preferential risk weight of 100% would be applied on residential real estate exposures where repayments do not materially depend on the cash flows generated by the property (currently, 100% risk weight is applied only on exposures fully and completely secured by mortgages on residential or commercial property).
A summary of the revised classifications and applicable risk weights is given below:
Existing and revised Risk Weights
How We Can Help
Banks may face a variety of challenges when preparing for Basel 3.1. At Katalysys, we have a deep understanding of prudential regulatory requirements both from the perspective of rules and practical implementation. Our team is already supporting a range of clients in this area, and includes:
Workshops or training to cover new requirements.
Gap and impact analyses.
Guidance on implementing industry best-practice in relation to the Basel 3.1 standards.
Documenting or updating assumptions and interpretations in regulatory reporting.
Preparation of regulatory reporting policies and procedure notes.
Validation of the system outputs and calculations.
Review of regulatory returns, including post-implementation of Basel 3.1 changes.
For more information, please contact:
Josh Nowak
Managing Director, Risk & Regulatory Consulting
T: +44 (0)7587 720 988
Manish Patidar
Director, Regulatory Consulting
T: +44 (0)7766 001 643