Basel 3.1 Data Collection Exercise
Overview
Update [17 January 2025]: The Prudential Regulation Authority (PRA) has postponed Basel 3.1 implementation to 1 January 2027, allowing time for clarity on the plans for its implementation in the United States. Transitional periods will be adjusted to ensure full implementation by 1 January 2030. The PRA has also paused the Pillar 2 data collection exercise and will extend the Interim Capital Regime deadline, with further updates to follow.
As part of the second phase of the Near-final Rules (PS9/24), the PRA announced plans to undertake an off-cycle review of firm-specific Pillar 2 capital requirements. This review aims to adjust firms' Pillar 2 requirements to address potential double counting and to rebase variable Pillar 2A requirements and the PRA buffer. The objective is to ensure that changes to Pillar 1 risk-weighted assets do not lead to unjustified increases or decreases in Pillar 2 requirements when the underlying risk levels remain unchanged.
Additionally, the PRA intends to apply firm-specific structural adjustments to Pillar 2A, including the ‘SME lending adjustment’ and the ‘infrastructure lending adjustment.’ These adjustments aim to prevent increases in overall capital requirements for SME and infrastructure lending due to the removal of the Pillar 1 support factors.
To carry out this off-cycle review, the PRA requires additional information from firms. To gather this data, the PRA has initiated a data collection exercise, which primarily focuses on the risk exposure amounts calculated under the Near-final Rules. Details regarding submission requirements and timelines are outlined below.
The submission templates are relatively straightforward, and the submission requirements and timelines are detailed in subsequent sections. However, the process of obtaining the information required for submission is more complex. Firms must first understand the new requirements introduced as part of the Near-final Rules, which include several new approaches.
To proceed, firms need to decide which approach to adopt. This decision requires an analysis of the impact on capital requirements under each available approach. To evaluate this impact, firms must perform calculations based on the new approaches using their current financial position. Once the preferred approach is selected, firms must also determine whether regulatory approval is required for the chosen approach.
Only after completing these steps will firms be in a position to submit meaningful information as part of the PRA’s data collection exercise.
Submission Requirements
Firms are required to use a reference date of 31 December 2024 [update: the PRA to provide a revised reference date] when completing the data templates. Recognising that firms are in the process of implementing Basel 3.1, the PRA expects submissions to be prepared on a best-efforts basis while ensuring the data is as accurate as possible.
The data submission comprises two primary templates:
A. Submission 1: Total Basel 3.1 RWAs template
This template captures high-level information on the total risk exposure amount of a firm, including a breakdown of credit risk, counterparty credit risk, credit valuation adjustment, market risk and operational risk.
B. Submission 2: SME lending adjustment and infrastructure lending adjustment template
This template is relevant for firms seeking to qualify for the SME lending adjustment and/or infrastructure lending adjustment. It provides a breakdown of eligible credit risk exposures by sub-exposure class and applicable risk weight.
This second template includes the following three sub-components:
a) Submission 2a: Relevant SME exposures for off-cycle review
This template captures exposures eligible for the SME support factor.
b) Submission 2b: Relevant infrastructure exposures for off-cycle review
This template covers exposures eligible for the infrastructure support factor.
c) Submission 2c: Relevant SME and infrastructure exposures for off-cycle review
This template Includes exposures eligible for both the SME support factor and the infrastructure support factor.
C. Qualitative Information
Firms planning to apply or that have applied for Basel 3.1-related permissions (e.g., the use of risk-sensitive approaches for unrated corporate exposures) should indicate the timing of these applications in the qualitative information section of their submission.
Timeline
The deadline for submitting data for this collection exercise is 31 March 2025 [update: the PRA to provide a revised submission date], but firms can send their submissions in advance if preferred.
Firms opting to enter the Interim Capital Regime (ICR) before 28 February 2025 [update: the PRA to provide a revised date] will not be subject to the off-cycle review or the data collection exercise.
How We Can Help
At Katalysys, we recognise the complexities of regulatory changes and the challenges they pose, especially for small and medium-sized banks. Our team of experts offers customised solutions to support you in navigating these changes effectively:
Risk Exposure Amount Calculation (Basel 3.1): We assist in calculating the risk exposure amount using actual data. This includes conducting workshops with key personnel, providing guidance on available approaches, and recommending the most suitable one based on your balance sheet size and product mix. Our service includes detailed calculations of all impacted risk areas, delivering a comprehensive report outlining the impact on your total capital ratio, approaches adopted, and key assumptions used.
Template Preparation: We provide support in accurately populating and reviewing Basel 3.1 RWA and SME/infrastructure lending adjustment templates that are required to be submitted as part of the PRA’s data collection process.
Regulatory Guidance: We help update or prepare regulatory reporting guidance documents as required that are in line with the regulatory reporting instructions and definitions and industry best practices.
Basel 3.1 Gap Analysis: This exercise identifies additional requirements for internal processes and information necessary for Basel 3.1 implementation. The output of this exercise may serve as a practical checklist to support the firm’s broader Basel 3.1 implementation plan.
Permissions Support: We assist in preparing submissions for Basel 3.1-related permissions, ensuring compliance with regulatory expectations.
For more information, please contact:
Josh Nowak
Managing Director, Risk & Regulatory Consulting
T: +44 (0)7587 720988
Manish Patidar
Director, Regulatory Consulting
T: +44 (0)7766 001 643