Looking ahead
Changes to risk management and regulatory reporting brought about by regulatory change is proceeding at a rapid pace and on an unprecedented scale. Keeping up with the changing regulatory requirements imposes a high degree of complexity and a key challenge for small- and medium-sized banks. Katalysys can be your partner in managing this change. We can assist the bank’s risk management and regulatory reporting functions to stay ahead with these changes.
Basel 3.1
Today, the Prudential Regulation Authority (PRA), in consultation with HM Treasury, announced a one-year delay to the implementation of Basel 3.1 in the UK. Originally scheduled to take effect on 1 January 2026 for banks not classified as Small Domestic Deposit Takers (SDDTs), the new implementation date is now set for 1 January 2027.
Mark Your Calendar: Key Dates for Basel 3.1 and SDDT. It has been approximately three months since the PRA released the second part of its near-final rules for implementing the Basel 3.1 standards in the UK. With the official implementation date of 1 January 2026 less than a year away, the clock is ticking for firms to ensure compliance. While the implementation date of 1 January 2026 is top of mind for many, it is essential not to overlook several key milestones in 2025. These will be particularly relevant both for firms seeking SDDT status and banks navigating Basel 3.1 requirements.
As part of the Near-final Rules (PS9/24), the PRA has announced an off-cycle review of Pillar 2 capital requirements. This review aims to address double counting, rebase Pillar 2A, and mitigate unintended impacts arising from changes in Pillar 1 RWAs. To facilitate this process, the PRA has requested a specific set of information based on the reference date of 31 December 2024, with a submission deadline of 31 March 2025.
Regulatory updates
Today, the Prudential Regulation Authority (PRA), in consultation with HM Treasury, announced a one-year delay to the implementation of Basel 3.1 in the UK. Originally scheduled to take effect on 1 January 2026 for banks not classified as Small Domestic Deposit Takers (SDDTs), the new implementation date is now set for 1 January 2027.
Mark Your Calendar: Key Dates for Basel 3.1 and SDDT. It has been approximately three months since the PRA released the second part of its near-final rules for implementing the Basel 3.1 standards in the UK. With the official implementation date of 1 January 2026 less than a year away, the clock is ticking for firms to ensure compliance. While the implementation date of 1 January 2026 is top of mind for many, it is essential not to overlook several key milestones in 2025. These will be particularly relevant both for firms seeking SDDT status and banks navigating Basel 3.1 requirements.
As part of the Near-final Rules (PS9/24), the PRA has announced an off-cycle review of Pillar 2 capital requirements. This review aims to address double counting, rebase Pillar 2A, and mitigate unintended impacts arising from changes in Pillar 1 RWAs. To facilitate this process, the PRA has requested a specific set of information based on the reference date of 31 December 2024, with a submission deadline of 31 March 2025.
CRR2
A common question we are asked is the basis on which own funds requirement has to be calculated for the various types of exposures on the non-trading and trading book.
The approach to evaluating risk weight for Collective Investment Undertaking (CIU) exposures has changed under the new CRR2 rules. There are three approaches outlined, and banks can select the specific approach based on the amount of information available about the underlying exposures of the CIUs.
Prudently valued software assets no longer needs to be deducted from CET-1 capital, but can be risk weighted.
The large exposure limits are set based on the bank’s Tier-1 Capital Only.
As part of Covid-19 quick fix, the existing IFRS9 transitional arrangement for CET-1 capital adjustment has been extended by 2 years and the additional adjustment for ECL provisions recognised in 2020 and 2021 has also been provided.
SME support factor of 0.7619 for exposures up to €2.5 million and 0.85 for exposures above €2.5 million, for entities with turnover of up to €50 million.
How can we help you?
Katalysys can assist in all aspects of prudential risk management and regulatory reporting requirements caused by the increasing changes to the regulatory environment and the introduction of newer rules. A few of the areas where we have assisted in the past are listed below:-
Identify changes to the bank’s capital and liquidity calculations due to the new rules (e.g. changes to SME support factor introduced in CRR2) and provide guidance as to how the bank can incorporate these in the existing processes and control environment
Advisory and workshops about the new requirement and industry benchmarks
Review of the bank’s existing policies and interpretation in light of the new changes
Analyse the impact on regulatory reporting, and assist in regulatory change management