UK Basel 3.1 rules take effect

Basel 3.1 is the name used in the United Kingdom for the final part of the Basel III standards on bank capital. The Prudential Regulation Authority (PRA), the part of the Bank of England that supervises banks, published the final rules in policy statement PS1/26 (external site) on 20 January 2026. They change how firms measure risk-weighted assets, the exposures against which capital is held, from 1 January 2027.

Among other parts, the package covers the measurement of credit risk, the measurement of operational risk (losses from failed processes, people or systems), the output floor and the related reporting (PS1/26 (external site)).

For credit risk, the standardised approach uses risk weights that depend more on the features of each exposure. For real estate loans, for example, the value of the property matters, and existing exposures can use the latest valuation obtained before 1 January 2027 (PS1/26 rules summary (external site)). The internal ratings-based approach (IRB approach) is updated through supervisory statement SS4/24 (external site), effective from the same date.

For operational risk, the rules change and the PRA withdraws its supervisory statement SS14/13 on operational risk with effect from 1 January 2027 (PS1/26 (external site)).

The output floor sets risk-weighted assets at no less than 72.5 percent of the amount calculated with standardised approaches only, with transitional arrangements (PS1/26 rules summary (external site)). As an example only: a firm whose models give GBP 40 billion and whose standardised approaches give GBP 80 billion would, at the end state, report GBP 58 billion.

New reporting templates and instructions, including output floor templates, are published in Appendix 17 to PS1/26 (external site) and apply from 1 January 2027.

The rules apply to firms under the PRA Rulebook for CRR firms, which covers banks and some investment firms (PRA Rulebook instrument (external site)). Small domestic deposit takers have a separate simplified regime. The roles most directly concerned:

• Capital Reporting Analyst: recalculates risk-weighted assets and capital ratios under the new rules.
• Regulatory Reporting Analyst: moves to the new templates from the first reporting date in 2027.
• Credit Risk Analyst: collects the exposure data, such as property values, that the new risk weights use.
• Credit Risk Model Developer: adapts models to the updated IRB requirements.
• Operational Risk Analyst: works with the new operational risk capital rules.
• Model Validation Analyst: reviews model changes against the new supervisory statements.

The PRA consulted in November 2022 (CP16/22 (external site)) and published near-final rules in September 2024 (PS9/24 (external site)), then for a start on 1 January 2026. On 17 January 2025 it announced a delay of one year (Bank of England news release (external site)).

The final rules of 20 January 2026 take effect on 1 January 2027, with reporting from the same date (PS1/26 (external site)). The output floor phases in, and the end point of its transitional period is 1 January 2030 (Basel 3.1 permissions (external site)).

The current UK capital rules come from the Capital Requirements Regulation, which the PRA is restating in its own rulebook (PS3/26 (external site)). Basel 3.1 updates the parts of those rules that measure risk-weighted assets.

The PRA expects these changes, including the output floor and the revised IRB treatment of real estate, to narrow the gap between standardised and IRB risk weights (CP9/24 (external site)).