The Bank of England has said that once the latest Basel 3.1 regulation is fully phased in, capital requirements for UK firms will be lower than that of their EU and US counterparts.

The Basel 3.1 framework, set to be implemented in the UK by 1 July 2025, was developed by the Basel Committee on Banking Supervision (BCBS) in the wake of the 2007- 2009 Global Financial Crisis in a bid to strengthen the regulation, supervision and risk management of banks.

According to estimates from the Prudential Regulation Authority (PRA), the impact of the rules will result in an average increase in Tier 1 capital requirements for UK lenders of three per cent, much lower than in the EU and US.

The European Banking Authority estimates a Tier 1 increase of around 10 per cent in the EU, while American agencies believe there to be a CET 1 increase of roughly 16 per cent for banks in the US.

The figures come as the PRA publishes policy statements covering the roll out of the new standards for market risk, credit valuation adjustment risk, counterparty credit risk, and operational risk.

Following feedback from a consultation, the regulator has adjusted its original proposals to remove market risk internal modelling for the default risk of exposures to sovereigns, aligning the market risk and credit risk frameworks and addressing capital requirements for some sovereigns put forward under the original proposals.

The PRA said it had also added flexibility in the credit valuation adjustment risk framework through the introduction of an additional, optional, transitional arrangement to reduce operational burden on firms.

"The rules published today implement the latest Basel standards in the UK and include appropriate adjustments to take on points raised by respondents to our consultation," said Sam Woods, deputy governor of prudential regulation and chief executive of the PRA. "The focus of these rules is not on the aggregate amount of capital in the system but on making sure that risk is properly captured across a range of firms and activities."

The PRA said that it intends to publish its second near-final policy statement in the second quarter of 2024 on the remaining elements of the Basel 3.1 package, which includes credit risk, the output floor, reporting and disclosure requirements.

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