FRTB in the UK: what applies in 2027 and what waits until 2028

The UK’s version of the Fundamental Review of the Trading Book (FRTB) arrives in two steps. From 1 January 2027 the new trading book boundary and the two new standardised approaches apply with the rest of Basel 3.1; the new internal model approach follows on 1 January 2028. In the year between, a firm with an existing internal model permission keeps it for the positions it covers, and everything else moves to the advanced or simplified standardised approach.

What applies from 1 January 2027?

Everything in the FRTB except the new internal model approach. PS1/26, the PRA’s final Basel 3.1 policy statement published on 20 January 2026, brings the rules into force on that date, and the market risk reporting requirements start with them.

• The trading book boundary. Positions are assigned to the trading or non-trading book on objective criteria, with safeguards on moving them afterwards. Credit and equity internal hedges between the books are recognised only where they are exactly matched by trades with external third parties, and an arm’s-length sale between the books is treated as a reassignment, with a capital add-on for any reduction in requirements until the position matures (PS17/23 paragraph 3.10).
• The advanced standardised approach (ASA), a risk-sensitive approach for firms without an internal model permission.
• The simplified standardised approach (SSA), a recalibrated version of the existing standardised approach for firms with small or simple trading activity. The existing derogation for small trading book business also stays, so a firm with very limited trading can use the credit risk approach instead (PS17/23 paragraphs 1.8 and 3.2).
• Proportionate treatment of collective investment undertakings. A fund position goes in the trading book where at least 90% of the fund’s holdings would be allocated there, and a firm may look through a fund where at least 50% of its holdings can be looked through; residual positions take a 70% risk weight under the ASA fall-back approach (PS1/26 paragraphs 3.12 and 3.15).
• A permissions regime for the residual risk add-on. Where a firm can show the add-on is disproportionate for a type of instrument, it can apply once to use an alternative method for all current and future exposures to that instrument (paragraphs 3.19 to 3.23).

What waits until 1 January 2028?

The FRTB internal model approach (FRTB-IMA). PS1/26 paragraph 1.24 says it “will come into effect on Saturday, 1 January 2028”, and the new IMA reporting and disclosure templates start the same day, with the existing IMA templates kept until then (paragraph 3.27).

The IMA itself is still moving. CP9/26, published on 19 June 2026, proposes to extend the monitoring period for the profit and loss attribution test from one year to three, with the test not binding during that period; to adjust the risk factor eligibility test; to simplify the treatment of non-modellable risk factors; to make gradual IMA approval easier; and to apply a 90% look-through threshold to fund positions in the IMA. The PRA said it had seen “a surprisingly small number of firms” planning to adopt internal models (paragraph 1.3). The consultation closed on 18 September 2026 and the PRA proposes to keep the 1 January 2028 date (paragraph 1.12).

What happens in the interim year for firms with internal models?

They run two frameworks at once. Positions inside an existing IMA permission stay on the existing model for 2027; positions outside it move to the ASA (PS1/26 paragraph 3.4). A firm can instead move its whole trading book to the ASA from 1 January 2027 (paragraph 3.8).

Firms asked to keep everything outside their permissions on the old standardised approach for the year. The PRA refused, on the ground that it would leave the firms with the largest market risks on outdated calibrations while everyone else moved, and it pointed out that every firm has to calculate the ASA for the output floor anyway (paragraph 3.9). It did give four concessions for the interim year (paragraph 3.10):

• positions that the FRTB-IMA would not allow, such as securitisation positions, can stay in the existing model where the permission covers them;
• specific risk on securitisation and credit derivative positions and the correlation trading portfolio can stay on the existing standardised approach where there is no IMA permission for it;
• interest rate internal hedges can stay in the same portfolio as other trading book positions under the existing permission;
• where the existing permission double counts risk because of the delay, firms should raise it with their supervisor.

Existing IMA permissions then “cease to apply automatically at the end of the interim period” (paragraph 3.11). A firm that wants the FRTB-IMA from 1 January 2028 needs a new approval by then; one that does not moves to the ASA.

Which approach suits a smaller trading book?

Usually the SSA or the small trading book derogation, and for some firms the SDDT regime. The SSA exists for firms with limited derivatives activity, and the derogation lets firms with very limited trading apply the credit risk approach. A bank or building society that meets the SDDT criteria, which cap trading book business at both £44 million and 5% of total assets, can opt into a regime that simplifies market risk further from 1 January 2027 (SDDT Regime General Application 2.1(3); PS20/25 paragraph 1.14). Our SDDT page covers the other eight criteria.

The choice matters beyond the capital number. Whichever approach a firm picks sets the systems, data and controls it has to run, and a standardised firm that expects its trading to grow should check it will not cross a threshold within its planning horizon.

What should a CRO be doing before 1 January 2027?

• Finish the boundary work: every position designated, the policy documented and the internal hedge rules tested against how the desks actually hedge.
• Run the ASA in production, for the output floor and for every position outside the IMA permission.
• Identify any instrument where the residual risk add-on is out of proportion to the risk, and apply for the permission early.
• For IMA firms, decide whether keeping the old model for 2027 is worth running two systems, or whether moving the whole book to the ASA is cheaper once operating costs are counted.
• Carry the changes into the ICAAP, including market risk Pillar 2A and the contingent FX risk that leaves Pillar 1 (PS1/26 paragraphs 3.26 and 4.7 to 4.11). Our article on updating your ICAAP for Basel 3.1 covers the rest.

How did the UK timetable get here?

This article replaces the FRTB series we wrote while the UK rules were still in consultation. For the wider package see what Basel 3.1 changes for UK banks and the output floor explained. Our Basel 3.1 advisory work covers impact assessments and implementation, our Basel 3.1 course trains the teams who run the numbers, and our market and liquidity risk and model risk search practices find the people who lead them. Terms are defined in our glossary.

Questions readers ask

Can we stay on the current standardised approach during 2027?

No. Positions outside an existing IMA permission move to the ASA or SSA from 1 January 2027. The PRA considered and rejected a full delay of the standardised approaches for IMA firms (PS1/26 paragraphs 3.7 to 3.9).

When do existing internal model permissions end?

At the end of the interim period, automatically. From 1 January 2028 a firm needs FRTB-IMA approval to use an internal model for market risk (PS1/26 paragraphs 1.24 and 3.11).

Do we have to calculate the ASA even if we keep our internal model?

Yes. The output floor compares modelled risk-weighted assets with a fully standardised figure, so every firm has to calculate the ASA, as the PRA noted in PS1/26 paragraph 3.9.

Are the CP9/26 changes to the IMA final?

Not at 1 October 2026. The consultation closed on 18 September 2026 and the PRA has not yet published its final policy; it proposes that the IMA, with any changes, applies from 1 January 2028.

Sources: PRA PS1/26, Implementation of Basel 3.1: final rules (20 January 2026), paragraphs 1.23, 1.24, 3.4 and 3.7 to 3.27, 4.7 to 4.11; PRA PS17/23 (12 December 2023), paragraphs 1.8, 3.2, 3.5 and 3.10; PRA PS9/24 (12 September 2024); PRA CP9/26 (19 June 2026), paragraphs 1.3, 1.8, 1.12 and 1.13; PRA CP16/22 (30 November 2022); PRA news release on the delay to Basel 3.1 (17 January 2025); PRA Rulebook, SDDT Regime General Application Part, rule 2.1; PRA PS20/25 (28 October 2025), paragraph 1.14. Accessed 29 September and 1 October 2026.