Should your bank join the SDDT regime? What the strong and simple rules change from 1 January 2027

Most UK banks and building societies that meet the nine SDDT criteria, and expect to keep meeting them, should join the strong and simple regime. From 1 January 2027 an SDDT holds one Single Capital Buffer of at least 3.5% of RWAs instead of three buffers; since 20 January 2026 most SDDTs update their ICAAP and ILAAP every two years.

A firm that expects to pass £20 billion of assets or to move onto IRB models should think harder before it consents.

Which firms are eligible for the SDDT regime?

A firm is eligible only if it meets all nine criteria in chapter 2 of the SDDT Regime General Application Part of the PRA Rulebook. Two of them are measured on 36-month averages, so eligibility is a trend as much as a snapshot.

The nine criteria cover size, UK lending, trading book, FX, commodities, IRB, services to other banks, payment systems and ownership; check each one in our SDDT eligibility checker.

Groups face a double test under rule 2.2. Criteria 1 to 6 must be met by the CRR consolidation entity on a consolidated basis and by each UK bank and building society in the group. Criteria 7 and 8 apply to each UK bank and building society individually, so one subsidiary offering correspondent services is enough to fail the group.

Where firms go wrong is testing the criteria once, at the date of the decision. The averaging windows mean a lender growing quickly can pass today and already be on course to fail. Run the tests across the full corporate plan.

How does a firm join, and why would an eligible firm stay out?

A firm joins by accepting a modification by consent under rule 3.1. The PRA chose that route on purpose, so that eligible firms can remain outside the regime if they wish (PS15/23 para 2.99).

Most have taken it. The PRA reports that, as of 13 October 2025, “56 firms have opted in to become an SDDT out of around 80 firms” (PS20/25 para 1.17). That leaves around 24 firms outside at that date.

The case for staying out rests on the criteria themselves. A firm with a credible plan to pass £20 billion of assets would be building its capital framework twice. So would one investing in IRB models, since criterion 6 excludes IRB firms. Ownership matters too: a sale to an overseas buyer would put the firm outside criterion 9. Where the board already expects one of these events inside the planning horizon, the full Basel 3.1 framework may be the cheaper place to settle. Our guide to what Basel 3.1 changes for UK banks covers the alternative.

What does the SDDT capital regime simplify?

It keeps Basel 3.1 standardised risk weights as the Pillar 1 base but strips out much of the machinery around them. PS4/26, published on 20 January 2026, confirmed the near-final PS20/25 package without substantive change, and the capital regime takes effect on 1 January 2027.

• Pillar 1: the Basel 3.1 standardised approaches to credit and operational risk, with the standardised approach due diligence requirements disapplied, market risk simplified, and both derivative counterparty credit risk capital (with minor exceptions) and CVA risk capital disapplied.
• Single Capital Buffer: one buffer replaces the capital conservation buffer, the countercyclical buffer and the PRA buffer, and there are no automatic MDA restrictions. SoP5/25 states that “the SCB will be set at a level no lower than 3.5% of each SDDT’s RWAs, before considering the RMG assessment” (paragraph 12.11), RMG being the PRA’s risk management and governance assessment; each firm’s actual level is confidential. For new and growing banks the SCB covers six months of projected operating expenses, still with the 3.5% floor.
• Pillar 2A: simplified methodologies for credit, credit concentration and operational risk in SoP5/25. The countercyclical buffer adjustment between buffers and Pillar 2A goes, and the refined methodology is retired.
• Stress testing: a non-cyclical framework replaces the cyclical one.
• ICAAP and ILAAP: updates every two years for SDDTs other than new and growing banks, in force since 20 January 2026. SS4/25 carries the SDDT ICAAP expectations from 1 January 2027 (PS4/26 para 1.16).
• Deductions and reporting: capital deductions are simplified, with full deduction for certain items, and the number of descoped reporting templates rises “from 38 to 51”.
• Step-in risk: the Step-in Risk Part, in force since 1 January 2026, does not apply. PS5/25 says the policies “are not relevant to small domestic deposit takers (SDDTs)”.

Liquidity was simplified earlier, in PS15/23, with rules in force from 1 July 2024. An SDDT whose four-quarter moving average Retail Deposit Ratio is above 50% for four consecutive quarters can meet the stable funding standards without monitoring the NSFR. SDDTs generally face no Pillar 2 liquidity add-ons, use a simpler ILAAP template, and no longer submit the C67, C69, C70 and C71 returns.

The trap is reading the two-year cycle as a licence to let documents go stale. The management body must still approve the ILAAP, and the PRA’s recovery planning statement, SS9/17, asks SDDTs to use the longer cycle “to develop higher quality recovery plans”. We would expect supervisors to look for the off year in better ICAAP and ILAAP work, not less of it.

What should a board weigh before deciding?

The board is choosing a capital framework for the life of its plan, so test the plan against the criteria before counting the savings.

• Growth and mix: project total assets, UK exposure share, trading book and FX positions across the plan, using the 36-month averages the rules use.
• Model strategy: any intention to apply for IRB permissions closes the door.
• Ownership: a UK parent is a condition, so any sale process or capital raise involving an overseas investor needs checking against criterion 9.
• Capital outcome: compare today’s buffer stack and Pillar 2A with an estimated SCB (at least 3.5% of RWAs) and Pillar 2A under SoP5/25. Because the firm-specific SCB is confidential, the board is working from its own estimate until the PRA sets the figure.
• Resourcing: decide in advance what the finance and risk teams will do with the capacity the two-year cycle and lighter reporting release, including whether the CRO role needs a full-time holder or a fractional chief risk officer.

One governance point is often missed. Criteria monitoring tends to sit with finance, yet a breach of the averages changes the firm’s whole prudential footing. The CRO and the risk committee should see the criteria dashboard at every meeting. Our SDDT regime advisory work and board risk training both start from that point.

What are the key dates for the SDDT regime?

• 5 December 2023: PS15/23 finalises the SDDT criteria, liquidity and disclosure rules.
• 1 January 2024: SDDT definition and disclosure rules in force.
• 1 July 2024: SDDT liquidity rules in force.
• 12 September 2024: CP7/24 consults on the simplified capital regime.
• 28 October 2025: PS20/25 publishes the near-final capital regime.
• 20 January 2026: PS4/26 final rules; the two-yearly ICAAP and ILAAP updates take effect.
• 1 January 2027: the SDDT capital regime and SDDT reporting take effect.
• By the end of 2028: the PRA reviews the SDDT criteria.

Every dated PRA change to 2030 is in our regulatory tracker.

Questions readers ask

Is the Single Capital Buffer always 3.5%?

No. 3.5% of RWAs is the published floor, and the PRA sets each firm’s SCB individually and keeps it confidential. New and growing banks have an SCB sized to cover six months of projected operating expenses, subject to the same floor.

Does an SDDT still need an ICAAP and an ILAAP?

Yes. Both remain, but SDDTs other than new and growing banks update them every two years. The ICAAP follows SS4/25 from 1 January 2027, and board approval of the ILAAP is still required.

Will the eligibility criteria change?

They may. The PRA committed in PS15/23 to review the criteria “no later than the end of 2028”.

Sources: PRA Rulebook, SDDT Regime General Application Part (viewed 29 September 2026); PRA PS4/26, The strong and simple framework: final policy statement (20 January 2026); PRA PS20/25, The simplified capital regime for SDDTs (28 October 2025); PRA SoP5/25, The PRA’s methodologies for setting Pillar 2 capital for SDDTs, paragraph 12.11; PRA PS15/23, Scope criteria, liquidity and disclosure (5 December 2023); PRA CP7/24, The simplified capital regime for SDDTs (12 September 2024); PRA PS1/26, Implementation of Basel 3.1: final rules (20 January 2026); PRA PS5/25, Identification and management of step-in risk (22 April 2025); PRA SS9/17, Recovery planning (March 2026); PRA Rulebook, Internal Liquidity Adequacy Assessment Part (viewed 29 September 2026).