Risk Advisory · Basel 3.1
RiskTAE’s Basel 3.1 consultants move UK banks and building societies onto the PRA’s final rules in PS1/26, which apply from 1 January 2027. We recalculate risk-weighted assets, run them in parallel with today’s rules, rebuild the capital plan and the ICAAP, and hand the model and its assumptions to your team.
The board approves its first Basel 3.1 capital plan knowing how far each ratio has moved and why.
By Mark Dougherty, CPA (CAN)Updated
Scope
Basel 3.1 is the name the Prudential Regulation Authority (PRA) gives to the final Basel III reforms to how banks measure risk-weighted assets (RWAs), the denominator of risk-based capital ratios. In the UK it applies from 1 January 2027 under PRA policy statement PS1/26, to banks, building societies, PRA-designated investment firms and PRA-approved or PRA-designated financial holding companies.
So it applies to you if you are a PRA-authorised bank or building society, unless you are a small domestic deposit taker (SDDT) in the PRA’s simpler regime.
SDDTs apply their own capital regime from the same date, covered on our SDDT regime page.
HM Treasury’s SI 2026/45 revokes the relevant provisions of the UK Capital Requirements Regulation (CRR) from 1 January 2027, and the PRA’s rules replace them. PS1/26 made no substantive change to the near-final policy outside market risk, so impact work done on the near-final text still holds.
Sources: PRA, PS1/26 Implementation of Basel 3.1: final rules, 20 January 2026; PRA, PS4/26, 20 January 2026; SI 2026/45, 13 January 2026.
Timetable
Basel 3.1 applies in the UK
Sources: PRA, PS1/26, 20 January 2026; PRA, CP9/26, 19 June 2026; PRA, news release, 17 January 2025.
Output floor
| Period | Floor, as a share of standardised RWAs |
|---|---|
| 1 January 2027 to 31 December 2027 | 60% |
| 1 January 2028 to 31 December 2028 | 65% |
| 1 January 2029 to 31 December 2029 | 70% |
| From 1 January 2030 | 72.5% |
A firm’s total risk exposure amount (TREA) is the higher of its un-floored RWAs and the floor percentage of its standardised RWAs, plus an adjustment for how the standardised and IRB approaches treat accounting provisions. So the floor can only bite for a firm that uses internal models.
It applies individually to a stand-alone UK institution and to a ring-fenced body outside a sub-consolidation group, sub-consolidated to a ring-fenced body inside one, and on a consolidated basis to a CRR consolidation entity that is not an international subsidiary.
It does not apply to other sub-consolidated calculations, to other institutions at individual level, or to an international subsidiary at consolidated level. The international subsidiary approach needs PRA permission and is not open to ring-fenced bodies.
In a group the floor is set on the consolidated position, so the group needs a standardised calculation for every portfolio its subsidiaries risk-weight with models, even where a subsidiary’s own figures stay un-floored. That data now needs the same controls as the model data, because it can set the group’s capital ratio.
Source: PRA, PS1/26 Appendix 1, PRA Rulebook: CRR Firms: (CRR) Instrument 2026, Article 92.
How the output floor phases in
From 60% in 2027 to 72.5% from 1 January 2030
The output floor in each year of the transition, as a share of standardised RWAs.
Source: PRA, PS1/26 Appendix 1, PRA Rulebook: CRR Firms: (CRR) Instrument 2026, Article 92, 20 January 2026.
Changes by area
For a lender on the standardised approach, most of the work is in credit risk. Where repayment of a residential mortgage does not rely on income from the property, the loan up to 55% of the property’s value takes a 20% risk weight and the rest the borrower’s; where it does, the whole loan is weighted by loan-to-value, from 30% to 105%. Unrated corporates take 100%, or with PRA permission 65% if investment grade and 135% if not. For IRB banks, some portfolios leave IRB and the rest get input floors for PD, LGD and EAD.
Operational risk moves to one standardised approach built on the Business Indicator, and a firm’s loss history no longer scales the charge. More on operational risk capital. CVA and market risk get new approaches, the trading book boundary is redrawn and the rules on credit risk mitigation change.
Our article on what Basel 3.1 changes for UK banks sets out each area rule by rule.
Sources: PRA, PS1/26 and Appendix 1, 20 January 2026; PRA, PS9/24, 12 September 2024; PRA, PS17/23, 12 December 2023.
Pillar 2A
Pillar 2A changes on the same day, partly so that risks now captured in Pillar 1 are not charged twice.
The SME and infrastructure support factors leave Pillar 1 and become firm-specific Pillar 2A adjustments, designed so that removing them does not, on its own, raise a firm’s capital requirements. The slotting risk weight for “substantially stronger” project finance falls to 50%.
In a one-off, off-cycle review the PRA will adjust Pillar 2 for any double counting and rebase variable Pillar 2A and the PRA buffer. Through the floor’s transition it will also rebase Pillar 2 so that floor-driven RWA increases do not raise Pillar 2A where the risk is unchanged.
From 1 January 2027, PS2/26 retires the refined methodology to Pillar 2A, and PS15/26 (Phase 1 of the PRA’s Pillar 2A review) removes the benchmarking methodology, IRB benchmarks included, and adds systematic methodologies for central government, central bank, regional government and local authority exposures and for retail unconditionally cancellable commitments. Phase 2 is due for consultation in 2027.
If your credit risk Pillar 2A relies on the refined methodology or IRB benchmarks, model its replacement now so the board sees the new figure in the capital plan.
Sources: PRA, PS9/24, 12 September 2024; PRA, PS7/25, 22 May 2025; PRA, PS2/26, 20 January 2026; PRA, PS15/26, 28 May 2026.
Before go-live
With the last quarter of 2026 to go, the aim is Basel 3.1 numbers the board can stand behind on day one.
Order matters. The first ICAAP under the new rules needs the recalculated RWAs, reconciled to the current rules, signed off before the board is asked to approve the capital plan built on them. A board that first sees the new numbers in the ICAAP pack has little room to challenge them.
Our Basel 3.1 readiness guide sets out what to have ready and what the PRA will look for.
Source: PRA, PS1/26, 20 January 2026.
How we help
The work is led by Mark Dougherty, CPA (CAN), our technical lead. He has written online courses on the Basel reforms to credit, market and operational risk, and in February 2026 ACCA’s AB magazine published his article with Benn Pople, Don’t underestimate Basel reforms. Our senior practitioners include former CROs and heads of risk, former regulators and interim executives, working with model and quant specialists.
As advisers, we challenge your impact assessment before it reaches the board or the PRA. As consultants, we recalculate RWAs, parallel run included, and rewrite the capital plan and ICAAP, then hand everything over with documented assumptions. More on Risk Advisory.
RisKIT has pre-built UK capital models for the current rules and for Basel 3.1, with or without FRTB market risk. Run the two on the same balance sheet to size the capital change, with every formula open to your validators. We support set-up and validation. See RisKIT.
Risk Education runs Basel 3.1 sessions for boards on the questions directors should ask, and technical courses for the teams who produce the numbers.
The work covers every part of the recalculation: credit risk on the new standardised approach and IRB, market risk under FRTB, CVA, operational risk and the output floor, carried through to Pillar 2A and the ICAAP.
FAQ
The whole recalculation and everything that rests on it: Pillar 2A, the capital plan and the ICAAP. We do it as advisers or as consultants, as set out under how we help.
Now, unless the board has already seen Basel 3.1 RWAs reconciled to the current rules. The before go-live list sets out the order the work has to run in.
Basel 3.1 RWAs on a recent quarter-end, run beside the current rules with every material movement explained; a capital plan rebuilt with the output floor and the Pillar 2A changes in it; an updated ICAAP; and the model with its documented assumptions, handed to the people who will run it next year.
The senior practitioners described under how we help, led by Mark Dougherty, CPA (CAN). The same people write ICAAPs, so the recalculated numbers carry straight through to the document the board approves.
Insights
The Basel 3.1 output floor stops a firm’s modelled risk-weighted assets falling below a set share of what the standardised approaches would produce. In the UK it starts at 60% on 1 January 2027 and rises...
By Mark Dougherty, CPA (CAN) · 7 min read
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...
By Mark Dougherty, CPA (CAN) · 7 min read
From 1 January 2027 an ICAAP has to be written on a Basel 3.1 basis. The PRA set this out in PS15/26: ICAAPs signed off by boards in 2026 should include an impact assessment of Basel...
By Mark Dougherty, CPA (CAN) · 8 min readNext step
Tell us which approaches you use and when the board meets. In 30 minutes we will tell you what it would take to size the delta and be ready for 1 January 2027.
Tell us what needs doing and by when. A partner will come back to you. Treated in confidence.
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