PS16/26: PRA Finalises Rule Changes to Accommodate HM Treasury's Overseas Prudential Requirements Regime (OPRR)

14 Jul

On 14 July 2026, the PRA published Policy Statement PS16/26, confirming its final rules following Consultation Paper CP3/26, setting out proposed amendments to the PRA Rulebook to reflect the implementation of HM Treasury's (HMT) Overseas Prudential Requirements Regime (OPRR). The PRA has made several clarificatory changes.

The OPRR is a new legislative framework designed to restate — with modifications — existing Capital Requirements Regulation (CRR) equivalence provisions. In simple terms, it governs how the UK recognises overseas regulatory frameworks when applying prudential capital requirements.

Final rules take effect on 1 January 2027, alongside Basel 3.1.

1. OPRR Designation Framework – Overview:

The OPRR Regulations create a two-track system for recognising overseas jurisdictions:

Track 1: “Deemed designated” jurisdictions (automatic)

The Schedule to the Regulations immediately designates certain jurisdictions as equivalent from day one for each major exposure category.
This mirrors existing CRR equivalence outcomes, aligning with prior EU equivalence decisions (including Commission Implementing Decision 2014/908/EU).
It applies across key exposure types, including overseas credit institutions, investment firms, exchanges, sovereigns/public sector, and intermediate financial holding companies.

Track 2: Future designations (by Statutory Instrument)

HM Treasury can add or remove jurisdictions later via a statutory instrument, subject to a compatibility test.
A new designation must be compatible with:
- UK financial stability, and
- the safety and soundness of CRR firms, and
- at least one of: promoting effective competition (in consumers’ interests) or supporting UK international competitiveness and growth.
In making decisions, HMT may consider supervisory quality, alignment with international standards (e.g., Basel), and whether effective regulatory cooperation with UK authorities exists.

2. Key Changes: High-level Summary:

The PRA’s final rules amend twelve Parts of the PRA Rulebook. The changes fall into three broad categories:

1. Credit Risk Designation Regimes The PRA is updating how exposures to overseas institutions, covered bonds, sovereigns, regional governments, public sector entities, and Gibraltar entities are treated under the Standardised Approach (SA) — replacing CRR equivalence references with references to HMT designations under the OPRR.

2. Large Exposures Changes to align the definition of "institution" for large exposures purposes with the OPRR framework, replacing the existing CRR Article 391 equivalence mechanism.

3. Targeted Clarifications The PRA is also taking the opportunity to improve clarity and operationalisation across the Rulebook — including a new defined term, exposures to Article 119 institutions, in the Glossary, and the removal of redundant or superseded cross-references to CRR provisions.

The overarching objective is to maintain the substance of the current equivalence regime while ensuring coherent alignment with the new OPRR legislative structure.

3. Detailed Analysis:

3.1. Exposures to Institutions (Credit Risk)

Background: Under the current framework, CRR Article 107(3) determines when exposures to overseas credit institutions, investment firms, and exchanges qualify as "exposures to institutions" — a classification that attracts preferential risk weights under the SA. This treatment applies only to entities in jurisdictions that apply equivalent prudential standards.

What's Changing: HMT has revoked CRR Article 107(3) and replaced it with an OPRR designation mechanism. The PRA has decided to:

Define in PRA rules that only exposures to UK credit institutions, UK designated investment firms, and investment firms subject to Part 9C rules qualify as ‘exposures to Article 119 institutions.’
Rely on OPRR designations to extend this treatment to overseas entities in designated jurisdictions.
Define the term ’exposures to Article 119 institutions’ in the PRA Glossary to distinguish the SA-specific concept from broader uses of the word ’institution.’
Retain the treatment of overseas credit institutions in non-designated jurisdictions as corporate exposures.

Implications for Credit Risk Mitigation:

References to debt securities issued by institutions used as collateral are updated to specify credit institutions and investment firms qualifying as exposures to Article 119 institutions, explicitly excluding exchanges.
For unfunded credit protection, the eligibility criteria for protection providers are updated to reference credit institutions and investment firms where exposures meet the exposures to Article 119 institutions test.

3.2. Exposures in the Form of Eligible Covered Bonds

Background: Currently, "eligible covered bonds" are limited to CRR covered bonds — bonds issued by credit institutions with a registered office in the UK — that meet additional requirements under Article 129 of the Credit Risk: Standardised Approach (CRR) Part.

What's Changing:

Under the SA: HMT has laid legislation introducing a power to designate overseas jurisdictions for covered bond equivalence. Covered bonds from designated jurisdictions meeting the non-jurisdictional Article 129 criteria will be treated as eligible covered bonds for SA purposes. The PRA is making preparatory amendments to Article 129 and updating the Glossary definition of eligible covered bonds to capture bonds that qualify by virtue of the OPRR.

Impact on Liquidity Risk Management: The PRA has confirmed it will consult separately on this in due course. In the meantime, the PRA's 15 July 2025 statement remains its position, and firms are not expected to alter their existing approach to including non-UK covered bonds in Level 2A HQLA.

3.3. Exposures to Sovereigns, Regional Governments, Local Authorities, and Public Sector Entities

Background: Several CRR articles provide preferential risk-weight treatments for overseas sovereign exposures (Article 114(7)), regional government/local authority exposures (Article 115(4)), and public sector entity (PSE) exposures (Article 116(5)) in equivalent jurisdictions.

What's Changing:

HMT has decided to preserve the substance of these treatments in the OPRR. The PRA's final rule changes are largely technical — updating cross-references and ensuring coherent operation:

Sovereign exposures (Article 114): References to CRR Article 114(7) are replaced with references to OPRR Regulation 6(1) and 9(2)(c). The PRA has also clarified that the preferential 0% risk-weight treatment only applies where collateral is denominated in the sovereign's domestic currency and the exposure is funded in that currency — for both the Financial Collateral Simple Method (FCSM) and the Financial Collateral Comprehensive Method (FCCM).
Regional Governments and Local Authorities (Article 115): References to CRR Article 115(4) are replaced with OPRR Regulation 6(3). The existing equivalence test (overseas regulator treats exposures as exposures to the central government, with no difference in risk) is preserved.
Public Sector Entities (Article 116): References to CRR Article 116(5) are replaced with OPRR Regulation 6(4). Importantly, since the draft OPRR SI does not specify a risk weight for PSEs in non-designated jurisdictions, the PRA has restated in PRA rules the existing 100% risk weight requirement for such exposures. This aligns with the risk-neutral treatment of unrated corporates.
Project Finance (Article 122B): A new Article 122B(5A) clarifies that the preferential 0% risk-weight treatment for a "high-quality" project finance exposure can only apply where the main counterparty's exposure is denominated and funded in its domestic currency.
Core Market Participants (Article 227): The definition for applying the 0% volatility adjustment under the FCCM is updated to require that the denominated-and-funded condition be applied when determining 0% risk-weight eligibility.

3.4. Exposures to Gibraltar-based Entities

Background: Following Brexit, the Gibraltar (Miscellaneous Amendments) (EU Exit) Regulations 2019 preserved the pre-exit CRR treatment of Gibraltar exposures.

What's Changing: At the point the CRR is revoked, HMT has laid legislation specifying, in the OPRR, the ongoing treatment for Gibraltar entities. The PRA has made minor amendments to align its Rulebook with this, in substance confirming:

Gibraltar credit institutions → treated as exposures to Article 119 institutions.
Gibraltar investment firms → similarly treated where the Gibraltar competent authority treats them as credit institution exposures.
Gibraltar PSEs → treated as UK PSEs.
The Government of Gibraltar → treated as the UK Government.

3.5. Large Exposures

Background: Rule 1.3 of the Large Exposures (CRR) Part currently aligns with CRR Article 391, extending the "institution" definition to overseas entities in HMT-equivalent jurisdictions. HMT has revoked CRR Article 391 as part of the OPRR reforms.

What's Changing:

The PRA proposes to:

Delete Rule 1.3 and align the treatment of overseas entities for large exposure purposes with a new Part-specific defined term, ‘relevant exposures to Article 119 institutions’ (excluding exchanges).
Amend Article 395(1) to reference exposures to Article 119 institutions rather than institutions or investment firms.

In practice, the higher large exposure limit will now apply to overseas investment firms only where they are in an OPRR-designated jurisdiction and qualify as exposures to Article 119 institutions. The treatment of overseas credit institutions is maintained. Overseas exchanges are explicitly excluded from the preferential treatment.

How We Can Help

At Katalysys, we support firms in navigating regulatory change and understanding its impact on capital, liquidity, and reporting requirements. We help firms assess what's changed and what it means for their business.

Our support includes:

Impact assessments on how regulatory changes affect capital and liquidity positions
Updates to risk-weighting and reporting methodologies
Documentation of assumptions and interpretations
Validation of system and calculation changes ahead of implementation
Training and briefings for risk, finance, and reporting teams

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