Regulatory Highlights – First Half of July 2025
Overview
In early July, the Prudential Regulation Authority (PRA) issued several policy statements and consultation papers with implications for banks of all sizes. We've summarised the key developments and outlined their practical impact across firm types.
Implementation of Basel 3.1
Basel 3.1 implementation remains on track for 1 January 2027, with one exception: the Fundamental Review of the Trading Book (FRTB) elements related to the Internal Model Approach (IMA) have been proposed for deferral to 1 January 2028—a change that is unlikely to affect small and medium-sized banks.
SDDTs (Small Domestic Deposit Takers)
Implementation Deferral for SDDT Capital Regime:
The PRA has confirmed its intention to defer the implementation date for the Strong and Simple capital regime to 1 January 2027, aligning it with the broader Basel 3.1 package. As a result, the Interim Capital Regime (ICR) will no longer be required. This provides firms with greater certainty and additional time to prepare.
Recovery Planning – Review Frequency Reduced:
As part of CP14/25, the PRA proposed reducing the required frequency of recovery plan reviews for SDDTs from annual to at least every two years, thereby easing the regulatory burden while maintaining safety and soundness. However, the PRA expects that SDDTs classified as ‘new and growing banks’ may still need to review and update their recovery plans more frequently, given the pace and materiality of business model changes typically experienced by such firms.
Proposed Implementation: 2026 H1.
Small and Medium-Sized Banks
Loan-to-Income (LTI) Rule Adjustments:
As part of PS11/25, the PRA and the Financial Conduct Authority (FCA) confirmed an increase in the de minimis threshold for LTI flow limit rules from £100 million to £150 million per year. This threshold refers to the total annual value of new residential mortgage lending originated by a firm.
Firms below this threshold are exempt from the LTI flow limit, which restricts high LTI lending (defined as loans with an LTI ratio of 4.5 or greater) to no more than 15% of new mortgages. The increase is intended to support competition by exempting more small lenders from the rule.
Effective Date: 11 July 2025.
Updates Specifically Relevant for Larger Banks
Basel 3.1 Market Risk Framework:
The PRA proposed changes to the FRTB in CP17/25. The implementation of the FRTB-internal model approach (IMA) will be deferred to 1 January 2028, while all other Basel 3.1 components will go live on 1 January 2027.
MREL Thresholds and Strategy Clarity:
From January 2026, the indicative asset thresholds for preferred resolution strategies will rise from £15–25 billion to £25–40 billion. Firms within this range may be subject to a transfer strategy, not requiring MREL above minimum capital requirements, while those above £40 billion are expected to follow a bail-in strategy.
Resolution Assessment Threshold Raised:
CP14/25 proposes increasing the Resolution Assessment threshold from £50 billion to £100 billion in retail deposits, limiting the full disclosure requirements to only the largest firms.
Proposed Implementation: 2026 H1.
Capital Buffers Streamlining:
Through PS8/25, the PRA has simplified the UK’s capital buffers framework by moving certain technical provisions from legislation into PRA rules and supervisory policy. This change, aligned with the FSMA 2023 framework, enhances regulatory flexibility and responsiveness.
Key updates include:
A new Statement of Policy outlining the PRA’s approach to identifying G-SIIs and setting G-SII buffers.
Revised processes for O-SII designation and buffer calibration.
Revocation of outdated EU technical standards, with relevant requirements consolidated under UK-specific guidance to improve clarity and usability.
Effective Date: 31 July 2025.
Disclosure and Reporting Simplification:
CP15/25 and CP16/25 propose reforms to MREL reporting and Pillar 3 disclosures, aiming to reduce duplication and improve alignment with the updated resolution policy.
Proposed Implementation: 1 January 2027.
Other Updates Applicable to All Banks
FSCS-Funded Recapitalisation Regime:
As part of PS13/25, the PRA has confirmed changes to implement the new Bank Resolution (Recapitalisation) Act, allowing the FSCS to fund recapitalisations of failing firms through industry levies. This mechanism aims to support resolution through transfers while avoiding public funds and ensuring costs are fairly distributed.
Effective Date: 16 July 2025.
Senior Managers and Certification Regime (SM&CR) Reforms:
As part of CP18/25, the PRA and FCA have proposed streamlining the SM&CR by:
Amending the 12-week rule – the PRA proposes to allow firms up to 12-weeks to submit a complete Senior Management Function (SMF) application following an unforeseen departure or temporary absence, rather than requiring full regulatory approval within that time frame.
Reducing duplicative certification requirements,
Clarifying SMF roles and responsibilities,
Enhancing efficiency in the SMF onboarding process.
These reforms aim to support competitiveness and growth while maintaining high standards of accountability.
Proposed Implementation: mid-2026.
How We Can Help
At Katalysys, we recognise the practical challenges regulatory changes can present, especially for smaller and medium-sized firms. Our specialist team offers tailored, pragmatic support to help you manage this transition effectively. We can assist you with:
Risk Exposure Amount Calculation (Basel 3.1): We assist in calculating the risk exposure amount using actual data from a recent reporting reference date. This includes conducting workshops with key personnel, providing guidance on available approaches, and recommending the most suitable one based on your balance sheet size and product mix. Our service includes detailed calculations of all impacted risk areas, delivering a comprehensive report outlining the impact on your total capital ratio, approaches adopted, and key assumptions used.
Basel 3.1 Gap Analysis: This exercise identifies additional requirements for internal processes and information necessary for Basel 3.1 implementation. The output of this exercise may serve as a practical checklist to support the firm’s broader Basel 3.1 implementation plan.
Permissions Support: We assist in preparing submissions for SDDT and Basel 3.1-related permissions, ensuring compliance with regulatory expectations.
Eligibility Assessment for the SDDT Regime: We help determine your firm’s eligibility for the SDDT regime, provide guidance on application preparation, and support you throughout the submission process.
Regulatory Guidance: We help update or prepare regulatory reporting guidance documents as required, which are in line with the regulatory reporting instructions and definitions and industry best practices.
Recovery Planning: We assist in drafting and reviewing recovery plans that are proportionate, practical, and tailored to your firm’s risk profile
Our experience in supporting firms through regulatory change will allow us to help you navigate the evolving landscape with confidence.
For more information, please contact:
Josh Nowak
Managing Director
Risk & Regulatory Consulting
T: +44 (0)7587 720 988
E: josh.nowak@katalysys.com
Manish Patidar
Director
Risk & Regulatory Consulting
T: +44 (0)7766 001 643
E: manish.patidar@katalysys.com