Looking ahead
Changes to risk management and regulatory reporting brought about by regulatory change is proceeding at a rapid pace and on an unprecedented scale. Keeping up with the changing regulatory requirements imposes a high degree of complexity and a key challenge for small- and medium-sized banks. Katalysys can be your partner in managing this change. We can assist the bank’s risk management and regulatory reporting functions to stay ahead with these changes.
Basel 3.1
Katalysys recently hosted a roundtable in collaboration with UK Finance and representatives from the PRA, where we discussed the practical challenges firms are facing in preparing for implementation. Based on those discussions and our ongoing work supporting several institutions with Basel 3.1 readiness, we have produced a white paper focusing on the key areas of implementation that carry the greatest risk.
Hosted by UK Finance, Katalysys is pleased to announce a training programme, “The Basel Breakthrough: Future-Proofing Regulatory Reporting for 2027”, aimed at equipping banks and financial institutions with the knowledge, tools and strategies to navigate the forthcoming Basel 3.1 reforms.
As part of PS9/24, the PRA announced an off-cycle review of Pillar 2 capital requirements to address double-counting, rebase Pillar 2A, and mitigate unintended impacts from changes in Pillar 1 RWAs. Although delayed, the process has now resumed with revised reference dates. Firms must provide specified information as at 31 December 2025, with submissions due by 31 March 2026.
Regulatory updates
As part of PS9/24, the PRA announced an off-cycle review of Pillar 2 capital requirements to address double-counting, rebase Pillar 2A, and mitigate unintended impacts from changes in Pillar 1 RWAs. Although delayed, the process has now resumed with revised reference dates. Firms must provide specified information as at 31 December 2025, with submissions due by 31 March 2026.
The PRA’s new CP21/25 proposes deleting 34 FINREP, 2 COREP, and PRA109 templates – a push to make regulatory reporting more proportionate and less duplicative—a welcome shift toward simplification and efficiency.
In April, the PRA published Consultation Paper 10/25 proposing updates to its supervisory expectations on climate-related financial risks (CRFR). This marks a step-change from SS3/19, enhancing requirements in areas such as governance, risk management, scenario analysis, data, and disclosure.
For small and medium-sized UK banks, these proposals are not only about compliance, but also a chance to embed climate resilience in business strategy, protect value, and build long-term competitive strength.
CRR2
A common question we are asked is the basis on which own funds requirement has to be calculated for the various types of exposures on the non-trading and trading book.
The approach to evaluating risk weight for Collective Investment Undertaking (CIU) exposures has changed under the new CRR2 rules. There are three approaches outlined, and banks can select the specific approach based on the amount of information available about the underlying exposures of the CIUs.
Prudently valued software assets no longer needs to be deducted from CET-1 capital, but can be risk weighted.
The large exposure limits are set based on the bank’s Tier-1 Capital Only.
As part of Covid-19 quick fix, the existing IFRS9 transitional arrangement for CET-1 capital adjustment has been extended by 2 years and the additional adjustment for ECL provisions recognised in 2020 and 2021 has also been provided.
SME support factor of 0.7619 for exposures up to €2.5 million and 0.85 for exposures above €2.5 million, for entities with turnover of up to €50 million.
How can we help you?
Katalysys can assist in all aspects of prudential risk management and regulatory reporting requirements caused by the increasing changes to the regulatory environment and the introduction of newer rules. A few of the areas where we have assisted in the past are listed below:-
Identify changes to the bank’s capital and liquidity calculations due to the new rules (e.g. changes to SME support factor introduced in CRR2) and provide guidance as to how the bank can incorporate these in the existing processes and control environment
Advisory and workshops about the new requirement and industry benchmarks
Review of the bank’s existing policies and interpretation in light of the new changes
Analyse the impact on regulatory reporting, and assist in regulatory change management