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Why has the Prudential Regulatory Authority (PRA) chosen to delay the Basel reforms?
The US banking regulatory agencies recently released their proposals for the implementation of the new Basel prudential regulation framework. This will start on 1 July 2025, with full compliance starting (or expected by) 1 July 2028. This contrasts with the UK and EU authorities’ proposed start date of 1 January 2025. The disparity in timelines raised concerns, particularly for the global UK banking sector, as it posed a potential competitive disadvantage and created the challenge of managing different regulatory regimes between Head Office and Subsidiary entities.
Furthermore, numerous comments were submitted by financial institutions in response to the UK regulator's Basel implementation proposals described in CP16/22, prompting the PRA to carefully evaluate its next steps.
In late September, the PRA made the decision to postpone the implementation date of Basel 3.1 by six months to 1 July 2025. This adjustment primarily aimed to provide financial institutions with more time for planning and to thoroughly assess the responses to CP16/22. Notably, this would include the near-final policy statement on Credit Risk, the output floor and reporting templates expected in Q2 2024.
While concerns may arise about possible additional delays, this is unlikely. The global banking sector has already witnessed considerable postponement in the final implementation of the Basel III reforms. Should US regulators extend their deadlines further, UK and EU regulators could shift their implementation deadlines or introduce more specific clauses, on tougher, more questionable capital reforms to maintain their competitiveness, rather than moving the deadlines.
In the financial industry, there is certainly a sense of relief at gaining extra time to comply with the Basel 3.1 proposals. Many financial institutions felt that they would have been challenged in meeting the original deadline of 1 January 2025.
Nonetheless, the length of the delay should not be the primary focus. Instead, financial institutions should use this time to solidify their plans for the new deadlines, which are not anticipated to change again. They should seize this opportunity to prepare themselves adequately for the July 2025 deadline.
Here are four considerations for financial institutions as they prepare for Basel 3.1:
In summary, the finalisation of Basel 3.1 offers an excellent opportunity for financial institutions to reflect on past experiences, establish a robust plan, assemble a talented team, and work with regulatory experts to meet the new Basel deadline. This groundwork will help build a solid regulatory compliance foundation for the future.
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Yogesh Patil, Lead Technology Product Manager, Wolters Kluwer
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