PRA launches final Basel 3.1 consultation on market-risk models

The PRA's consultation paper outlines proposed adjustments to the Basel 3.1 internal model approach (IMA) for market risk.

This follows the publication of final rules in PS1/26, which delayed IMA implementation to January 1, 2028, due to international uncertainty.

Since then, clarity on IMA implementation in other key jurisdictions has emerged.

The PRA has also reviewed data from the Basel Committee on Banking Supervision's (BCBS) Quantitative Impact Study (QIS) and firms' IMA approval applications.

These reviews identified areas where current rules might not achieve their objectives, be unduly burdensome, or require more assessment time.

A surprisingly small number of firms had planned to adopt internal models, which the PRA believes indicates a need for adjustments to support a reasonable uptake of this risk-sensitive approach.

The consultation aims to support an international level playing field and the competitiveness of UK banks operating globally.

The Basel 3.1 standards, commonly known as the fundamental review of the trading book (FRTB), were introduced to address weaknesses in the market risk framework exposed by the global financial crisis.

The PRA initially consulted on implementing the Basel 3.1 package in the UK in November 2022, proposing a new IMA for market risk.

Subsequent near-final rules and policy materials, including for FRTB, saw implementation delays.

A further delay to January 1, 2027, was announced in January 2025, with the IMA specifically delayed to January 1, 2028, to allow for international coordination, particularly for major trading firms.

This consultation builds on continuous monitoring and feedback from firms on the practical operation of the IMA.