News release

Today, the Prudential Regulation Authority (PRA) has published the second near-final^{footnote [1]} policy statement and rules covering the implementation of Basel 3.1 standards for credit risk, the output floor, reporting and disclosure requirements in response to consultation paper CP16/22. The near-final policy statement is relevant to all PRA-regulated banks, building societies, investment firms and financial holding companies (‘firms’).

Based on latest data from firms, the PRA estimates that the Tier 1 capital requirements for major UK firms will be virtually unchanged by today’s package, with an aggregate increase of less than 1% from January 2030 when the transitional arrangements come to an end.

The near-final policy statement will give certainty to firms on their future capital requirements and deliver a better balanced and risk-sensitive approach to calculating regulatory capital under the Basel 3.1 framework. It will also support financial and economic stability, and the growth and competitiveness of the UK, while remaining aligned to international standards. We have had particular regard to growth and competitiveness considerations given that the PRA’s new secondary growth and competitiveness objective has now come into force.

The near-final policy statement takes account of feedback received through various channels which include 126 written responses received to CP16/22 as well as more than 70 meetings held with stakeholders to discuss their views. Some of the most material changes to the original proposals include:

• Lower capital requirements for small and medium enterprise (SME) exposures: resulting in no increase in capital requirements relative to today, and improvements to reduce operational burdens, making it easier for firms to lend to SMEs;
• Lower capital requirements for infrastructure exposures: resulting in no increase in capital requirements relative to today;
• Lower capital requirements for trade finance-related activities: maintaining the existing UK capital requirements regulation (CRR) 20% conversion factor for ‘transaction-related contingent items’;
• A simpler, more risk-sensitive approach to valuing residential property; and
• An adjusted approach to calculating the output floor^{footnote [2]}: which improves the consistency between this, and the standardised approaches used by firms without model approval.

Implementation and next steps

To support a smooth implementation of the package and having considered feedback from the consultation as well as the implementation timelines of other jurisdictions, the PRA has decided to move the implementation date for the Basel 3.1 standards by a further six months to 1 January 2026 with a four-year transitional period ending on 31 December 2029.

Sam Woods, Deputy Governor of Prudential Regulation and CEO of the PRA said:

‘These rules will improve the way in which we regulate the banks in order to maintain safety and soundness and wider financial stability. We have made a number of important changes following consultation, and the resulting package will support growth and competitiveness while also ensuring that the UK aligns with international standards.’

The Strong and Simple capital regime

We have also published a wider banking capital package of consultation papers including CP7/24 ‘The Strong and Simple Framework: The simplified capital regime for Small Domestic Deposit Takers (SDDTs)’ which sets out proposals that would significantly simplify the capital regime for SDDTs whilst maintaining their resilience. In doing so, the proposals for the SDDT framework would also support a competitive, diverse and sustainable banking sector in the UK.

With the publication of CP7/24, the PRA has made significant progress towards tackling many of the issues with current regulation that small firms have raised in previous years.

The Strong and Simple CP proposes simplifications to all elements of the capital stack:

• Pillar 1 risk-weighted assets would be calculated using Basel 3.1 rules, with some simplifications for SDDTs;
• Pillar 2 would be radically simplified; and
• There would be a single, more constant and predictable capital buffer.

Recognised List of Software Houses for Statistical Reporting

The Bank of England is pleased to announce the availability of a BEEDS user acceptance testing environment (UAT) for software houses to test Bank of England statistical submissions. As part of this process, we will reinstate the published list of recognised software houses for Bank of England statistical reporting via the BEEDS portal.

To become a recognised software house for statistical reporting, you are required to submit a valid file for each statistical entry point (excluding form IPA) with valid data. Please note that nil returns will not be accepted.

The UAT environment will be exclusively open for software houses from 16 September to 27 September 2024. To participate, please submit your request to BEEDSsqueries@bankofengland.co.uk in preparation for the UAT window.

Access to the BEEDS UAT environment, does not grant access to the BEEDS live environment.

Upon completion of the UAT window, submissions will be validated by the Bank of England and you will be notified via e-mail once your submissions have been successfully reviewed.

Please be reminded, that the use of the Bank of England’s name in any promotional or marketing material (including press releases) requires prior approval from our Press Office.

Market notice

From 1 September, to be eligible as Level B collateral in the Bank’s Sterling Monetary Framework, the minimum original issue size of a UK, French or German Regulated Covered Bond will be lowered to £500 million or €500 million, from £1 billion or €1 billion. 

Beyond this change to the issue size criterion, the other eligibility criteria for RCBs to be Level B collateral are unchanged: the RCB must be a UK, French or German RCB and of the highest credit quality (broadly equivalent to AAA); and the underlying assets must be homogenous pools of UK or EEA social housing loans, public sector debt, or prime residential mortgage loans. 

This change reflects developments in benchmark issue sizes for regulated covered bonds and takes account of prudential liquidity requirements.

The term ‘issue size’ means the nominal amount issued, measured at the time of issue, for all RCBs of the same International Securities Identification Number (ISIN) as the RCB for which eligibility is sought.  

Covered bonds that do not meet the Level B eligibility criteria, including UK, French or German RCBs with an original issue size of less than £500million or €500million, can continue to be considered for eligibility as Level C collateral. Own-name issued RCBs can continue to be considered for eligibility as Level C collateral.

Covered bonds must also meet the Bank’s transparency requirements (see Detailed transparency requirements for asset backed securities and covered bonds – Market Notice 11 October 2019).

Following this change, RCBs that are already eligible as collateral will be reclassified between Level B and C accordingly and the Bank will contact affected participants separately.

Eligibility requests

When requesting eligibility for an RCB (or any other ABS), SMF participants must continue to complete the Bank’s ABS-CERT template and request eligibility by submitting it to the Bank’s Eligible Collateral team for review. (For more details, see the Eligible collateral page)

News release

Chancellor of the Exchequer Rachel Reeves has today confirmed that Professor Alan Taylor will join the Monetary Policy Committee (MPC) on 2 September for a 3-year term, replacing current external member Professor Jonathan Haskel who has been on the MPC since September 2018.

Professor Taylor is an economist and currently Professor of International and Public Affairs at Columbia University, New York. He has served as a senior advisor to major financial institutions including Morgan Stanley and PIMCO, is a visiting scholar at the Bank of England and has published papers in the fields of macroeconomics, international economics, finance and economic history.

The Chancellor of the Exchequer, Rachel Reeves said: 

“Professor Alan Taylor’s substantial experience in both the financial sector and academia will bring valuable expertise to the Monetary Policy Committee. 

“I would also like to thank Professor Jonathan Haskel for all his work since he joined the Monetary Policy Committee.”

Andrew Bailey, Governor of the Bank of England, said:

“I’m really pleased Alan Taylor will be joining the Monetary Policy Committee this autumn, bringing with him his extensive knowledge and experience from his career in academia. This is an important time for the Committee and we will no doubt benefit from Alan’s contributions to our debates.

“I would like to also thank Jonathan Haskel for his service on the Committee over the past six years. He will be missed.”

About Professor Alan Taylor

Professor Alan Taylor is an economist and currently Professor of International and Public Affairs at Columbia University. He has served as a senior advisor at Morgan Stanley, PIMCO and McKinsey. He is a research associate of the National Bureau of Economic Research and is a research fellow of the Centre for Economic Policy Research. He is also visiting scholar at the Bank of England. He has published papers in leading academic journals in the fields of macroeconomics, international economics, finance and economic history. 

Born in Wakefield, Professor Alan Taylor graduated from King’s College, Cambridge, before receiving his PhD in Economics from Harvard University. 

About the MPC

The MPC has operational independence for monetary policy. It is comprised of the Governor of the Bank of England, three Deputy Governors, the Bank of England’s Chief Economist and four external members. External members, who are appointed by the Chancellor, may serve up to two three-year terms on the MPC.

The appointment of external members to the MPC is designed to ensure that the Committee benefits from thinking and expertise in addition to that gained inside the Bank. Each member of the MPC has expertise in the field of economics. They are independent and do not represent particular groups or areas.

About the appointment process

Professor Alan Taylor has been appointed by the Chancellor following a fair and open recruitment process run by HM Treasury. The Advisory Assessment Panel (AAP) comprised of Sam Beckett (Second Permanent Secretary and Chief Economic Advisor, HM Treasury), Daniel Gallagher (Director of Economics, HM Treasury), Silvana Tenreyro (Professor of Economics, London School of Economics) and Dame Colette Bowe (external member of the Financial Policy Committee). The AAP advised the Chancellor, informing her decision.

The Treasury is committed to appointing a diverse range of people to public appointments, including at the Bank of England. The Treasury continues to take active steps to attract the broadest range of suitable applicants for posts.

Minutes