Basel 3.1: How calculating risk is changing for banks


The Prudential Regulation Authority (PRA) recently consulted on how it plans to implement the Basel 3.1 standards in the UK. The Basel 3.1 standards are the remaining parts of the Basel III standards that were to be implemented in the UK, which aim to strengthen the regulation, supervision and risk management of banks. The PRA’s proposals in its Consultation Paper 16/22 (Consultation Paper) will closely align the UK with international standards by making significant changes to the way firms calculate risk weighted assets (RWA). This will alter, amongst other things, the way in which banks calculate the credit and market risk for real estate loans and collateral.

Before the results of the Consultation Paper are published later this year, banks should be aware of the key elements of such standards ahead of the proposed implementation on 1 January 2025 (subject to certain provisions having an additional transition period), and the potential issues the introduction of these standards may bring to the real estate finance market. In this briefing we discuss the scope of the Basel 3.1 standards, the proposed implementation and how this will affect the calculation of credit risk and the need to introduce output floors.

Please click here to read the briefing.

Article co-authored by Oliver Wick, Trainee Solicitor at CMS