The Prudential Regulation Authority has issued its final Phase 1 Pillar 2A policy, updating capital methodologies, ICAAP and SREP guidance, and reporting requirements for PRA-regulated banks, building societies, designated investment firms and relevant holding companies, including Small Domestic Deposit Takers through aligned policy materials. The package is intended to reflect Basel 3.1 changes and improve transparency and proportionality. It removes the existing credit risk benchmarking methodology, introduces systematic Pillar 2A approaches for certain non-UK sovereign and regional or local authority exposures and for retail unconditionally cancellable commitments, and sets a single implementation date of 1 January 2027 for all changes. In finalising the policy, the PRA changed several proposals. It excluded retail SME exposures from the retail UCC methodology but kept the 20% conversion factor reference point, and it gave firms more flexibility to assess idiosyncratic credit risk through proportionate methods, including proxy internal ratings based approaches, rather than requiring credit scenarios. Systematic credit risk add-ons remain the baseline and cannot be offset through idiosyncratic assessments. Elsewhere, the package clarifies operational risk scenario analysis and conduct risk treatment, aligns operational risk materials for SDDTs with the wider regime without adding new expectations, removes two prescribed pension stress scenarios, eases FSA081 reporting for fully bought-in schemes or schemes with funding ratios of at least 130%, and makes minor clarifications to market risk and counterparty credit risk methodologies. The amended rulebook provisions, statements of policy, supervisory statements and reporting templates come into force on 1 January 2027. ICAAPs approved in 2026 should include a Basel 3.1 impact assessment, while ICAAPs approved from that date should be prepared on a Basel 3.1 basis and reflect the final policy. The PRA said it will publish a further consultation in 2027 as part of a more in-depth second phase review of selected Pillar 2A methodologies.
Prudential Regulation Authority2026-05-28
United Kingdom Prudential Regulation Authority finalises Phase 1 Pillar 2A reforms with new credit risk methodologies and 1 January 2027 implementation
The Prudential Regulation Authority has finalised its Phase 1 Pillar 2A policy, updating capital methodologies, ICAAP and SREP guidance, and reporting for banks, building societies, designated investment firms and relevant holding companies, including Small Domestic Deposit Takers, to reflect Basel 3.1 and improve transparency and proportionality. Key changes include removal of the credit risk benchmarking methodology, new systematic Pillar 2A approaches for certain non-UK sovereign, regional or local authority exposures and retail unconditionally cancellable commitments, clarified operational and conduct risk treatments, eased pension-related reporting, and minor market and counterparty credit risk updates. The revised materials apply from 1 January 2027, with 2026 ICAAPs required to assess Basel 3.1 impacts and a further consultation on selected Pillar 2A methodologies planned for 2027.