The Bank of England’s Prudential Regulation Authority has launched a consultation on the internal model approach to market risk, the final outstanding element of the United Kingdom’s Basel 3.1 implementation. The proposals cover banks that use, or plan to use, internal models for trading book capital requirements under the Fundamental Review of the Trading Book, and are designed to improve international alignment and make the framework more proportionate while keeping trading risks appropriately capitalised. The consultation proposes four main adjustments. It would extend the monitoring period for the profit and loss attribution test from one year to three so the Prudential Regulation Authority can gather data before the test is used in capital calculations. It would also revise the treatment of activity with limited trading data through a more targeted approach to risks that cannot be modelled, allowing more modelling where appropriate. In addition, the package would ease transition to full internal model approval for firms using a mix of internal models and the standardised approach by avoiding cases where capital requirements rise during a phased move to the internal model approach. A further set of operational simplifications and amendments is intended to make the regime more proportionate. The Prudential Regulation Authority said it intends to implement these internal model approach adjustments on the previously announced date of 1 January 2028. No other Basel 3.1 changes are proposed, and all other rules are still due to take effect in January 2027.
Bank of England2026-06-19
Bank of England Prudential Regulation Authority consults on internal model market risk changes to complete UK Basel 3.1
The Bank of England’s Prudential Regulation Authority has opened a consultation on changes to the internal model approach for market risk, completing the final part of UK Basel 3.1 implementation. The proposals would extend the profit and loss attribution monitoring period to three years, refine treatment of risks with limited trading data, ease transition to full internal model approval and simplify operations. The Prudential Regulation Authority plans to implement these changes on 1 January 2028, while the rest of Basel 3.1 remains scheduled for January 2027.