The Prudential Regulation Authority has launched a consultation on targeted changes to the Basel 3.1 internal model approach for market risk after reviewing Basel Committee quantitative impact data, firms’ applications for IMA approval and feedback on how the framework would operate in practice. The package is aimed at keeping model approval and market risk capital standards robust while making the regime more proportionate and operationally workable for PRA-authorised banks, building societies, PRA-designated investment firms and relevant holding companies. The proposed implementation date for the IMA, including these changes, remains 1 January 2028. The main proposals cover model testing, modellability and the interaction between internal models and the standardised framework. The PRA would extend the non-binding monitoring period for the profit and loss attribution test from one year to three years, so failing the test would not automatically move a trading desk from IMA to the Advanced Standardised Approach during that period. It would also relax parts of the risk factor eligibility test by reducing the minimum verifiable price threshold from 24 to 16 for risk factors with liquidity horizons above 20 days and by allowing pro-rated treatment for new issuances. For non-modellable risk factors, the consultation introduces a new Type 1 category for factors that pass qualitative data standards but fail the quantitative price test, allowing them to stay in the expected shortfall model with a capital add-on, while Type 2 factors that fail both tests would continue to be capitalised outside the model. Additional proposals would recognize diversification between IMA and ASA portfolios through a marginal ASA adjustment, replace existing partial caps with a permission-based cap at the full ASA level, simplify the treatment of collective investment undertakings through a 90% quarterly look-through threshold and index-tracker treatment, and make consequential reporting, disclosure and operational clarifications. The consultation closes on Friday 18 September 2026. The PRA’s cost-benefit analysis estimates annual benefits to firms of between GBP 1.8 million and GBP 60 million, mainly from greater IMA adoption and changes to the NMRF capital framework.
Prudential Regulation Authority2026-06-19
Prudential Regulation Authority consults on Basel 3.1 market risk IMA adjustments including three year PLAT monitoring and NMRF reforms
The Prudential Regulation Authority is consulting on targeted changes to the Basel 3.1 internal model approach for market risk while keeping implementation set for 1 January 2028. Key proposals include a three-year non-binding PLAT monitoring period, easier RFET treatment, a new Type 1 NMRF category, and changes to recognize diversification between IMA and Advanced Standardised Approach portfolios. The consultation closes on 18 September 2026.