Executive Summary
- What’s new: The PRA has outlined a road map for reforming the UK banking prudential framework, covering capital requirements, liquidity, ring-fencing, mortgage lending, securitisation, regulatory thresholds, reporting, IRB models and digital assets.
- Why it matters: The reforms are relevant to UK-regulated banks and financial institutions, as the PRA seeks to recalibrate capital and liquidity requirements to be more proportionate and responsive to innovation while preserving resilience.
- What to do next: Financial institutions should consider how the 13% Tier 1 benchmark, Basel 3.1 implementation, liquidity reform and related policy changes may affect their capital planning, management buffers and growth strategies.
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On 28 April 2026, David Bailey, executive director of prudential policy at the Prudential Regulation Authority (PRA), delivered a speech outlining the PRA’s current programme of reforms to the UK banking capital and liquidity framework. Significantly, the speech frames a number of live policy initiatives as part of a broader shift: After more than a decade of post-financial-crisis resilience-building, the PRA is now focused on making the prudential regime more proportionate, efficient, coherent and responsive to innovation, while preserving the resilience of the UK banking system.
The speech identifies three organising themes for the PRA’s current banking policy agenda:
- Maintaining trust in the UK financial system.
- Operating efficiently and ensuring proportionality.
- Being responsive to new developments.
The key message is that the PRA is not proposing deregulation, but rather is seeking to recalibrate the regime so that capital and liquidity requirements remain robust but are less likely to create unnecessary constraints on lending, competition, innovation or balance-sheet growth.
Overview of Key Topics
Bank Capital: The FPC’s 13% Tier 1 Benchmark
One of the most significant areas covered in the speech is the Financial Policy Committee’s (FPC’s) updated assessment of appropriate capital requirements for the UK banking system. The FPC has reduced its benchmark assessment of Tier 1 capital requirements from 14% to 13% of risk-weighted assets. Bailey emphasised that this is not an automatic reduction in firm-specific requirements, but a sectorwide benchmark intended to provide clarity on the future direction of capital requirements.
The PRA expects the 13% benchmark to be reflected from 2027, following the scheduled implementation of the Basel 3.1 rules in the UK on 1 January 2027. Firm-specific requirements will continue to depend on individual risk profiles, but the PRA’s bottom-up capital-setting processes are intended to align with the FPC’s top-down judgement.
The PRA is also focusing on three related capital issues:
- Buffer usability. The PRA is considering how to make regulatory buffers more usable in stress, given evidence that banks may be reluctant to draw down buffers even when they are designed to be used.
- The leverage ratio. The PRA is reviewing how the UK leverage ratio is operating and how it compares with international standards and other financial centres.
- Interaction of domestic capital requirements. The PRA is considering whether the countercyclical capital buffer (CCyB), systemic buffers and Pillar 2A requirements linked to geographic credit concentration operate coherently together.
Although not an immediate capital release mechanism, the 13% benchmark may support a lower management buffer over time if firms gain confidence that the regulatory direction of travel is stable. However, the practical impact will depend heavily on how the PRA addresses buffer usability and the leverage ratio. For some firms, particularly those for whom the leverage ratio is binding, changes to risk-weighted capital benchmarks may have limited effect unless leverage constraints are also recalibrated.
Basel 3.1 and Market Risk
Bailey confirmed that the PRA remains focused on finalising the market risk elements of Basel 3.1, including the Fundamental Review of the Trading Book. The standardised approach and trading book/banking book boundary changes are due to take effect on 1 January 2027. The internal models component remains outstanding, with implementation planned for January 2028.
The PRA delayed finalising the internal models element to take account of developments in other jurisdictions, including proposals from the US and EU, and expects to provide a further update in the summer.
This reflects a more internationally sensitive approach by the PRA. For firms with material trading activities, the timing and calibration of the internal models framework will be critical, particularly where cross-border groups need to manage divergent UK, EU and US implementation timelines. The PRA’s willingness to consider developments in other jurisdictions should be welcomed, but firms should not assume that the UK will simply align with any one overseas model and should plan accordingly.
Liquidity Reform
The PRA is also modernising the UK liquidity framework. Bailey linked this work to recent market developments, including faster digital deposit outflows and the Bank of England’s move toward a more demand-driven, repo-led approach to supplying reserves. The stated objective is to maintain confidence in the system without imposing unnecessary costs or restricting balance-sheet growth.
Liquidity reform is likely to be especially important for firms’ treasury, asset and liability management, and contingency funding planning. The reference to digital outflows suggests that the PRA is reacting to the impact of deposit mobility on traditional assumptions about liquidity risk.
Ring-Fencing
The PRA continues to regard ring-fencing as an integral part of the UK prudential regime, but Bailey confirmed that the PRA is working with HM Treasury on “meaningful reforms” following the Leeds Reforms announced in July 2025. Those reforms are intended to address inefficiency and support growth while preserving the financial stability and depositor protection objectives of the ring-fencing regime.
The speech does not give detail on the shape of ring-fencing reform. However, the PRA’s language suggests targeted simplification rather than wholesale removal.
Mortgage Lending and High Loan-to-Income Limits
The PRA is consulting on removing the firm-specific 15% cap on high loan-to-income (LTI) mortgage lending, while retaining the policy objective of keeping aggregate high-LTI lending at around 15%. Firms would have more flexibility to set high-LTI strategies aligned with their business models and risk appetite, with the PRA publishing aggregate high-LTI flows quarterly. If aggregate high-LTI lending exceeds 15%, the PRA may ask firms with higher shares to adjust gradually. The PRA expects to finalise the policy later this year.
This is a clear example of the PRA using systemwide safeguards while relaxing firm-level constraints. It should support competition, particularly for lenders seeking to grow in specific borrower segments, including first-time buyers. Firms will need robust monitoring and governance around high-LTI lending, because flexibility at firm level will still be constrained by aggregate market conditions.
Securitisation
The PRA is consulting, alongside the FCA, on reforms to securitisation conduct rules. Bailey noted that the postcrisis regime has been criticised as administratively burdensome without necessarily adding proportionate prudential benefit. Final rules are expected by the end of 2026. Separately, targeted changes to securitisation capital requirements have been finalised and will take effect from January 2027.
Regulatory Thresholds
The PRA is considering a more systematic and automatic approach to updating nominal regulatory thresholds. Bailey noted that, as the economy grows, thresholds that are not updated can unintentionally bring more firms into more onerous parts of the regime. The PRA plans to publish proposals over the summer.
This could be particularly helpful for midsized firms. Predictable threshold indexation would reduce cliff-edge effects and allow firms to plan growth without inadvertently triggering disproportionate regulatory treatment. Firms close to key thresholds should consider monitoring this work closely.
Future Banking Data and Reporting
The PRA’s Future Banking Data programme is intended to reduce regulatory reporting costs while improving the relevance, quality and timeliness of data collected. Bailey highlighted the removal of 37 underused templates, the development of a new firm engagement portal and work to rationalise UK mortgage data collections.
Reporting reform may be one of the most practically valuable elements of the programme, particularly for firms facing rising compliance and data infrastructure costs. However, reduced reporting burden should not be read as reduced supervisory data expectations. The PRA appears focused on better and more timely data, not simply fewer data.
Internal Ratings-Based Models
The PRA is considering ways to address barriers faced by medium-sized firms in developing internal ratings-based (IRB) models, including limited historical data and the complexity of the IRB framework. Policy proposals are expected later this year. The PRA has also introduced a six-month timeline for material model change approvals, enhanced preapplication engagement and dedicated account managers for first-time IRB applicants.
This could materially affect competitive dynamics. Easier access to IRB permissions may help midsized firms compete more effectively with larger banks that already benefit from model-based capital treatment. However, the PRA’s comments also indicate that firms will need high-quality submissions and early engagement to benefit from the streamlined process.
Digital Money, Tokenised Assets and Cryptoasset Exposures
Bailey confirmed that the PRA is working with the Bank of England and the Financial Conduct Authority (FCA) on digital money and tokenised assets, including systemic stablecoins. The PRA is keeping under review its 2023 guidance on how banks should engage with new forms of money, including tokenised deposits and stablecoins.
The PRA is also considering the prudential treatment of banks’ cryptoasset exposures. Although UK implementation proposals will follow the Basel Committee’s targeted review of global standards, the PRA recognises that firms want guidance now and expects to provide an update before the summer.
This is a clear signal that the PRA wants to avoid regulatory uncertainty becoming a barrier to responsible innovation. For banks exploring tokenised deposits, stablecoin-related services, custody, settlement or cryptoasset exposures, the near-term priority should be to ensure that product development is aligned with prudential expectations, customer protection, operational resilience and clear disclosure of how different forms of money are protected.
Key Takeaways for Financial Institutions
The PRA’s reform programme is best understood as a recalibration exercise. It is not a retreat from postcrisis standards but a move toward a more mature prudential framework that is intended to support resilience and growth simultaneously.
Financial institutions should consider:
- How the 13% Tier 1 benchmark, Basel 3.1 implementation and leverage ratio review may affect capital planning.
- Whether management buffers remain appropriately calibrated in light of the PRA’s work on buffer usability.
- The impact of liquidity reform on ALM assumptions, stress testing and contingency funding plans.
- Opportunities arising from mortgage lending, securitisation, IRB and threshold reforms.
- The potential compliance and infrastructure implications of Future Banking Data reforms.
- Whether digital money, tokenisation and cryptoasset strategies are being developed with prudential expectations in mind.
What’s Next?
The PRA is expected to provide further updates through the July Financial Stability Report and subsequent consultation papers. Bailey’s speech indicates that firms should expect continued engagement across capital, liquidity, reporting, proportionality and innovation-related reforms over the coming months.
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