Mind the Channel: The UK finalises a path towards a stand-alone Basel 3.1 regime

Background

In October 2024, the PRA published consultation paper CP 13/24 – Remainder of CRR: restatement of assimilated law ("CP13/24"), which set out the proposals for the restatement of the CRR into the PRA Rulebook, supervisory statements and statements of policy (the "PRA Policy Materials"). Following a consultation period, some of the proposals in CP13/24 were finalised on 17 July 2025 in PS12/25 – restatement of CRR and Solvency II requirements in PRA Rulebook – 2026 implementation and, most recently, on 28 October 2025 the PRA has published in a policy statement on the restatement of CRR requirements (2027 implementation) ("PS19/25") its near final policy statement and feedback on responses relating to the remaining proposals of CP13/24.  The relevant proposals  are expected to come into force on 1 January 2027.  

Some key takeaways

Some of the key points arising out of PS19/25 that will be relevant to participants in the securitisation market are as follows:

(a) Formulaic p-factor

Respondents were generally in favour of the PRA's original proposal to allow market participants to either opt for the existing SEC-SA formulation or to use the new formulaic p-factor (which was broadly based on the SEC-IRBA calculation and allowed banks to input values to obtain a lower non-neutrality factor). Importantly, this concession by the PRA is seen as an alternative to opening up the STS regime for synthetic securitisations, which the PRA continues to resist. The formulaic supervisory parameter may be used in both SEC-SA calculations by standardised banks, and also in the output floor calculations of the standardised approach by SEC-IRBA banks. The PRA also clarified that the use of the formulaic p-factor is permissible on a transaction-level basis, so banks will be able to choose in respect of which transactions they seek to deploy the additional flexibility.

(b) Unfunded credit protection in synthetic SRT securitisations

Although a prevalent feature in the European market, the market for unfunded credit protection in the context of a synthetic SRT securitisation in the UK has not materialised. The PRA's proposals in allowing for insurers to participate in these transactions in CP13/24 were therefore welcomed by market participants, and the PRA has made a number of further adjustments to align with market responses to the consultation, including allowing for a “look-through” approach in assessing credit quality steps for certain protection sellers.

(c) SRT assessment process

A market respondent to CP13/24 requested a more comprehensive formalisation of the SRT notification process, and in particular the inclusion of a “fast-track” approach, something which became a feature in the EU SRT process in 2025. Although the PRA has not legislated for this in its PS19/25 proposals, it noted the concern and may consider this as part of its future policy development.

(d) Changes to the criteria for STS securitisation qualifying for differentiated capital treatment

In addition to complying with the STS requirements set out in the Securitisation Regulation, investors hoping to qualify for lower capital treatment under the STS regime for traditional cash transactions also have to satisfy themselves that their securitisation position meets the additional requirements set out in the CRR. In PS19/25, the PRA amended its proposals in CP13/24 to update the thresholds for the ADC (land acquisition, development and construction) and CRE (commercial real estate) exposure classes to 100% and 60%, respectively. This allows securitisations backed by these exposures to achieve a lower risk-weighted treatment. However, there remains market sentiment that securitisations backed by ADC and/or CRE are unlikely to meet the STS requirements under the Securitisation Regulation to begin with, so this relaxation may be of limited utility.

(e) Change to the exposure value of certain undrawn positions of cash advance facilities

The CRR requires off-balance sheet exposures to be ascribed an exposure value based on the product of their nominal value and the CRR-determined credit conversion factor (which ranges from 0% to 100%). At the moment, an undrawn cash advance facility benefits from a 0% credit conversion factor. In line with Basel 3.1 and the EU position, the PRA has agreed to move this to 10%, on the basis that notwithstanding the legally cancellable nature of the commitment, variables such as risk management and reputational considerations may disincentivise the bank from cancelling such commitment.

(f) Eligibility of credit risk mitigation techniques for securitisation positions

At the moment, exposures to securitisation positions are subject to the same CRR rules on credit risk mitigation as direct exposures. Respondents welcomed the PRA's proposal in CP13/24 to create a separate Credit Risk Mitigation (CRM) Part in the PRA Rulebook setting out distinct credit risk mitigation rules for securitisation positions, both funded and unfunded. If implemented, this would codify securitisation-tailored requirements such as tranche-specific eligibility and reserves, as well as aligning the mismatch, substitution and credit quality step look-through approach for securitisation positions.

(g) Changes to the calculation of the maximum capital requirements for securitisation positions

The PRA proposed in CP13/24 to modify the requirements in Article 268 of the CRR so that a bank could exclude certain portions of tranches from the securitisation risk-weighting and then add back the exposure value of those tranches to obtain a more dynamic cap. Following feedback, the PRA proposed modifications to the add-back exposure value to mitigate the marginal effect on total risk-weighted exposure amounts (particularly where retained junior tranches were relatively large), aiming to provide a more consistent regulatory capital outcome for different risk-retention approaches.

(h) Notification of breaches of certain securitisation requirements

The PRA originally proposed that banks be required to notify it of all breaches of their securitisation due diligence requirements, regardless of materiality. Following feedback, the PRA updated the position in PS19/25 to require such notification “if the PRA would reasonably expect to be notified”. Although this implies a materiality threshold, it remains unclear what margin of error the PRA will apply. Banks will likely need to assess this on a case-by-case basis, supported by an overview of their due diligence processes and internal threshold judgments.

What next

The final policies and rule instruments in respect of PS19/25 have not yet been published, although they are expected in Q1 2026, with final implementation expected to take effect from 1 January 2027. This would mark the end of the UK’s proposed implementation of the Basel 3.1 package. The PRA has noted that there may be consequential amendments required to the near-final PRA rules to reflect any secondary legislation made by HM Treasury under the Financial Services and Markets Act 2023, such as overseas recognition and equivalence regimes, key UK CRR definitions, and other relevant EU CRR provisions.

This note is for guidance only and should not be relied on as legal advice. Please contact your usual Hogan Lovells contact or any of the authors for assistance or advice, including in respect of significant risk transfer securitisation or any regulatory capital queries.

Authored by James Doyle and George Kiladze.