The Bank of England has postponed implementation of the final set of Basel banking regulations for one year, citing concerns over potential competitive disadvantage for banks if the Trump administration adopts a lighter application of the rules, or abandons them altogether.
Known in the UK as Basel 3.1, the regulations largely maintained existing capital treatment for trade finance, but were set to introduce less favourable requirements for credit insurance.
Overall, the reforms were designed to make risk measurement and capital ratios more consistent, especially between larger lenders who had been allowed to develop their own risk models.
The reforms were set to be implemented from January 1, 2026, six months later than originally intended, but the Bank of England’s Prudential Regulation Authority (PRA) says in a January 17 statement that implementation will be pushed back to January 1, 2027.
“Given the current uncertainty around the timing of implementation of the Basel 3.1 standards in the US, and taking into account competitiveness and growth considerations, the PRA, having consulted with HM Treasury, has decided to further delay implementation of the rules,” the statement says.
“This allows more time for greater clarity to emerge about plans for its implementation in the United States.”
US regulators published their plans for implementing the final set of Basel reforms in 2023, triggering a strong backlash from banks. Authorities later indicated they would pare back some of the proposed capital hikes, but the issue has been left in the hands of the incoming Trump administration.
President-elect Donald Trump has indicated a preference for looser financial regulation and is expected to appoint new leaders to the regulatory bodies responsible for applying the rules. “Under the Trump administration, it is likely that the [Basel 3.1] proposal will be scrapped or revised substantially to be capital-neutral,” law firm Skadden writes in a January 14 note.
The delay means the UK will be out of step with the EU, which implemented the rules, with some differences, from January 1 this year.
Both the UK and EU decided not to adopt steeper capital treatment for off-balance sheet trade finance instruments that are part of the underlying Basel framework, meaning there will be parity in capital ratios for those products.
But the PRA’s delay means that more favourable treatment of credit insurance will continue in the UK for another two years, while EU lenders are subject to capital requirements that may make credit insurance a less effective risk mitigation tool.
