Bank of England proposes trading capital changes as global regulators line up on Basel 3.1

The Bank of England’s Prudential Regulation Authority has proposed changes to the capital rules that apply to banks’ trading books, as global regulators continue to move toward a common approach under Basel 3.1.

The consultation, announced on June 19, would extend the monitoring period for some risk data used in capital calculations from one year to three years. It would also take a more targeted approach to identifying risks that cannot be modelled, according to reporting on the proposal.

The move is meant to keep the UK aligned with changes being made, or prepared, in the U.S. and EU while still ensuring trading activities remain appropriately capitalised.

What the PRA is changing

The proposed changes affect the market-risk part of Basel 3.1, also known as the Fundamental Review of the Trading Book, or FRTB.

One element would lengthen the period over which banks monitor some data used in their capital models. Another would narrow how the regulator treats non-modelable risks, which are exposures that cannot be fully captured by a bank’s internal models.

The PRA also said the changes would reduce barriers for banks moving to the internal model approach for market risk.

Why it matters

Trading-book capital requirements determine how much capital banks must hold against potential losses in market activity. That can influence competitiveness, liquidity and the economics of market-making.

Regulators have been trying to avoid major differences between jurisdictions, because uneven implementation can create regulatory arbitrage and push activity toward the least onerous regime.

The UK has already delayed full implementation while waiting to see how other major regulators would proceed.

Global context

Reporting on the proposal said the EU has already softened parts of its own FRTB approach for three years after implementation begins in 2027. The BoE’s move appears aimed at keeping pace with that broader international trend.

U.S. regulators are also part of the comparison. The UK proposal is framed as a way to preserve alignment across major markets rather than leave British banks facing a sharply different capital burden.

What happens next

The consultation period will determine whether the PRA revises the proposal before finalising it. The final implementation timetable is still unclear in the available reporting.

Banks with large trading books, including major UK lenders and foreign banks active in London, will be watching closely for any change in how much capital they need to hold and how quickly they can transition into internal models.

Further clarity from the Bank of England and responses from affected banks will show how much relief the final rules provide and whether other regulators move first.