Basel 3.1 and the Small Domestic Deposit Takers Regime (SDDT)

As at 24^th February, the final versions of the Banking Taxonomies for Basel 3.1 and SDDT are to be expected to be published shortly. Whistlebrook is working on updating its regulatory product to include the anticipated requirements of the regulations.

 

Foreign Institutions’ UK Branch Reporting

Changes to the Branch return are effective from 1^st March 2026. Details are in PRA Policy Statement 6-25.

 

Reforms to Securitisation Requirements

The PRA published consultation paper 2-26 on changes to securitisation regulation. The proposals, if introduced, will be effective from Q2 of 2027. The aim of the proposal is to make the existing requirements more proportionate and less prescriptive.

Due Diligence

It is proposed that the following requirements be removed:

• The need for investors to verify that a list of information has been provided to them prior to investing in a securitisation.
• Verification of risk retention (where originators, sponsors, or original lenders retain a holding in the securitisation) compliance.
• A specific list of elements to be monitored in measuring performance of a securitisation position.

Risk Retention

The minimum holding of 5% of the nominal value of the securitised exposures, remains, but is achieved by a revised risk retention model. The two parts of this model are:

• A holding of at least 5% of the nominal value of each of the tranches and
• Retention of the first loss tranche and if required, of others that have a similar profile to those sold to investors. The holding must mature no earlier than tranches held by investors. The retention will equal 5% of the nominal value.

COREP and Securitisation Disclosures

Reporting templates C 14 and C 14.01 will not require single high value retail securitisations to be included. The PRA’s disclosure templates will be withdrawn and replaced by those of the FCA.

Resecuritisation

It is proposed that securitisations of residential mortgage loans under the Mortgage Guarantee Scheme, be permitted.  Similarly, re-securitisation of positions in senior ranking securitisations, are to be allowed.

 

HM Treasury Overseas Prudential Requirements Regime

PRA Consultation Paper 3-26 refers to restatements and amendments to some equivalence provisions under the Capital Requirements Regulation and to feature in the PRA Rulebook. The content, once confirmed in a Policy Statement, will be effective from 1^st January 2027. Of note are the following points.

Exposures to Institutions

Under the standardised approach to credit risk, this classification will include exposures to a credit institution or PRA regulated investment firm that is located in an HM Treasury designated jurisdiction (understood to refer to equivalence). Exposures to overseas exchanges will also be in this class provided that they are in an HM Treasury designated jurisdiction and the home regulator also applies that classification.

Exposures to credit institutions and investment firms in non-Treasury designated jurisdictions, will continue to be treated as corporates.

Covered Bonds

It is proposed that the preferential risk weight treatment under the standardised approach to credit risk, be extended beyond issuers with their head office in the UK. Where an issuer has its head office in a Treasury designated jurisdiction, then an exposure to its issued covered bonds, will qualify for the advantageous risk weighting. Similarly, under credit risk Internal Ratings Based Approach, it is proposed that there be a benefit.

The paper makes the point that firms are not to be expected to change the allocation of non-UK covered bonds in High Quality Liquid Assets for the purposes of the Liquidity Coverage Ratio.

Specialised Lending – Project Finance

Basel 3.1 will introduce beneficial risk weighting under the credit risk standardised approach for project finance in its operational phase. Where the exposure is deemed to be ‘high quality’, a risk weight of 80% will apply.

One of the conditions for this lower risk weight is that the borrowing entity’s revenue depends on one of:

• Central bank, central government, regional or local government; a corporate. A direct exposure to any of these would be risk weighted at 80% or lower.
• Multi-lateral development banks and international organisations e.g. European Investment Bank, World Bank. All these counterparties must have a risk weight of 0% for a direct exposure.

It is proposed that for a 0% risk weight to apply were there a direct exposure to the main counterparty (condition b), the project finance must be in the currency of the aforementioned party.

 

WIRES Releases

Version No.	Content	Estimated Release Date
7.3.0	Basel 3.1 and the Small Domestic Deposit Takers Regime	01/07/2026

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This regulatory update is Whistlebrook’s understanding of the position as at 24th February 2026.