Basel 3.1 and Small Domestic Deposit Takers Regime (SDDT)

The Bank of England announced on 15^th July that Basel 3.1 will commence from 1^st January 2027, but proposed that the regulation specific to the Internal Models Approach (IMA) to market risk, starts one year later. The delay is primarily to allow an understanding of how other jurisdictions intend to implement this section of Basel 3.1.

The announcement also proposed that SDDT will be effective from 1^st January 2027. Therefore, both Basel 3.1 and SDDT will begin at the same time. The Interim Capital Regime that had been planned for firms to apply between the start date of Basel 3.1 and SDDT, will no longer be available.

The capital requirements under SDDT are still expected to be finalised in Q4 of 2025.

Once the relevant Bank of England Banking taxonomy is deemed final, Whistlebrook will make the appropriate changes to its regulatory product, WIRES.

WIRES PLUS clients are encouraged to share (with the Whistlebrook support desk) their Basel 3.1 requirements, particularly any perceived as non-standard.

Residential Mortgage Lending

‘Loan to Income’ (LTi) Threshold Change and Modification by Consent

The Prudential Regulation Authority (PRA) has revised the threshold that influences whether a firm is restricted in lending where LTi is at or above 4.5. The restriction is applicable where in each of the previous two years (quarterly rolling periods), new residential mortgage lending:

a) Is £150million or more AND

b) The volume is 300 or above.

The £150million threshold has been increased from £100million, with effect from 11^th July 2025. Further details are in PRA policy statement 11-25.

The PRA issued a statement on 9^th July 2025 advising that residential mortgage lenders are to be allowed to apply for a modification by consent, so that the aforementioned restriction will not be applicable. Any such modification by consent will continue until 30^th June 2026 at the latest. In the meantime, the regulator will be reviewing the controls on the high LTi lending.

Internal Model Use

The Bank of England advised that it will be removing ‘obstacles’ in the way of firms gaining permission to use internal models for credit risk on residential mortgages. It is said that this change will benefit mid-sized firms’ growth and so increase competitiveness. A discussion paper is expected during the summer of 2025.

Mortage Guarantee Scheme

The UK Government has introduced a permanent mortgage guarantee scheme, effective from July 2025. The scheme is applicable to residential mortgages with a ‘Loan to Value’ that is greater than 90% and is up to 95%.

Resolution

Strategy

Whistlebrook understands that a ‘bail-in’ resolution method is likely when the balance sheet size is in the range £15bn to £25bn. These values are to be increased to £25bn and £40bn respectively, with effect from January 2026. This change was published in a news release by the PRA. The importance of the range is that it may influence the resolution strategy and as a result, the MREL (Minimum Own Funds Requirement and Eligible Liabilities) to be met by a firm.

In its policy statement 13-25, the PRA advised that a new resolution tool proposed in consultation 4-25, will be effective from 16^th July 2025. This tool supports a failed firm through the use of funds from the Financial Services Compensation Scheme. The funds will be used to ensure continuity of service until a sale or a transfer to a temporary ‘bridge bank’ is undertaken. Financial institutions that are part of FSCS will then pay a levy (typically based on their level of protected retail deposits) to cover the costs incurred.

This resolution strategy is in addition to ‘bail-in’, ‘partial transfer’ and ‘modified insolvency’.

Recovery Plan and Resolvability Assessment

The PRA proposed in its consultation paper 14-25 that institutions to be subject to the small domestic deposit takers regime, will have the frequency at which their recovery plans are reviewed, reduced from annual to every two years. Also proposed is a change to the level of retail deposits that triggers when a firm has to submit a resolvability assessment on how the business would be wound up in a crisis. The level of those deposits is being raised from £50bn to £100bn. This increase will be made in H1 of 2026.

MREL Reporting and Disclosures

PRA consultation paper 15-25 proposes that MREL reporting forms consolidate some related data elements reported in the Resolution ‘Z’ templates. Amendments will be made to MRL001 and MRL003 submissions in that respect. Template MRL002 will be deleted under the proposal.

Agreed changes will be effective from 1^st January 2026.

In consultation paper 16-25, MREL Pillar 3 disclosures are to be revised so that users have a clearer understanding of the content and the requirements placed on different firms. It is proposed that four new MREL disclosure templates be introduced, but only one will apply to non-systemically important MREL entities.

Senior Manager’s Regime

The PRA has consulted on making changes to this regime. Of note are:

• Removal of the certification regime.
• The need for individuals to be certified several times, where they have a material impact on more than one function, should be eliminated.
• The regulation be extended to controllers that have a significant influence over a firm, but are not employed therein or within a group in which the entity is a member.

Further details are in PRA consultation paper 18-25.

WIRES Releases

The next release of WIRES is currently being planned, but is expected to be available in Q4 of 2025.

This regulatory update is Whistlebrook’s understanding of the position as at 18th July 2025.