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Call it Basel 3.1 (in UK), CRR III/CRD VI (in EU), Basel III Endgame (B3E; in USA), or Basel IV, the outcome is the same. The Prudential Regulation Authority (PRA) has now published new rules for the UK reforms to take effect from 1 January 2027. Despite the name, this is not a “.1” minor tweak.

In reality, it represents a major rework of how capital outcomes are produced, evidenced, and defended across credit risk, market risk, credit valuation adjustment (CVA) and operational risk. Basel 3.1 requires a substantial transformation programme. The workload sits in many areas including data, mapping, controls and explanation packs. CROs, CFOs and Senior Management should take note, if they have not already done so.

  • Credit risk capital: More granularity, more work

    Basel 3.1 introduces a new standardised approach for credit risk capital (SA-CR), with substantial changes across exposure classes, risk weights, collateral and guarantees, and off-balance sheet treatment. Expect more granular risk weight tables, mortgage risk weights that are more sensitive to loan-to-value bands, and tighter methodologies for bank and unrated exposures, including more explicit due diligence where external ratings are used. Specialised lending is also treated more explicitly under SA-CR.

  • Market risk capital: Why FRTB just became a capital and governance issue

    Market risk moves onto the Fundamental Review of the Trading Book (FRTB), designed to harmonise trading book capital and reduce arbitrage between trading and banking books. The new Advanced Standardised Approach (ASA; or Alternative Standardised Approach, or FRTB Standardised Approach) is built from a Default Risk Charge (DRC), a sensitivities-based method (SbM or SBM; including delta, vega and curvature) for the market risk capital charge, and a Residual Risk Add-on (RRAO). It relies heavily on pricing and valuation inputs, so data quality and governance are now even more important.

    FRTB also tightens the trading book boundary as classification and re-designation decisions become governance issues.

  • Operational risk capital: One formula, zero flexibility

    Operational risk shifts to a single formula-based framework, the Revised Standardised Approach (RSA; or Standardised Measurement Approach (SMA)). No other approaches are permitted. Capital is calculated as the product of the Business Indicator Component (BIC), a progressive measure of business income (BI), and the Internal Loss Multiplier (ILM), which reflects historical internal losses relative to the BIC. Accordingly, you need clean loss data, lineage and auditability.

  • Credit Valuation Adjustment (CVA): Greater risk-sensitivity and aligned with FRTB

    Basel 3.1 enhances the CVA (protects against valuation changes and defaults) framework by increasing risk-sensitivity and removing the old internally modelled CVA approach. Allowable methodologies include a Standardised CVA Approach (SA-CVA) and a Basic CVA Approach (BA-CVA), with supervisory approval needed for SA-CVA. The practical impact is tighter hedging recognition and a clearer explanation of what drove the CVA charge.

  • Advanced models and the output floor

    Basel 3.1 restricts the use (and benefits) of advanced internal capital models, removing advanced credit risk internal ratings-based (IRB) for large corporates (turnover above €500m) and financial institutions, eliminating IRB for equity exposures, and shifting some portfolios toward foundation IRB or standardised methods.

    The revised capital output floor then limits how far modelled RWAs can fall below standardised calculated RWAs. A bank must hold RWAs as the higher of its approved approaches, or 72.5% of RWAs calculated using standardised approaches. A phased implementation methodology (i.e., transitional period) will allow firms more time to adapt while maintaining alignment with international jurisdictions. 

31 March 2026: Your rehearsal for Basel 3.1 readiness

The PRA has initiated a Basel 3.1 data collection exercise due on 31 March 2026 (31 December 2025 reference date) as part of an off-cycle review of firm-specific Pillar 2 capital requirements. This applies to non-SDDT (Small Domestic Deposit Takers), non-exempt firms. You should use it as a rehearsal for governance and explainability.

How Basel 3.1 reshapes your business

Some banks may find that they need to adjust elements of their business model because Basel 3.1 can drive capital increases in specific products, portfolios, or structures. This could profoundly impact operating models which will then need to be revised and assessed, and approved, by the banks and their owners.

For example, Basel 3.1 can reshape pricing, product mix and balance sheet strategy, from lower-risk lending shifts to trading activity reassessments under FRTB. Therefore, banks may need to adjust their capital management strategies and potentially rethink their business models to maintain profitability in the face of stricter regulatory requirements.

The bottom line: This is a programme

Basel 3.1, together with FRTB, represents the most comprehensive regulatory capital reform in banking history. It introduces unprecedented data requirements and demands all-encompassing preparatory work across every applicable area of the financial institution.

Framed properly , Basel 3.1 is a very large, structured change management programme.

This includes new capital calculation models will need to be built for Credit Risk, Market Risk/FRTB, Operational Risks, CVA, and possibly some Pillar 2 risks. These new models will need to be designed, constructed and validated. Some of these models are very complex and will require significant resources. And, in many cases, additional new data will be required based on new types and additional required granularity.