The PRA said this policy aims to “deliver a more proportionate and simplified prudential framework for small, domestically focused deposit-takers in the UK, while maintaining their resilience”.
The regulator said these changes will enhance competition in the banking sector and reduce costs for smaller banks and building societies. This in turn will boost smaller firms’ ability to support customers, support broader UK growth and make it a “more attractive place for foreign banks to do business”.
The statement said the final rules would be published in early 2026, with the new scheme hopefully coming into effect in 2027.
In a “near-final” policy statement, the PRA said that following feedback from respondents, it has made several changes. This includes removing the ‘bucketing’ approach for operation risk and replacing it with a simpler method and simplifications to the Pillar 2A framework around interest rate risk and credit concentration.
It has also lowered the Pillar 2A and 2B framework update for selected documents from annually to every two years and increased the number of “descoped templates” from 38 to 51, as well as introducing more specific documents of four templates for “clarity and accessibility”.
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Ruth Doubleday, head of prudential regulation at the Building Societies Association (BSA), said it “strongly welcomes” the PRA’s “near-final” rules for SDDTs.
She explained: “For too long, the full Basel framework has applied to all banks and building societies regardless of their size or complexity. The Basel framework is designed and calibrated for internationally active banks and was applied through the Capital Requirements Regulation in the EU to all deposit-takers. We strongly welcome the PRA developing this more tailored and simplified approach for non-systemic firms in the UK.
“Specifically, we welcome the approach that does not apply unnecessary rules to small firms, such as the countercyclical buffer, which is relevant as a transmission mechanism to support the economy for systemic firms but is not relevant for non-systemic firms.
“Our attention now shifts to the implementation of the regime, and here it is for the whole industry to embrace the simplifications and resist any urge to goldplate the requirements on the false view that more complex approaches are somehow ‘best practice.’ It is for firms and advisers to unlearn old habits of complexity as much as for the PRA to ensure it does not revert to complexity or over-calibration over time through ‘supervisory creep’.”
Issues under the scope of the policy include simplifications to Pillar 1, which concerns the minimum amount of capital a bank must hold to cover core risks, and Pillar 2A frameworks. The latter covers add-on risks not fully included in Pillar 1.
Other areas under the scope include capital buffers, calculation of regulatory capital, and reporting, as well as simplifications to liquidity and disclosure requirements from small banks and building societies.
