Draft Capital Requirements Regulation (Market Risk Transitional Provision) Regulations 2026
Draft Credit Institutions and Investment Firms (Miscellaneous Definitions) (Amendment) Regulations 2026
(1 day, 6 hours ago)
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The Economic Secretary to the Treasury (Lucy Rigby)
I beg to move,
That this Committee has considered the draft Capital Requirements Regulation (Market Risk Transitional Provision) Regulations 2026.
The Chair
With this it will be convenient to consider the draft Credit Institutions and Investment Firms (Miscellaneous Definitions) (Amendment) Regulations 2026.
Lucy Rigby
Both statutory instruments are made under FSMA, the Financial Services and Markets Act 2023. Together, the two instruments will help to deliver a more agile and responsive capital framework for UK banks and investment firms.
Following the EU exit, the UK retained a body of financial services legislation known as assimilated law, which includes the capital requirements regulation, which sets the detailed and often technical capital rules. As hon. Members know, the UK follows the FSMA model of regulation, which involves regulatory standards being set by expert independent regulators that work within a policy framework set by Government and Parliament.
The Government are now applying the FSMA model to the CRR by revoking the CRR, so that the Prudential Regulation Authority can replace requirements in legislation with requirements in PRA rules, resulting in a more user-friendly, single-source book of prudential rules for firms. Where important elements of the CRR need to stay in legislation to provide the policy framework within which the PRA must operate, those elements are restated, using powers provided under FSMA 2023.
The first SI that I will discuss is the Credit Institutions and Investment Firms (Miscellaneous Definitions) (Amendment) Regulations 2026, which simply restate important definitions from the CRR that need to stay on the statute book. For example, the definition of what constitutes an investment firm is being restated in legislation, rather than being defined by the PRA rule book. That is necessary for the continuity of existing legislation and to ensure that the Government and Parliament remain in control of which regulatory activities should be regulated. The instrument does not introduce new regulatory requirements, and it does not make any substantive change to the scope or effect of the definitions being restated. Its purpose is simply to maintain legal continuity and to ensure that the prudential framework continues to operate as intended as we complete the move to the FSMA model.
The second SI that I will discuss is the draft Capital Requirements Regulation (Market Risk Transitional Provision) Regulations 2026. The UK remains committed to the full and consistent adoption of the Basel reforms, and the PRA intends to implement most of the new Basel 3.1 rules from 1 January 2027. That will help to ensure that the banking system is well capitalised, while giving domestic-focused firms the regulatory certainty that they need to plan for the future and to invest in the real economy, including small businesses and infrastructure projects.
We recognise, however, that the timing of implementation in other major jurisdictions remains unclear, in particular for certain market risk requirements affecting banks that use internal models. That is particularly relevant for the internationally active firms with cross-border trading activity. Implementing those specific requirements in the UK ahead of clarity elsewhere risks unnecessary operational complexity for internationally active firms and potentially misaligned implementation, which is exactly why the Government, in conjunction with the PRA, decided to build in flexibility to the UK’s approach.
For the new internal model market-risk requirements, the element of Basel 3.1 that will most affect the ability of UK banks to compete in international markets, implementation will be delayed until 1 January 2028. The draft instrument gives effect to that approach by disapplying the updated internal market risk rules during the transitional period from 1 January 2027 to 31 December 2027 and, during that period, firms will continue to apply the existing requirements. This limited delay will allow the UK to flex the new internal model requirements for market risk, should that prove necessary, to ensure that the UK remains competitive with other major jurisdictions. The draft regulations also provide the Treasury with the ability to extend the transitional period by making further regulations. Any such extension would be time limited, subject to parliamentary approval and used only if necessary to respond to material international developments.
In summary, the draft regulations bring near to completion the work to deliver a more agile and responsive prudential regime for banks and investment firms, and I commend them to the Committee.
Mark Garnier (Wyre Forest) (Con)
It is a great pleasure to serve under your chairmanship, Mrs Hobhouse. As the Minister has said, the draft regulations are pretty uncontroversial, and the Opposition will certainly not oppose them.
I have a couple of questions on the draft Capital Requirements Regulation (Market Risk Transitional Provision) Regulations 2026. The Minister has quite rightly said that they have been introduced in response to delays in other jurisdictions, including the US and the EU. Of course, it is very important that we remain globally competitive and do not cause any self-inflicted harm. However, can the Minister provide some more detail on why other jurisdictions are delaying the implementation of these rules? Is it procedural, or is it because they have some concerns about the rules that they are being asked to implement?
Secondly, the draft regulations allow the Treasury to extend the delay beyond 1 January 2028, which is absolutely fine—we completely understand why that might need to be the case. That will also be subject to the affirmative procedure. However, there are one or two concerns within the industry that this provision might create uncertainty about when the rules will actually be brought in. It would be very helpful if the Minister gave some idea about what internal tests the Treasury will use to decide whether to pursue such an extension. As I said, the Opposition support the intention behind the draft regulations, and we will certainly not be pressing them to a vote.
Steve Darling (Torbay) (LD)
It is a pleasure to serve under your chairmanship, Mrs Hobhouse. The Liberal Democrats broadly welcome the draft regulations, but I wish to build on what the shadow Minister alluded to. The Minister talked about a one-year delay, but is she confident that it will be only one year? Does she believe that it may be pushed on further, hence the flexibility that has been built into the draft regulations? Some reflections from the Minister on that would be extremely welcome.
Lucy Rigby
I am very grateful to the shadow Economic Secretary to the Treasury and the Liberal Democrat spokesperson for their input on the draft regulations. Their questions are very apt and go straight to the nub of this issue.
What is happening in other jurisdictions is really important, and that is why we are seeking to include a degree of flexibility in the draft regulations. As I said in my opening remarks, we are postponing a certain element until 1 January 2028 for internationally active banks, and I set out why doing so is really important. However, there is potential for further flexibility, exactly as I said, subject to what goes on in other jurisdictions.
As I am sure the shadow EST knows, the US recently put out some revised proposals in March. Without getting into all the nitty-gritty detail, the upshot is that the revised US proposals remain broadly aligned with international standards and the UK’s rules. Briefly, I also want to touch on the EU, because that is also very important. Again, there is broad alignment, although there has been some commentary in the press that the EU banking union is thinking about going out to an even longer date—they were talking about 2030. I think I am right in saying that we are yet to have that fully confirmed. If anything, that comes back to the importance of building in flexibility. We, particularly the PRA, need to have a sufficient degree of agility and nimbleness built into what we can do, which is the approach that we are taking. Should international circumstances change, we and the PRA need to remain alert to those positions.
For all the reasons I have set out, which I will not repeat, the draft regulations are designed to ensure that, for our internationally active banks, we do not create an undue, unnecessary and problematic degree of inconsistency between all those very important jurisdictions. As I made clear, the draft regulations allow the Treasury the power to extend the transitional period that we are putting in place, if necessary, which would then be subject to the negative procedure.
Question put and agreed to.
DRAFT CREDIT INSTITUTIONS AND INVESTMENT FIRMS (MISCELLANEOUS DEFINITIONS) (AMENDMENT) REGULATIONS 2026
Resolved,
That the Committee has considered the draft Credit Institutions and Investment Firms (Miscellaneous Definitions) (Amendment) Regulations 2026.—(Lucy Rigby.)