Applying the FSMA 2000 model of regulation to the Capital Requirements Regulation
Source: gov.uk (2025-08-04)

Legislation to facilitate changes to the UK prudential banking framework, including implementation of Basel 3.1 and the Small Domestic Deposit Takers (SDDT) regime

HM Treasury is progressing work to apply the UK’s established model of regulation for financial services, known as the FSMA model, to the law the UK inherited from the EU (known as assimilated law) on the capital framework for banks, building societies and investment firms. FSMA refers to the Financial Services and Markets Act 2000.

This policy update confirms the legislative approach for implementing the final post-crisis reforms to banks’ capital requirements, known as Basel 3.1. It explains how HM Treasury will revoke certain parts of the Capital Requirements Regulation (“the CRR”, which is the central piece of assimilated law on bank capital requirements), which the Prudential Regulation Authority (PRA) will then replace with rules implementing the new Basel standards.

The update also outlines the proposed legislative approach for revoking the remainder of the CRR and for revoking and restating with modifications the Capital Buffers Regulation. Completing the application of the FSMA model to this area of assimilated law will pave the way for a number of further reforms to the prudential regime proposed by the PRA, including a proportionate prudential regime for smaller banks and building societies.

HM Treasury has published three pieces of draft legislation alongside the policy update and would welcome technical comments on the proposed legislative approach within the next 6 weeks. The PRA has also published a number of corresponding policy documents that set out the final Basel 3.1 package and further reforms the PRA proposes to make to the prudential regime.

Update as of 17 January 2025: The Prudential Regulation Authority (PRA), in consultation with HM Treasury, has decided to delay the implementation of Basel 3.1 in the UK by one year until 1 January 2027. Read the press notice (https://www.bankofengland.co.uk/news/2025/january/the-pra-announces-a-delay-to-the-implementation-of-basel-3-1) for more information.

Update as of 19 March 2025: The PRA has published a Consultation Paper (CP 3/25) (https://www.bankofengland.co.uk/prudential-regulation/publication/2025/march/recognised-exchanges-policy-and-transfer-of-main-indices-consultation-paper), proposing a set of conditions for identifying recognised exchanges or assets traded on these exchanges. HMT will implement the necessary legislative changes to support the PRA’s proposals outlined in the consultation paper.

Update as of 4 August 2025: On 15 July 2025, HM Treasury published a Policy Update inviting responses on the Overseas Recognition Regimes and Key CRR Definitions (outlined in Chapters 3 and 4 of the consultation document), as well as on the associated draft legislation. Responses were originally requested by 5 September 2025.

In response to feedback that additional time would be helpful, HM Treasury has extended the consultation period as follows:

Basel 3.1 transitional Statutory Instrument Basel 3.1 Market Risk Transitional Provision - Draft Regulations (https://assets.publishing.service.gov.uk/media/6874c2e2fe1a249e937cc0c1/The_Capital_Requirements_Regulation__Amendment___Regulations_2025_.pdf) responses requested by 23:45 on 12 September 2025.

Chapters 3 and 4 (Overseas Recognition Regimes and Key UK CRR Definitions) of the Policy Update 2025 (https://assets.publishing.service.gov.uk/media/68762d6455c4bd0544dcae7a/Applying_the_FSMA_2000_model_of_regulation_to_the_UK_Capital_Requirements_Regulation_-_Policy_Update2025.pdf), and the draft Key UK CRR Definitions Statutory Instrument Restatement of Capital Requirements Regulation Definitions – Draft Regulations (https://assets.publishing.service.gov.uk/media/6874c2ff81dd8f70f5de3f19/The_Credit_Institutions_and_Investment_Firms__Miscellaneous_Definitions___Amendment__Regulations_2025_.pdf) responses requested by 23:45 on 30 September 2025.