PRA Enforcement Actions

🇬🇧 PRA Enforcement high

January 20th 2026

PS2/26 – Retiring the refined methodology to Pillar 2A – final

Policy Statement 2/26

AI Analysis

The PRA's PS2/26 finalizes the retirement of the "refined methodology" in Pillar 2A capital requirements, effective 1 January 2027, aligning with Basel 3.1 implementation to simplify the framework by eliminating an operationally burdensome adjustment originally designed to address conservatism in the standardized approach (SA) to credit risk. This matters for compliance professionals as it reduces complexity in ICAAP and SREP processes, with expected neutral aggregate capital impact, though firm-specific effects may vary and require supervisory engagement. #

Action Required

The Prudential Regulation Authority (PRA) has finalized the policy to retire the refined methodology to Pillar 2A, which will take effect on January 1, 2027, aligning with the implementation of the Basel 3.1 standards. This change affects all PRA-regulated banks, building societies, and designated investment firms. The refined methodology will no longer apply to these firms, including Small Domestic Deposit Takers (SDDTs), as they will be subject to the Basel 3.1 standardized approach to credit risk.

Sectors:

Banking & Credit

Topics:

Prudential / Capital Requirements

Bank

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🇬🇧 PRA Enforcement high

October 28th 2025

PS18/25 – Retiring the refined methodology to Pillar 2A – near–final

Policy statement 18/25

AI Analysis

PS18/25, published by the PRA on 28 October 2025, retires the "refined methodology" for Pillar 2A capital calculations, replacing it with reliance on the Basel 3.1 Credit Risk Standardised Approach (CR SA) for greater risk sensitivity, transparency, and proportionality. This near-final policy simplifies the Pillar 2A framework, reduces administrative burdens, and aligns with broader Basel 3.1 implementation and the Strong and Simple regime for Small Domestic Deposit Takers (SDDTs), promoting safety, soundness, and competition. It matters because it directly impacts credit risk capital add-ons for affected firms, requiring updates to ICAAP/SREP processes ahead of Basel 3.1 timelines. #

What Changed

Retirement of Refined Methodology: Eliminates supervisory adjustments to Pillar 2A credit risk add-ons based on IRB benchmarking, as Basel 3.1 CR SA better captures risks and reduces gaps between standardised and IRB approaches. Policy Material Updates: - Near-final amendments to Statement of Policy (SoP) 5/15 – The PRA’s methodologies for setting Pillar 2 capital. - Final amendments to Supervisory Statement (SS) 31/15 – The Internal Capital Adequacy Assessment Process (ICAAP) and Supervisor

What You Need To Do

Review and update internal Pillar 2A methodologies, ICAAP/SREP documentation to remove refined methodology reliance and align with Basel 3
Model/calculate potential capital impacts from CR SA changes vs
Prepare for IRRBB/pension risk clarifications in SS31/15 submissions from 1 July 2026; monitor CP12/25 review
Engage PRA supervisors on firm-specific transitions; update reporting (e
Firms may apply changes early in ICAAP from relevant dates (e

Key Dates

28 October 2025 - PS18/25 publication with near-final policy and PRA feedback to CP9/24/CP7/24 consultations.

1 July 2026 - Effective date for pension obligation risk amendments in SoP5/15 and SS31/15 clarifications (IRRBB changes partially deferred).

Q2 2026 - Expected finalisation of CP12/25 Phase 1 proposals (Pillar 2A review, including IRB benchmarking removal).

Basel 3.1 Implementation Date (TBD, aligned with CR SA go-live) - Retirement of refined methodology and related credit/operational risk changes.

January 2026 - PS2/26 published as final policy, minor adjustment to SS31/15 para 5.12A.

Compliance Impact

Urgency: High – Firms must act now to recalibrate Pillar 2A capital ahead of Basel 3.1 and 1 July 2026 effective dates, as retirement eliminates adjustments that reduced add-ons for low-risk CR SA firms, potentially increasing capital requirements despite Basel 3.1 offsets. Non-compliance risks supe

References

Sectors:

Banking & Credit

Topics:

Prudential / Capital Requirements

Bank

View Original

PS2/26 – Retiring the refined methodology to Pillar 2A – final

What Changed

What You Need To Do

Key Dates

Compliance Impact

References

What Changed

What You Need To Do

Key Dates

Non-Compliance Risk

Related Regulations

PS18/25 – Retiring the refined methodology to Pillar 2A – near–final

What Changed

What You Need To Do

Key Dates

Compliance Impact

References