UK Basel 3.1: Credit risk standardised approach – off-balance sheet items


On 12 September 2024, the Prudential Regulation Authority (PRA) published the second part of its near-final rules on the implementation of Basel 3.1 standards through Policy Statement 9/24 (PS9/24) which offers feedback on the responses received on Consultation Paper 16/22 (CP16/22) published on 30 November 2022.

PS9/24 covers inter alia the near-final rules on credit risk, disclosures, and reporting as well as minor clarifications and corrections to the previous near-final rules published within PS17/23. The implementation date for Basel 3.1 standards has also been postponed to 1 January 2026.

A brief summary of the changes to determine the exposure value of off-balance sheet items under the credit risk standardised approach is provided below.


Key changes to determine the exposure value of off-balance sheet items, include:

  1. Off-balance sheet items are categorised into:

    - issued off-balance sheet items where a firm has underwritten an obligation to a third-party and stands behind the risk; and

    - commitments to extend credit, purchase assets, or issue off-balance sheet items at a future date.

  2. Conversion factor (CF) increased from 0% to 10% for unconditionally cancellable undrawn commitments.

  3. Commitments, where drawdowns are certain, will attract a CF of 100%.

  4. Other transaction-related contingent items will attract a CF of 20%.

  5. ‘Other commitments,’ aside from UK residential mortgage commitments will attract a CF of 40%.

  6. Other issued off-balance sheet items (including UK residential mortgage commitments that are not subject to a CF of 10% (unconditionally cancellable) or 100% (drawdown is certain)) shall receive a CF of 50%.


A summary of the revised classifications and applicable CFs is given below: 


Existing and revised CFs:

  • Items in the ‘Existing’ column are re-arranged to align them with the revised rules for comparison purposes.

  • Colour coding and pointers have been added to the table to highlight the change in the risk category.


How We Can Help

Banks may face a variety of challenges when preparing for Basel 3.1. At Katalysys, we have a deep understanding of prudential regulatory requirements both from the perspective of rules and practical implementation. Our team is already supporting a range of clients in this area, and includes:

  • Workshops or training to cover new requirements.

  • Gap and impact analyses.

  • Guidance on implementing industry best-practice in relation to the Basel 3.1 standards.

  • Documenting or updating assumptions and interpretations in regulatory reporting.

  • Preparation of regulatory reporting policies and procedure notes.

  • Validation of the system outputs and calculations.

  • Review of regulatory returns, including post-implementation of Basel 3.1 changes.

 For more information, please contact:

Josh Nowak

Managing Director, Risk & Regulatory Consulting

T: +44 (0)7587 720 988

E: josh.nowak@katalysys.com

Manish Patidar

Director, Regulatory Consulting

T: +44 (0)7766 001 643

E: manish.patidar@katalysys.com


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UK Basel 3.1: Credit risk standardised approach – exposures in default

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UK Basel 3.1: Near-final Rules Part 2 (PS9/24) - Key Changes