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The Bank of England is coming under pressure from the finance industry to delay the UK’s adoption of new global banking capital rules by six months to avoid a period of regulatory divergence that would affect the City’s ability to compete with Wall Street.
The Prudential Regulation Authority, the central bank’s regulatory arm, last year set out plans to introduce the package, dubbed the “endgame” of the post-crisis Basel capital rules, from January 2025. The EU intends to launch it at the same time.
But last month the US surprised other major financial centres by announcing a June 2025 implementation date for the so-called Basel IV measures, which will ultimately increase US bank capital requirements by about 16 per cent.
UK-based finance executives have warned that it would be costly to run different regimes in different countries and voiced concerns about competitiveness, particularly in global markets where banks trading in London are often vying with banks trading in New York.
“The proposal . . . to push back the US Basel IV implementation schedule until 1 July 2025 creates challenges with misalignment across jurisdictions, particularly for global banks headquartered in the UK,” said Jared Chebib, a partner at advisory firm EY.
The EU law for introducing the bank capital regime addresses concerns about competitiveness via a specific clause that allows the European Commission to delay the implementation of tough new capital treatments for trading to bring the bloc in line with other major jurisdictions. Brussels declined to comment on whether it would invoke this power.
The PRA indicated privately earlier this year that it would be “open” to aligning with the US if it opted for a later date, according to UK-based bank executives, who plan to press the UK regulator on the issue in the coming months.
Lobby group UK Finance has begun canvassing members on whether they should push as a group for the PRA, which is still consulting on the UK’s plans, to delay implementation until mid-2025.
Simon Hills, who leads UK Finance’s prudential and capital team, said that while a six-month delay would not by itself add much value for UK banks, “our thinking is that we don’t want to be on different timescales in different major jurisdictions”.
Senior executives at several large banks said there was a clear case for the UK delaying its package to coincide with the US.
The UK, US and EU are proposing different phase-in periods for the rules, which were originally due to come into force around the world in January 2023.
Some banks are also concerned there could be further delays in the PRA producing its final text, which is expected by the end of the year, as the regulator is still working through the hundreds of submissions it received in response to a consultation on the package.
“It is quite important that firms get at least a year to implement these significant changes; if the PRA is challenged to get the finalised rule book by the end of the year [it’s difficult for banks],” Hills said.
The proposed US approach to implementing Basel IV rules is generally more stringent than that of the UK, where officials say the overall level of capital in the banking system will not increase as a result of the measures.
This has made it harder for the UK financial sector to argue that the PRA should adopt looser measures in its implementation of the new rules.
The PRA declined to comment on how the US’s adoption could impact the UK’s plans.
The European Commission said the US stance was “a first step in a consultation and rulemaking process . . . the result of which may still be different from what has been proposed”. It added: “The EU timeline remains as proposed with an entry into force on 1 January 2025, with several phasing-in provisions.”
