Basel 3.1: What UK deposit takers need to know

July 22, 2025

The latest whitepaper from ALMIS International offers essential guidance for UK financial institutions navigating the complexities of the Basel 3.1 and SDDT frameworks.

Known as Basel IV in the EU and the Basel Endgame in the US, these changes represent the final phase of the post-2008 regulatory overhaul. In the UK, the Prudential Regulation Authority (PRA) is simultaneously advancing a parallel regime for Small Domestic Deposit Takers (SDDTs), aiming to reduce complexity while preserving systemic resilience. This is all part of a broader recalibration of regulatory landscape in the UK focused on the creation of a ‘Strong and Simple’ framework for smaller institutions.

Approximately 80 UK firms qualify as SDDTs. These institutions now face a strategic decision: whether to adopt the full Basel 3.1 Standardised Approach (SA) or opt into the SDDT regime. For many, the trade-off lies in whether the benefit of reduced operational complexity justifies potentially higher capital requirements. Until now, a lack of clarity in the frameworks has delayed decision-making.

The PRA has since addressed this uncertainty with the release of near-final rules. Its December 2023 paper, PS17/23, outlined less contentious topics, while the September 2024 follow-up, PS9/24, addressed credit risk rules. Alongside this, CP7/24 proposed a simplified capital regime tailored to SDDTs.

Crucially, both frameworks have largely aligned Pillar I credit risk capital requirements, ensuring the same asset risk weighting applies regardless of an institution’s size—mitigating concerns of punitive capital demands under a simplified regime.

The implementation timelines offer institutions additional breathing room. Basel 3.1 is now expected to go live on 1 January 2026, six months later than previously scheduled, while the SDDT framework will take effect from 1 January 2027. Firms intending to opt into the SDDT regime must engage proactively with the PRA.

Under both frameworks, firms will calculate risk-weighted assets (RWAs) using the Basel 3.1 SA method. As such, changes in exposure classifications will affect both routes. With this backdrop, the whitepaper analyses the changes to existing RWA calculations.

Following the changes, institutions will be required to analyse their on and off-balance sheet exposures into one of seventeen exposure classes. These are largely aligned with existing structures, but there are some changes to terminology and where specific types of exposures are reported.

For example, exposures secured on immovable property are renamed real estate exposures and will include speculative property financing. Similarly, the exposure class for subordinated debt, equity and other own funds instruments will now include venture capital and private equity exposures.

For more information on the changes under Basel 3.1, read the full whitepaper here.