Mansion House: HMT updates policy on applying FSMA 2000 model of regulation to UK CRR

HM Treasury (HMT) has published an update to its policy note on applying the Financial Services and Markets Act 2000 model of regulation to the UK Capital Requirements Regulation (UK CRR). An earlier version of the policy note was originally published in 2024. The updated approach includes proposals and commentary on three key topics – Basel 3.1 , overseas recognition regimes and key UK CRR definitions.

On overseas recognition regimes, HMT has confirmed it will take a standardised approach, with each piece of legislation setting out the scope, effect, policy outcomes and "matters to consider" when considering whether other jurisdiction's regimes should be designated as recognised. It is seeking specific feedback on the proposed overseas prudential requirements regimes, which would replace the current equivalence regimes in the UK CRR. HMT's intention, in the main, is to carry forward the existing equivalence decisions into the new regime; however, it confirms that the effect of current equivalence decisions would not be preserved for exchanges and there may be additional flexibility where appropriate, as regards certain exposures or activities.

HMT asks for views on three key points: (i) changes to the treatment of exposures to covered bonds so as to facilitate a preferential treatment to non-UK covered bonds from jurisdictions with similar levels of investor protection as the UK; (ii) its proposal to amend the effect of the current equivalence designations for overseas exchanges so that UK banks can treat such exposures as exposures to institutions where this is permitted by the banking regulator in the relevant overseas jurisdiction; and (iii) replacing the definition of 'third-country investment firm' with a new definition of 'overseas investment firm'.

The policy note also provides an update on the revocation of definitions in the UK CRR and replacing them in PRA rules, except where they are restated in legislation for effective operation of the regulatory perimeter, overseas recognition regimes or other legislation. The policy note is published alongside a draft statutory instrument (The Credit Institutions and Investment Firms (Miscellaneous Definitions) (Amendment) Regulations 2025) which restates some of the UK CRR definitions and makes other consequential amendments.

The deadline for comments on the overseas recognition regimes, key CRR definitions, and the draft legislation published alongside this document (which includes the draft statutory instrument in relation to the transitional provision for delaying FRTB-IMA implementation) is 11:45pm on 5 September.

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