HMT policy response on applying FSMA 2000 model of regulation to UK CRR

HM Treasury (HMT) has published a policy update response on applying the Financial Services and Markets Act 2000 model of regulation to the UK Capital Requirements Regulation (UK CRR), following its July 2025 consultation on Basel 3.1, the overseas recognition regimes and key UK CRR definitions. In this response, HMT broadly maintains its proposed approach while making targeted clarifications in response to feedback.

On Basel 3.1, HMT notes support for facilitating the UK Prudential Regulation Authority's (PRA) delayed implementation of aspects of Basel 3.1 and reiterates that the legislative framework is intended to support the PRA's firm‑facing rules, while committing to clearer communication and coordination of timelines across the wider FSMA transition.

HMT will establish the overseas prudential requirements regime (OPRR) to restate existing equivalence decisions made under the UK CRR equivalence regimes so that jurisdictions currently deemed equivalent are treated as designated. It will also introduce a new power through the OPRR to designate jurisdictions for overseas covered bonds, with current liquidity treatment maintained in the short term while further prudential changes are explored with the PRA. Alongside this response, the draft regulations are published for the OPRR, on which HMT seeks views by 2 April.

HMT will also proceed with its proposed capital treatment of exposures to overseas exchanges, so that they may be treated as exposures to credit institutions where this is permitted by the banking regulator in the relevant designated overseas jurisdiction.

On key UK CRR definitions, HMT will continue with the revocations set out in the draft Credit Institutions and Investment Firms (Miscellaneous Definitions) (Amendment) Regulations with limited technical amendments, although the definition of "IFPR financial institution" will now be amended in a separate statutory instrument due to interdependencies with wider legislation.

Regarding next steps, HMT will lay the Basel 3.1 Market Risk Transitional Provision Statutory Instrument and the UK CRR Definitions Regulations in early 2026. It will commence the appropriate revocations of the UK CRR in 2026 in sufficient time for the PRA to ensure implementation of Basel 3.1 on 1 January 2027.

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