UK PRA consultation paper on adjustments to IMA for market risk

The UK Prudential Regulation Authority (PRA) has published consultation paper CP9/26, setting out proposed adjustments to the Basel 3.1 internal model approach (IMA) for market risk. The Basel 3.1 standards introduce a comprehensive set of amendments to the market risk framework, commonly referred to as the fundamental review of the trading book (FRTB), with implementation deferred to 1 January 2028. As part of its ongoing monitoring of FRTB implementation, the PRA has identified several areas where targeted adjustments could improve the proportionality and operational effectiveness of the framework, while maintaining robust prudential standards.

Key proposals include:

• Extending the profit and loss attribution test monitoring period from one year to three years.
• Adjusting elements of the risk factor eligibility test (RFET).
• Introducing targeted adjustments and operational simplifications to the non modellable risk factors framework, a new feature of the Basel standards linked to the RFET.
• Reducing barriers to gradual IMA approval by adjusting calculations for firms who use a mix of the IMA and standardised approaches, preventing a scenario where capital requirements could rise as firms move gradually on to IMA.
• Implementing operational simplifications to the treatment of collective investment undertakings.
• Making other minor adjustments and clarifications to the IMA framework.
• Updating reporting and disclosure requirements to align with the proposals above.

The deadline for responses is 18 September. The PRA proposes that the implementation date for the IMA, including the changes resulting from this consultation, will remain 1 January 2028. No other changes are being proposed and all other rules come into force in January 2027, as previously planned.

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