UK PRA finalises policy on retiring Pillar 2A refined methodology

The UK Prudential Regulation Authority (PRA) has published policy statement PS2/26, finalising its decision to retire the "refined methodology" for Pillar 2A. Specifically, in this policy statement, the PRA confirms that no changes have been made between the near‑final policy issued in PS18/25 and the final policy, and it will proceed with clarifications to its Pillar 2A approaches for interest rate risk in the banking book and pension obligation risk. The PRA reiterates that the refined methodology will cease to apply from 1 January 2027, aligning with the implementation date of UK's Basel 3.1 standards and the introduction of the simplified capital regime for small domestic deposit takers (SDDTs). From 2027, all firms, including SDDTs, will calculate capital requirements under the Basel 3.1 standardised credit risk approach, rendering the refined methodology obsolete. The appendix to this final policy statement includes corresponding amendments to supervisory statement SS31/15 (on the internal capital adequacy assessment process and the supervisory review and evaluation process), which will also apply from 1 January 2027.

Alongside this policy statement, the PRA also published final policy, rules and supervisory expectations on Basel 3.1 implementation, restatement of CRR requirements and the final simplified capital regime for SDDTs.

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