UK PRA second policy statement confirming amendments to the large exposures framework

The UK Prudential Regulation Authority (PRA) published its second policy statement (PS20/26) responding to consultation paper CP14/24 on the large exposures (LE) framework, completing the PRA's work on the amendments proposed in that paper.

The first policy statement (PS14/25) was published in July 2025. The PRA took longer to finalise the remaining proposals which had attracted more significant feedback, particularly on mandatory substitution, intragroup exposures and the trading book excess allowance. The final measures are intended to close gaps in the framework, support a more consistent treatment of concentration risk and improve alignment with the Basel LE standards.

The final policy includes:

• Calculation of exposure value: firms will no longer have the option to use internal models to calculate exposure values for SFTs.
• Trading book exposures:
  • Trading book exposures to third parties: the PRA had proposed removing the trading book excess allowance for firms' exposures to third parties. Following feedback, however, it will retain a materially reduced allowance of up to 85% of Tier 1 capital for no more than ten business days, subject to additional safeguards.
  • Trading book exposures to intragroup entities: the trading book excess allowance to intragroup entities is also reduced to 85% of a firm's Tier 1 capital. The final policy clarifies that a 100% risk weight applies to the part of the exposure that exceeds LE limits.
  • NCLEG permissions: separate non-core large exposures group (NCLEG) permissions are replaced with a single NCLEG permission covering both trading and non-trading book exposures. The PRA has introduced a higher NCLEG limit of 350% of Tier 1 capital for trading book exposures. The 350% limit will apply to all firms granted a higher NCLEG permission.
• Credit risk mitigation:
  • All firms will be subject to the mandatory substitution approach.
  • It introduces exemptions from the LE limits for: (i) exposures assigned to a sovereign collateral issuer under a funded credit protection arrangement; and (ii) exposures assigned to a collateral issuer arising from a tri-party repurchase agreement facilitated by a tri-party agent.

The Large Exposures Part of the PRA Rulebook will be merged into the Large Exposures (CRR) Part. The reporting templates remain unchanged, but the reporting instructions have been amended. The amended rules, supervisory statement and reporting instructions are set out in the appendices to PS20/26.

The changes take effect on 1 January 2028. Firms may apply for the new NCLEG or higher NCLEG permissions from 1 July 2027 and the PRA encourages early applications. Existing NCLEG permissions and modifications remain valid until they expire, including where this is after 1 January 2028. The PRA plans to undertake further analysis during 2027 of the consequential effects of Basel 3.1 on the LE rules and will consult on any resulting changes where appropriate.

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