The Prudential Regulation Authority (PRA) has published CP17/25 as part of the Leeds Reforms, which aim to simplify regulation and reduce the compliance burden across the financial sector. The new consultation paper addresses fundamental review of the trading book (FRTB) challenges that were outstanding from the near-final Basel 3.1 rules, published in 2023 and 2024.
It also introduces a one-year delay to the internal models approach (to 1 January 2028), giving the regulators more time to align with international implementation of FRTB and avoid short-term divergence. The move will provide banks with greater certainty over their market risk implementation plans, giving them the confidence to move forward with their transformation programmes and associated data cleanups. Broader market risk guidelines within Basel 3.1 will still apply from 1 January 2027.
There are four key market risk proposals under CP17/25, as outlined below.
Leeds Reforms – what do they mean for the financial sector?
Internal models approach delayed by a year
The FRTB internal models approach (IMA) will be delayed until 1 January 2028 and existing permissions continue to apply until then. This includes capital calculations for expected shortfall, non-modellable risk factors, the default risk charge and desk-level eligibility rules. The move will avoid the need for banks using the IMA to run two sets of models simultaneously during that 12-month period. While this is perhaps the most notable change in the paper, its impact will not affect everyone since many banks are not currently pursuing the IMA in their Basel 3.1 implementation plans.
There are no further changes to other market risk timelines or scope. Elements relating to the trading boundary, the advanced standardised approach (ASA) and the simplified standardised approach (SSA) will go forward as planned, with a go-live date of 1 January 2027.
Simplified approach to collective investment undertakings
In keeping with the wider Leeds Reforms, CP17/25 puts forward plans to simplify operations and reduce the regulatory burden, specifically for collective investment undertakings (CIUs) with significant holdings. The key changes are:
- A CIU will be allocated to the trading book if 90% of assets in the fund qualify (a change from 100%).
- Banks that are able to look-through 90% of a CIU can apply a 70% risk weight for the remaining 10% of holdings in the fund.
The changes aim to create a more proportionate approach and reduce movement across the trading and banking book boundaries, while simultaneously ensuring all assets are appropriately capitalised.
Permissions regime for the ASA
The current Basel 3.1 FTRB ASA approach includes a residual risk add-on (RRAO) of 1% for exotic derivatives and 0.1% for other complex asset structures that would otherwise be too difficult to capitalise accurately. However, the PRA recognises that this may be disproportionate in some instances, so it has proposed a new RRAO permissions regime in order that firms can apply to reduce the size of their residual risk add-ons.
To achieve this, firms will need to identify the associated risks and demonstrate that the 1% and 0.1% RRAO charges are disproportionate to them. They will also need to submit a methodology for working out the necessary capital requirements, which the PRA must approve. The regulator notes that the methodology must be “subject to comparable internal governance and review processes that would be expected for an internal model”.
Reporting and disclosure obligations
Reflecting the broader goals of the Leeds Reforms, the PRA have taken steps to reduce the reporting burden on FRTB transformation teams in the short term. As such, banks can use existing reporting templates until 1 January 2028. From then on, firms must follow the new reporting and disclosure requirements for FRTB IMA under Basel 3.1.
Getting started
To implement the above, the PRA will introduce an interim version of SS13/13, which will merge previous versions with the new FRTB requirements. This will then be superseded (by the draft included in PS17/23) on 1 January 2028. Firms should undertake a gap analysis against the new FRTB market risk rules to ensure compliance and improve operational efficiency.
For most firms, this will streamline the process – albeit, through fairly minor adjustments – in line with the Government’s broader growth agenda and the wider Leeds Reforms package. However, the one-year delay to the FRTB IMA will be significant and likely will be welcome for banks that are developing and testing the eligibility of their internal models using that approach.
The consultation closes on 5 September 2025, offering a valuable opportunity to shape future regulation across the financial services sector.
For further information on market risk, FRTB or Basel 3.1, contact Kantilal Pithia.
