City of London asks BoE to delay the bank capital rule until mid-2025

Finance industry pressure is mounting on the Bank of England to delay by six months the UK’s implementation of global banking capital regulations. This would avoid a period of divergence in regulation that could affect the ability of the City to compete with Wall Street.

Prudential Regulation Authority (the central bank’s regulatory body) announced last year that it would introduce the package – dubbed “the endgame” of post-crisis Basel Capital Rules – in January 2025. The EU plans to launch it simultaneously.

Last month, the US surprised the other major financial centers by by announcing that the Basel IV measures would be implemented in June 2025. This will increase the US bank capital requirements by about 16 percent.

Finance executives in the UK have voiced their concerns over competitiveness and warned it would be expensive to operate different regimes across different countries. This is especially true in global markets, where London-based banks are competing with New York-based banks.

“The proposal” . . The delay in US Basel IV’s implementation until the 1st July 2025 will create challenges for global banks with UK headquarters, especially when it comes to misalignment between jurisdictions.

In the EU law on the introduction of the bank capital regime, concerns over competitiveness are addressed via a clause that allows for the European Commission (EC) to delay the implementation tougher new capital treatments to trading in order to bring the EU into line with other major jurisdictions. Brussels refused to comment on the possibility of using this power.

According to UK bank executives who plan to push the UK regulator to address the issue, the PRA privately stated earlier this year that they would be “open to” aligning with the US at a later time.

UK Finance, a lobby group, has started asking its members if they want to push the PRA – which is still consulting about the UK’s plan – to delay the implementation until mid-2025. Simon Hills, the head of UK Finance’s prudential team, stated that a six-month wait would not add much value to UK banks. “Our thinking is that we do not want to have different timescales for different major jurisdictions.”

Senior executives from several large banks have said that there is a strong case to be made for the UK delaying their package in order to match the US.

The UK, US, and EU propose different phases of implementation for the rules that were originally scheduled to come into effect around the globe in January 2023.

Banks are concerned that the PRA could delay the final version of its text due by the end the year. The regulator is still analyzing the hundreds of comments it has received as a result of a consultation.

Hills stated that it was important for firms to have at least one year to implement the changes. If the PRA were to be challenged to complete the rule book before the end of the calendar year, then this would make things difficult for the banks.

The US proposal to implement Basel IV is more stringent in general than the UK approach, where officials claim that the level of capital for the banking system as a whole will not rise due to the measures.

The UK financial sector has found it difficult to argue for a more lenient implementation of the PRA’s new rules.

The PRA refused to comment on the impact of the US adoption plans on the UK’s plans.

The European Commission stated that the US position was “a preliminary step in a rule-making and consultation process”. . . The result may be different than what was proposed”. The statement continued: “The EU timeline is as proposed, with entry into force at 1 January 2025 and several phase-in provisions.”