New rules, new roadmap: What the Bank of England’s 2025 shakeup means for UK banks
Image by Stefan Schweihofer from Pixabay
A quiet regulatory shift is taking shape in the UK’s banking sector. With a new set of timelines and frameworks announced today, the Bank of England is preparing to recalibrate how institutions, big and small, navigate capital rules, market risk, and systemic planning.
A two-speed system, by design
In its latest release, the Bank, through the Prudential Regulation Authority (PRA), outlined a phased strategy that’s as much about practicality as principle. Key elements of the Basel 3.1 rulebook will take effect from 1 January 2027, but the more complex parts, like the internal model approach to trading risk, are being delayed a year.
This staggered timeline reflects more than logistics. It acknowledges a growing consensus that one-size-fits-all regulation doesn’t suit a financial system with firms ranging from global investment banks to local building societies. The PRA is drawing that line explicitly.
It also raises fresh questions about how digital asset exposures will be treated under the evolving capital regime. While cryptoassets are not yet central to UK retail banking, some mid-sized institutions and specialist firms are exploring custody services, tokenised deposits, and blockchain-based settlements.
For now, crypto remains largely outside the Basel 3.1 implementation scope, but as these technologies mature, a parallel question will follow: should digital asset risk be part of the same two-speed logic, or will it demand a third path altogether? These regulatory shifts are likely to shape not only how banks hold capital, but also which financial innovations they feel safe exploring.
As some mid-tier institutions look toward digital asset custody or fintech partnerships, regulatory clarity around crypto becomes increasingly relevant. Questions are also growing louder outside traditional finance, from retail investors exploring where to buy crypto presales, to fintech platforms navigating the blurred lines between tokens and securities.
Capital simplified, not relaxed
The PRA also confirmed the launch of the Strong and Simple capital regime in 2027. This rulebook, tailored for smaller institutions, aims to reduce regulatory burden without compromising core prudential safeguards. It replaces layered requirements with clearer obligations and reduces operational complexity for firms not engaged in high-risk financial activities.
The Interim Capital Regime, originally proposed as a transitional buffer, is being shelved. With both Basel 3.1 and Strong and Simple now set for parallel implementation, there’s no longer a need for a temporary bridge between frameworks.
Mid-sized banks and mortgage model access
A separate but related reform could reshape competition in the mortgage market. The Bank plans to publish a Discussion Paper in mid-2025 exploring how mid-sized banks can gain approval to use Internal Ratings-Based (IRB) models for residential mortgage lending, something currently dominated by larger firms.
IRB models allow banks to estimate borrower risk using internal data, resulting in potentially more accurate pricing and risk-adjusted capital treatment. Lowering the barriers to IRB adoption could give regional and mid-tier lenders a more competitive footing without relaxing risk standards.
Trading risk gets an extra year
Firms currently using internal models to calculate market risk will have until 1 January 2028 to transition to the new Fundamental Review of the Trading Book (FRTB) rules. Meanwhile, the rest of Basel 3.1 will proceed as scheduled in 2027. The delay, according to the PRA, reflects the complexity of internal model changes and the need for international alignment.
Other FRTB adjustments include added flexibility around fund investments and simplified processes for handling complex risks under the standardised approach.
What the framework signals for crypto, innovation, and regulation
Beyond timelines and thresholds, the Bank’s approach signals a long-term recalibration of how regulatory systems interact with evolving markets. Raising MREL thresholds, from £15–25 billion to £25–40 billion in assets, and lifting resolution disclosure thresholds to £100 billion in retail deposits, shows that size and complexity are now being measured more deliberately.
At the same time, the lack of formal crypto integration in the new capital roadmap leaves a noticeable gap. Digital finance is growing through custody platforms, tokenised assets, and retail interest in early-stage offerings, yet remains unaccounted for in capital frameworks.
This suggests future iterations may need to bridge that divide. The current direction of travel leans toward proportionality, but as new asset classes gain traction, the question isn’t if they’ll be regulated, it’s how, and on whose terms.