PRA Phase 1 of Pillar 2A review

The UK Prudential Regulation Authority (PRA) has published a consultation paper (CP12/25) setting out Phase 1 of its Pillar 2A review. This first phase review seeks to address the consequential impact of the near-final PRA rules that would implement the Basel 3.1 standards, as well as proposals to improve information, guidance and transparency for firms and options to reduce the reporting burden in the interests of proportionality.

The PRA outlines proposals relating to:

• Credit risk, proposing to remove the internal ratings-based risk weight benchmarking approach for Pillar 2A credit risk, introducing new methodologies for exposures to certain entities (including sovereigns, central banks, regional governments and retail exposures that are unconditionally cancellable commitments), and introducing expectations for firms on using credit risk scenarios.
• Operational risk, introducing clear expectations on the use of scenario analysis and further transparency on the PRA's Pillar 2A operational risk methodology.
• Pension obligation risk, proposing to remove PRA-prescribed stress scenarios, easing reducing the reporting burden of the Pillar 2A pension risk assessment.
• Market and counterparty credit risks. Updating information on the current methodologies used to inform the setting of firms' Pillar 2A capital requirements for market risk and counterparty credit risk, including settlement risk.

The deadline for comments is 5 September. After completion of this first phase review, the PRA also plans to conduct a deeper review of Pillar 2A individual methodologies. The changes for pension, market, and counterparty credit risks are expected to take effect on 2 March 2026, while changes for credit and operational risks will be aligned to take effect on the PRA's implementation date of the Basel 3.1 standards.

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