UK proposes softening Basel bank trading rules, sticks to 2028 date

LONDON, June 19 (Reuters) - The Bank of England on Friday proposed easing rules governing how banks calculate capital for their trading books, after the U.S. and EU moved to soften the impact on their lenders of global standards introduced in the wake of the 2008 financial crisis.

The rules are part of the Fundamental Review of the Trading Book (FRTB) within the international Basel III standards that are to strengthen risk measurement in banks' trading and make sure their capital accurately reflects the risks they take.

The BoE's Prudential Regulation Authority said its proposals would make it easier for banks to use an internal model to calculate capital, rather than a standardised approach, with lower overall requirements. 

It said it was carrying out a public consultation on the proposals.

In the consultation paper published on Friday, the PRA said monitoring of the global implementation of FRTB had identified areas where "targeted adjustments could improve the proportionality and operational effectiveness of the framework, while maintaining robust prudential standards".

DELAY AND UNEVEN IMPLEMENTATION

The U.S. Federal Reserve in March announced sweeping proposed changes to Basel III which included significant changes to the trading risk rules, easing some of the constraints on the use of internal models. 

In June, the European Union said it would temporarily relax parts of the framework, citing the need to protect EU banks’ international competitiveness.

Under its proposed changes, the PRA reckons an additional £1.9 million ($2.51 million) to £3.8 million in capital per year will be returned to each bank. The FRTB provisions on internal models come into effect in January 2028. 

The PRA said it would extend the period before a key test begins to affect banks’ capital, giving regulators more time to assess how it works in practice and delivering a more "risk-sensitive" framework.

Sam Woods, Deputy Governor for Prudential Regulation and Chief Executive Officer of the PRA, said the rules mark the last piece of the post-financial crisis reforms. The rest of the Basel regulatory package comes into force in January 2027. 

 "We’ve allowed some extra time to implement this last set of rules in order to be able to take account of how they are being implemented elsewhere – today’s proposals do that, while ensuring that trading activities by banks in the UK are appropriately capitalised," Woods said. 

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(Reporting by Yamini Kalia in Bengaluru and Phoebe Seers in London; Editing by Harikrishnan Nair and Emelia Sithole-Matarise)