Bank of England aligns its approach with the US, delaying Basel III reform rules and reducing the phase-in period, drawing mixed reactions from banks.
The Bank of England (BoE) has decided to postpone the implementation of the latest package of global banking reforms for an additional six months. This move aligns the UK with the United States as both countries navigate extensive industry feedback concerning the reforms.
These new regulations, a part of the broader Basel III reforms, represent global policymakers’ final attempt to safeguard the banking sector against the excessive risk-taking that led to the 2007-08 financial crisis. Among the measures included in the package are limitations on banks’ discretion in determining the capital required to support specific loans and trades, measures that typically result in increased costs for banks, although the BoE has clarified that this is not the intended outcome.
The BoE is expected to announce a new implementation deadline of July 2025, consistent with the US’s July 2025 timeline, which was revealed earlier this summer. The rules were initially slated to take effect in January 2025, following several delays from the original target of January 2021.
UK-based banks have voiced concerns regarding certain BoE proposals that they believe will place them at a disadvantage compared to EU banks. EU policymakers have adopted a more industry-friendly stance, prompting warnings from the European Central Bank (ECB) that this approach might create the perception that European banks are subject to lax regulation.
While UK Treasury officials and some banks were informed of the BoE’s plans, it is worth noting that the BoE’s delay is not solely driven by alignment with the US but is also seen as a necessary adjustment due to challenging original timelines.
The BoE had previously committed to releasing “near-final” rules for its entire Basel package by year-end to provide banks with a 12-month preparation period. However, an overwhelming volume of consultation responses has made this target increasingly difficult to achieve. As a result, the BoE now intends to publish “near-final” rules for the most complex markets and trading areas in December, with rules for all other aspects scheduled for release in May of the following year.
While aligning with the US is seen as beneficial, some believe that the US may also extend its delay by an additional six months, given the ongoing debates about the content of the reforms. Nevertheless, the flexibility for the UK and EU to match any further US delay remains a possibility.
This revised timeline places the UK out of sync with the EU, which still maintains a January 2025 deadline. Although there is a theoretical chance for the EU to extend its implementation, the longer phase-in period the EU already had in place for these rules diminishes the significance of the discrepancy.