PRA Updates Banking Waivers, CRR Permissions, and Modifications by Consent Framework for Basel 3.1

Key Takeaways

• The Bank of England's PRA has updated its guidance on applying for capital waivers, CRR and Basel 3.1 permissions, and modifications by consent (MbC).
• Key developments include the extension of the Loan to Income (LTI) flow limit MbC to December 31, 2026, new Basel 3.1 permission pathways following PS1/26, and a stronger push toward Portal-based submissions.
• Compliance teams should verify which permissions and modifications apply to their firms and confirm that application and notification processes are current.

Deep Dive

The Bank of England's PRA has updated its guidance on applying for capital waivers, CRR and Basel 3.1 permissions, and modifications by consent (MbC). Key developments include the extension of the Loan to Income (LTI) flow limit MbC to December 31, 2026, new Basel 3.1 permission pathways following PS1/26, and a stronger push toward Portal-based submissions. Compliance teams should verify which permissions and modifications apply to their firms and confirm that application and notification processes are current.

The guidance consolidates the PRA's processes for varying capital requirements under the CRR, CRR Rules, and holding company rules. Applications fall under s138A (waivers/modifications), s138BA (rule permissions), and CRR/ss144G and 192XC of FSMA (CRR permissions). Dual-regulated firms must apply to the PRA. The PRA assesses each application case by case against the relevant CRR article, PRA rule, and supporting policy materials, with its statutory safety and soundness duty in mind. It acknowledges all applications but does not guarantee response dates for complex cases. Approvals may also lead to a s55M requirement being imposed or varied, after consultation with the FCA.

Key requirements are organized by risk area: own funds (Article 26(2) interim profit notifications, Article 26(3) CET1 classification with pre-issuance notification, and Article 77 reductions governed by SoP 3/25), groups (Article 9), credit risk (standardized approach, SSA, IRB, Article 225 volatility adjustments), market risk (ASA, IMA, FX position, interest rate derivatives), CVA risk (SA-CVA), liquidity, and large exposures (core UK group and non-core large exposures group permissions). Application fees apply only to new CRR model permissions. Firms with IRB, IMM, or IMA permissions must use the dedicated pro-formas to notify model changes, with separate versions for CRR and Basel 3.1. The PRA strongly encourages Portal submissions where applicable. PS1/26, published on January 20, 2026, contains the final Basel 3.1 rules, and the Basel 3.1 permissions page has been updated accordingly.

Several time-sensitive MbCs are covered. The LTI flow limit MbC (Housing Rules 2.1-2.6), which exempts firms from the 15% cap on high-LTI (>4.5x) lending, has been extended from June 30, 2026 to December 31, 2026. Opting-in firms must submit business plan and risk framework details within one month and provide monthly high-LTI approval and completion data, with the first submission covering the preceding three months. The PRA may revoke or revise the MbC at any time, for example if aggregate high-LTI lending exceeds 15%. Other MbCs address capital buffers (Rules 5.1-5.3), significant risk transfer notification for private mortgage insurance schemes, credit union investment in CUSOs, indirect derivative client clearing under the NSFR, EEA government assets as Level 1 HQLA, and PRA107 reporting frequencies. The FX position calculation permission switches from Article 352(2) to Article 325(9) on January 1, 2027.

Recommended actions: map existing waivers, permissions, and MbCs to the current consolidated list and confirm expiry or revocation triggers. Firms using the LTI MbC should prepare for PRA outreach on the extended version, confirm monthly data processes, and plan for a possible revision following the consultation. Model-permission holders should align change-notification processes with the correct CRR or Basel 3.1 pro-forma. Teams planning Basel 3.1 permission applications should build timelines that account for PRA review of complex issues. Firms should also check Portal readiness and submission details, noting that the LTI guidance lists a mistyped email domain (bankfoengland), so they should use the verified PRA-waivers address.

Risk implications: failing to secure or maintain required permissions, or missing notification conditions, could cause unauthorized capital treatment, breaches of capital or liquidity requirements, and supervisory escalation. The temporary nature of several MbCs creates cliff-edge risk if they lapse or are revised on short notice. Firms relying on model permissions face heightened scrutiny during the Basel 3.1 transition.

Source: Bank of England