Navigating Basel 3.1: New Timelines, Technology Implications and Strategic Opportunities for Banks

New Basel 3.1 Timeline Has Technology Implications for Banks, Offering a Key Opportunity to Optimise Strategies and Enhance Efficiency 

In 2010, the Basel Committee on Banking Supervision proposed Basel III reforms to strengthen the global capital standards for banks after the 2008 financial crisis. Fast forward 15 years, and the EU, the UK and the US have yet to finalise and implement their own flavour of the reforms. With each announced delay, there is more potential for divergence across these regions, presenting significant challenges for banks.

The EU’s original implementation date for Basel IV was January 1, 2025, but in June 2024, it announced a partial delay to January 1, 2026. Then on January 17, 2025, the Bank of England’s Prudential Regulation Authority (PRA) extended its Basel 3.1 implementation timeline by a year to January 2027. Initially scheduled for implementation in 2022, this marks the third time that the UK has moved the date forward. Citing concerns about growth and competition, the PRA stated it wants to wait for greater clarity to emerge about plans for Basel III Endgame implementation in the US.

A key question looms: Is this just another delay, or should banks expect significant changes to the UK Basel 3.1 regulations?

Implications for Banks Amid Heightened Regulatory Expectations

A letter from the PRA on January 21, 2025, outlines priorities for international bank supervision and offers guidance for preparing for Basel 3.1 regulations, emphasising the need to address and remediate shortcomings before implementation. These priorities are designed to promote the safety and soundness of the banking sector and ensure resilience without stunting competition, growth, and competitiveness.

The current interest rate environment, geopolitical events and technological changes, notably the proliferation of artificial intelligence, are top-of-mind for banking regulators worldwide. As such, the PRA intends to monitor banks under its purview to ensure they have robust, adaptive and resilient governance, risk management and controls supported by accurate information. To meet requirements, banks will have to prove that they can proactively identify and mitigate risks through stress and scenario analyses.
 

In the letter, the PRA specifically called for stronger counterparty credit and data risk management as well as financial and operational resilience.

• Counterparty Credit Risk (CCR) Management: This is an area in which many banks fall short of the standards needed for their businesses. Going forward, the PRA expects banks to measure CCR, identify control gaps – including the risks posed by non-bank financial institutions – and address shortcomings quickly through holistic remediation. Further, banks must risk-assess new lending, growth areas and existing portfolios in the context of changing conditions, with a particular focus on commercial real estate exposures.
• Data Risk: The PRA highlighted the fact that poor data is a root cause in several risks that require remediation within banks. It noted that strong data aggregation capabilities ensure that banks have the information necessary to support holistic risk management, robust board decision making and accurate regulatory calculations and reporting. Data quality and accuracy, as well as operational resilience, are particularly important given the increased use of artificial intelligence tools. Importantly, the PRA stated that it will assess data accuracy through 2025 utilising a full range of supervisory tools.
• Financial Resilience: Banks will need to consider a broad range of forward-looking liquidity and capital indicators and leverage stress testing to manage the associated risks and ensure financial resilience. In addition, they must have realistic and effective contingency plans that are supported by accurate and relevant information should an incident occur.

Over the next few years, the Bank of England intends to normalise its balance sheet. That, combined with changing market dynamics, will have a significant impact on the funding and liquidity landscape for UK banks. To this end, banks’ treasury and risk management functions must understand the potential effect on profitability, resilience, contingency funding options and underlying business models.

The Upside? Extra Time to Improve Compliance Readiness

The delayed implementation of Basel 3.1 is disruptive. However, banks that strengthen their capabilities to comply with the UK regulator’s heightened expectations will be better positioned to comply with the final versions of the reforms in the EU and US as well.
 

Selecting a financial technology solution that seamlessly integrates with existing systems and adapts to regulatory changes is essential. This strategy ensures compliance, enhances risk management and improves operational efficiency, thereby providing a competitive edge and enabling focus on customer satisfaction rather than regulatory challenges.

The key is to choose a solution that offers:

• Quick market entry
• Automated processes
• Flexible data management and workflow
• Unified governance
• Scalability
• Security
• Disaster recovery

Nasdaq AxiomSL and Nasdaq Calypso help you stay compliant with Basel 3.1 by offering complete risk management and reporting tools. These solutions are cloud-based and fully managed, so your bank can run smoothly and expand quickly without worrying about hardware or software upkeep.
 

AxiomSL offers integrated data management services and regulatory reporting with 24/7 support, simplifying data aggregation for risk management by enabling banks to consolidate and analyse data for early risk detection. With cloud-based dictionaries, banks can automate calculations and reports, ensuring accuracy while saving time. The solution integrates data sources, reducing the need for additional tools.

Streamlined Compliance and Risk Management

Our centralised repository is designed to meet Basel 3.1’s data requirements, ensuring your regulatory reporting is precise and reliable. With standardised formats and data lineage tracking, you can maintain the highest quality in your data.  

Support for stress testing and scenario analysis in line with Basel 3.1 provides you with the insights needed to manage risk effectively. Cross-validation of data between risk and accounting systems ensures consistency, helping you avoid discrepancies in RWA calculations, credit exposure reporting and counterparty credit risk assessments. 
 

Additionally, our solution retains historical versions of rules and templates, making audits, historical comparisons and resolving discrepancies due to rule changes a breeze. This ensures temporal consistency and peace of mind, knowing that your data is always up-to-date and compliant. 

Transform Your Basel 3.1 Compliance Journey with Innovative Financial Technology Solutions  

Nasdaq Calypso’s capital market platform is here to support your journey toward seamless Basel 3.1 compliance. With SA-MR, SA-CCR and SA-CVA compliant risk metrics calculations, you’ll have the tools to manage market and credit risks effectively.  

Our integrated risk solution provides these metrics intraday, for simulation and as official end-of-day measures, ensuring that you are always ahead of the curve. Leveraging the AxiomSL-Calypso connectors, you can effortlessly feed data into Nasdaq AxiomSL for comprehensive analysis. 

Moreover, Calypso’s AI-Powered XVA Accelerator optimises Basel risk analytics, offering a faster and more efficient approach. Together, Nasdaq AxiomSL and Calypso streamline your regulatory risk management and compliance, enhance accuracy and optimise your resources—making them indispensable for banks navigating Basel 3.1 requirements. 

For more information about how Nasdaq AxiomSL enterprise risk and regulatory reporting solution can help you with Basel 3.1 compliance, contact us.