City of London urges Bank of England to postpone implementation of bank capital rules until mid-2025

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The finance industry is urging the Bank of England to postpone the UK’s implementation of new global banking capital rules by six months. This would prevent a period of regulatory divergence that could impact the competitiveness of the City against Wall Street. The Prudential Regulation Authority (PRA), the regulatory arm of the central bank, had previously planned to introduce the package, known as the “endgame” of the Basel capital rules, in January 2025. However, the US recently announced a different implementation date of June 2025 for the Basel IV measures, which will increase US bank capital requirements by approximately 16 percent.

UK-based finance executives have raised concerns about the cost and competitiveness of running different regulatory regimes in different countries. They worry about London-based banks competing with New York-based banks in global markets. Jared Chebib, a partner at advisory firm EY, stated that misalignment across jurisdictions would pose challenges for global banks headquartered in the UK.

The EU has a provision in its law that allows for the delay of implementing tough new capital treatments for trading, bringing it in line with other major jurisdictions. However, it remains unclear if the European Commission will use this power. The PRA had indicated earlier this year that it would be “open” to aligning with the US if a later date was chosen.

UK Finance, a lobby group, is currently surveying its members to determine if they should collectively request a delay in the implementation until mid-2025. Senior executives at large banks believe it is necessary for the UK to align its package with the US and avoid different phase-in periods for the rules.

Simon Hills, who leads UK Finance’s prudential and capital team, acknowledges that a six-month delay would not have significant value for UK banks on its own. However, it is crucial to harmonize timescales across major jurisdictions.

Concerns also exist about potential delays in the PRA finalizing its text, as the regulator is still reviewing hundreds of submissions received during the consultation period. Hills emphasized the importance of granting firms at least a year to implement these significant changes.

The proposed US approach to implementing Basel IV rules is more stringent than that of the UK. UK officials state that the overall level of capital in the banking system will not increase as a result of the measures. This makes it difficult for the UK financial sector to argue for looser measures during implementation. The PRA has declined to comment on the potential impact of the US’s adoption on the UK’s plans. The European Commission emphasizes that the US’s stance is subject to a consultation and rulemaking process that could lead to different outcomes. The EU’s timeline remains unchanged, with an entry into force on January 1, 2025, and several phasing-in provisions.