These Statutory Instruments, made by the Treasury and coming into force on December 30th, 2026, insert a new Article 465A into the retained Capital Requirements Regulation (Regulation (EU) No 575/2013) to establish a transitional provision for calculating market risk capital requirements.
This provision mandates that credit institutions and Part 4A investment firms must suspend the application of specific, newly introduced PRA rules (concerning internal models and related requirements) between January 1st, 2027, and December 31st, 2027, allowing them time to transition their methodologies before the revocation of the relevant EU-derived provisions takes full effect, with the Treasury retaining the power to extend this period.
Arguments For
Provides a regulated period, spanning from January 1st, 2027, to December 31st, 2027, during which financial institutions can transition smoothly between existing and newly established Prudential Regulation Authority (PRA) rules for calculating market risk capital requirements.
Ensures continuity for credit institutions and Part 4A investment firms by allowing them to continue using their established market risk models or adopt new standardised approaches during the transition, mitigating immediate disruption.
Grants the Treasury the necessary regulatory power via statutory instrument to extend the transitional period if required, offering flexibility to manage unforeseen implementation challenges beyond the initial one-year window.
Operates under the authority granted by the Financial Services and Markets Act 2023, ensuring the regulatory change is legally sound following parliamentary approval of the draft instrument.
Arguments Against
Imposes specific requirements on financial institutions during the defined 2027 transitional period, potentially complicating parallel operation with pre-existing or newly enacted domestic regulatory frameworks not covered by the specific exclusions in Article 465A(1).
Creates a temporary, defined deviation from the full implementation of the new PRA Rulebook standards until the transitional period concludes, which might delay the intended risk management benefits of the permanent rules.
Centralizes the power to extend the period in the Treasury through secondary legislation, which might be seen as concentrating discretionary power regarding the timeline of regulatory compliance.
While no impact assessment was published, complex transitional arrangements inherently place administrative burdens on firms required to manage two potential sets of rules or models depending on how the internal transition is managed.
STATUTORY INSTRUMENTS
2026 No. 491
FINANCIAL SERVICES AND MARKETS
The Capital Requirements Regulation (Market Risk Transitional Provision) Regulations 2026
Made - - - -
29th April 2026
Coming into force - -
30th December 2026
The Treasury make the following Regulations in exercise of the powers conferred by sections 3(1) and (4) and 84(2) of the Financial Services and Markets Act 2023 ('the Act')( 1 ).
These regulations are officially designated as Statutory Instruments 2026 No. 491 and concern financial services and markets.
The formal title is 'The Capital Requirements Regulation (Market Risk Transitional Provision) Regulations 2026'.
They were made by HM Treasury on April 29th, 2026, and became effective on December 30th, 2026.
The Treasury enacted these rules using powers granted by sections 3(1), 3(4), and 84(2) of the Financial Services and Markets Act 2023 (the Act).
The Treasury have consulted the Prudential Regulation Authority and the Financial Conduct Authority in accordance with section 3(6) of the Act.
A draft of these Regulations has been laid before, and approved by a resolution of, each House of Parliament in accordance with sections 3(10) and 84(3) of the Act.
Before making the regulations, the Treasury consulted both the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA), as required by section 3(6) of the Act.
Furthermore, a draft version of these Regulations was presented to and formally approved by both the House of Commons and the House of Lords via resolution, as mandated by sections 3(10) and 84(3) of the Act.
Citation, commencement and extent
- -(1) These Regulations may be cited as the Capital Requirements Regulation (Market Risk Transitional Provision) Regulations 2026.
- (2) These Regulations come into force on 30th December 2026.
- (3) These Regulations extend to England and Wales, Scotland and Northern Ireland.
This section outlines the official title, when the rules take effect, and where they apply nationally.
The short title for citing these rules is the Capital Requirements Regulation (Market Risk Transitional Provision) Regulations 2026.
The regulations officially commenced operation on December 30th, 2026.
Their geographical applicability covers England, Wales, Scotland, and Northern Ireland.
Amendment of Regulation (EU) No 575/2013 - Transitional provision for capital requirements relating to market risk
- After Article 465 (own funds requirements) of Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012( 2 ), insert-
This section details the primary action: amending the EU's Capital Requirements Regulation (CRR), specifically Regulation (EU) No 575/2013, concerning prudential requirements for banks and investment firms.
The amendment introduces a new article directly following Article 465, which deals with own funds requirements.
' Article 465A Transitional provision for capital requirements relating to market risk
- For the purpose of calculating their capital requirements for market risk, during the transitional period credit institutions and Part 4A investment firms must not apply the
(a) rule 4.1 (transitionals);
- (b) Article 325az (permission to use internal models) except for paragraph A1;
- (c) Articles 325azx (material changes and extensions to permission) to 325bp (particular requirements for an internal default risk model); and
- (d) Annexes 1 (standards for grant of an IMA permission) and 2 (material changes and extensions to internal models).
A new Article 465A creates a temporary rule for calculating market risk capital requirements.
During the specified transitional period, credit institutions and specific investment firms (Part 4A firms) are prohibited from applying certain sections of the PRA Rulebook related to the Market Risk: Internal Model Approach (IMA).
This exclusion specifically targets rule 4.1 (transitionals), most of Article 325az concerning permission to use internal models (while allowing paragraph A1), the entire range of articles from 325azx through 325bp dealing with model changes and default risk models, and Annexes 1 and 2 dealing with internal model permissions and changes.
The Treasury may by regulations amend the definition of 'transitional period' in paragraph 6(h) for the purpose of extending that period.
The power to make regulations under paragraph 2 is exercisable by statutory instrument.
A statutory instrument which contains regulations made under paragraph 2 is subject to annulment in pursuance of a resolution of either House of Parliament.
Regulations under paragraph 2 may-
(a) contain incidental, supplemental, consequential, transitional and saving provision; and
(b) may make different provision for different purposes.
The Treasury is granted the authority, via regulation, to alter the duration defined as the 'transitional period' found in paragraph 6(h), allowing for an extension if necessary.
Any regulations made exercising this power must be established using the formal mechanism of a statutory instrument.
This secondary legislation remains subject to parliamentary scrutiny, meaning either House can pass a resolution to annul it.
Furthermore, these extension regulations can include necessary supplementary, consequential, or transitional provisions, and may apply different rules for different scenarios or purposes.
- In this Article-
- (a) 'credit institution' has the meaning given in section 417(1) of FSMA 2000( 4 );
- (b) 'FSMA 2000' means the Financial Services and Markets Act 2000;
- (c) 'Part 4A investment firm' means a person who-
- (i) falls within the definition of 'investment firm' in section 424A of FSMA 2000( 5 ),
- (ii) has a Part 4A permission to carry on a regulated activity which falls within the definition of 'investment services and activities' in section 417(1) of FSMA 2000( 6 ), and
- (iii) is not a credit institution;
- (d) 'Part 4A permission' has the meaning given in section 55A(5) of FSMA 2000;
- (e) 'regulated activity' has the meaning given in section 22 of FSMA 2000( 7 );
- (f) 'the PRA' has the meaning given in section 417(1) of FSMA 2000( 8 );
- (g) 'the PRA Rulebook' means the rulebook published by the PRA containing rules made by that Authority under FSMA 2000 as those rules are amended from time to time;
- (h) 'transitional period' means the period beginning with 1st January 2027 and ending with 31st December 2027.'
This paragraph defines key terms used throughout Article 465A. A 'credit institution' is defined by the Financial Services and Markets Act 2000 (FSMA 2000, section 417(1)).
'Part 4A investment firm' must be an investment firm under FSMA 2000, hold a Part 4A permission for defined investment services activities, and crucially, must not be a credit institution.
Other defined terms include FSMA 2000, Part 4A permission, regulated activity, the PRA, and the PRA Rulebook.
The 'transitional period' is explicitly set as the calendar year from January 1st, 2027, until December 31st, 2027.
29th April 2026
Gen Kitchen Christian Wakeford Two of the Lords Commissioners of His Majesty's Treasury
This section records the date the Instrument was signed and identifies the signatories.
The regulations were signed on April 29th, 2026, by Gen Kitchen and Christian Wakeford, acting as two of the Lords Commissioners of His Majesty's Treasury.
EXPLANATORY NOTE
(This note is not part of the Regulations)
Regulation (EU) No. 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms ('the Capital Requirements Regulation') provides, among other things, for capital requirements relating to market risk. Some of these capital requirements were revoked by the Financial Services Act 2021 (Prudential Regulation of Credit Institutions and Investment Firms) (Consequential Amendments and Miscellaneous Provisions) Regulations 2021 (S.I. 2021/1376). Remaining provisions are revoked by section 1 of, and Schedule 1 to, the Financial Services and Markets Act 2023 (c. 29). This later revocation comes into force on 1st January 2027 by virtue of the Financial Services and Markets Act 2023 (Commencement No. 12 and Saving Provisions) Regulations 2026 (S.I. 2026/45 (C. 5)).
An Explanatory Note, which does not form part of the legally binding regulations, clarifies the context.
The Capital Requirements Regulation (CRR) originally set out requirements for market risk capital.
Some of these requirements were removed by 2021 regulations.
However, the remaining market risk provisions within the CRR are set to be fully revoked by the Financial Services and Markets Act 2023, starting on January 1st, 2027, according to separate commencement regulations.
The revoked capital requirements will be replaced by rules made by the Prudential Regulation Authority ('PRA') on 13thJanuary 2026 through the PRA Rulebook: CRR Firms: (CRR) Instrument 2026 (PRA 2026/1), which will come into force on 1st January 2027. That Instrument and the rules are available on https://www.prarulebook.co.uk and copies can be obtained from the PRA, 20 Moorgate, London, EC2R 6DA.
The PRA created replacement rules through an instrument published in January 2026, which are contained within the PRA Rulebook and are scheduled to take effect on January 1st, 2027.
This supersedes the provisions being revoked from the CRR.
Information about this new instrument and the associated rules can be found on the PRA Rulebook website, or hard copies are available directly from the Prudential Regulation Authority offices in London.
Regulation 2 inserts new Article 465A into the Capital Requirements Regulation, which requires credit institutions and Part 4A investment firms not to apply specified PRA rules for the period between 1st January 2027 and 31stDecember 2027 ('the transitional period'). Article 465A comes into force on 30th December 2026, that is, immediately before the relevant provisions of the Capital Requirements Regulation are revoked.
Regulation 2 introduces Article 465A into the CRR. This new article legally requires credit institutions and Part 4A investment firms to ignore certain specified PRA rules during the designated transitional period, which runs for the entirety of 2027.
Significantly, Article 465A itself becomes active on December 30th, 2026.
This timing ensures the transitional safeguard is in place right before the underlying existing CRR provisions are formally revoked on January 1st, 2027.
During the transitional period, credit institutions and Part 4A investment firms will be able to continue using their existing market risk models or use new standardised approaches in accordance with the PRA rules. Article 465A(2) gives the Treasury the power to extend the transitional period by regulations.
The purpose of the transitional year is to allow firms flexibility: they may keep using their current market risk modelling techniques or adopt the new standardised approaches contained within the PRA rules.
The Treasury holds the authority, exercisable through regulations, to lengthen this specified transitional period if deemed necessary.
No impact assessment has been published in respect of these Regulations because no impact, or no significant impact, on the private, voluntary or public sector is foreseen.
The government determined that a formal impact assessment was unnecessary for these specific regulations.
This judgment was based on the expectation that the changes would result in either no impact or no impact substantial enough on the private, voluntary, or public sectors to warrant a full assessment.
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