Basel 3.1: Adapting to regulatory changes and seizing opportunities in regulatory reporting
Basel 3.1 is a crucial framework aimed at enhancing the stability of the global banking system. It has strengthened the banking sector by increasing resilience and reducing systemic risk. Its global implementation has led to stricter capital and liquidity requirements. In the UK, the Prudential Regulation Authority (PRA) has adapted these standards to ensure competitiveness while maintaining international norms. Key changes in Basel 3.1 include enhanced risk sensitivity, improved comparability of risk-weighted assets, and simplified regulatory frameworks.
In this interview, Jawad Akhtar, Head of Product Management at Regnology provides a deeper understanding of these changes and their impact on financial institutions and offers a comprehensive overview of Basel 3.1, its global and UK-specific impacts, and the critical changes that financial institutions must adapt to.
Looking ahead, one thing is certain in regulation: change is inevitable. Even as stability follows the implementation of final rules, history shows that further updates will emerge. For now, the priority should be assessing the financial and operational implications of Basel 3.1—aligning strategy, operating models, data, reporting, and workforce to meet both UK and global compliance requirements.
Jawad Akhtar
Head of Product Management
Regnology
Could you give us a brief overview of Basel 3.1 and its objectives?
Six years have passed since the Basel Committee on Banking Supervision (BCBS) finalized its post-Global Financial Crisis prudential reforms. Some elements, like the Fundamental Review of the Trading Book (FRTB), have been in negotiation for over a decade. With the BCBS’s 2028 deadline for transitional arrangements approaching, the industry is nearing the end of a monumental regulatory overhaul—a positive development.
However, challenges remain. Whether termed Basel 3.1, Basel IV, or the "Basel Endgame," full implementation of these rules requires significant effort, and key uncertainties persist. National rulebooks and implementation timelines remain unclear, with jurisdictions progressing at varying speeds—creating complexity for multinational banks striving to meet deadlines while assessing financial and operational impacts. As with past reforms, firms must navigate uncertainty, preparing for compliance even as final rules take shape.
Basel 3.1 seeks to strengthen the Basel III framework by:
Reducing inconsistencies in risk-weighted asset (RWA) calculations across banks.
Enhancing credibility by tightening internal model use to prevent capital optimization and risk underestimation.
Modernizing the market risk framework (unchanged since 1996) to reflect current financial markets and crisis-era lessons.
What are the biggest challenges that financial institutions will face when implementing Basel 3.1?
UK banks face significant challenges with Basel 3.1, including data integration, automation, and managing compliance across multiple jurisdictions. Legacy systems struggle with the vast data volumes, leading to inefficiencies. Manual reporting processes increase the risk of errors and delays, potentially resulting in non-compliance and penalties.
Stricter risk sensitivity and expanded reporting requirements demand robust systems to collect, process, and analyze large volumes of granular data. Model validation also presents difficulties, requiring firms to rigorously test and often recalibrate existing risk models to comply with the updated standards.
Regulatory divergence, where UK-specific adjustments to Basel 3.1 may create inconsistencies with global norms, forces firms to adopt dual compliance strategies. Resource allocation further complicates implementation, as institutions must invest heavily in staff training, system upgrades, and operational restructuring to meet the new framework’s demands.
Additionally, the standardized approach for operational risk adds complexity, requiring firms to enhance internal controls and processes to align with revised capital requirements. These challenges underscore the need for strategic planning, significant investment, and proactive adaptation to ensure a smooth transition to Basel 3.1 in the UK.
What are the biggest challenges facing banks in implementing basel 3.1?
Results from a recent poll of 53 market participants from financial institutions,
conducted during the latest webinar "Unlocking Basel 3.1"
On the flip side, what are the potential long-term benefits for financial institutions in adhering to Basel 3.1?
Basel 3.1 presents firms an opportunity to consider the processing of this data, both for internal business purposes but also for their regulatory reporting and risk calculations, balancing decisions on the latter with a firms desire for automation, straight through processing and embracing the regulators desire to see firms move away from EUC (end-user-computing, or Excel as it is more commonly known as!).
Firms may look to incorporate their data into new or existing data warehouses or lakes, make use of either internally built risk calculation engines or third-party specialist risk providers, others may choose to take data directly from source systems into a vendor solution that can provide regulatory reporting and calculations in a single solution, perhaps now more attractive an option given the move to Standardized Approach for some calculations.
How is Regnology helping banks in the UK implement Basel 3.1, especially in terms of automation and data management?
Regnology Reporting Hub addresses these challenges by automating the regulatory reporting process and applying over multiple validation rules across jurisdictions. This automation reduces manual intervention, minimizes errors, and improves reporting efficiency. Our platform’s robust data management capabilities ensure that UK banks can collect, integrate, and validate data accurately, meeting Basel 3.1’s complex requirements. Additionally, its multi-jurisdictional compliance features help banks navigate varying regulatory standards globally.
Through these solutions, we as Regnology help banks reduce operational risks, streamline compliance efforts, and ensure timely, accurate reporting, contributing to improved compliance within the UK banking sector.
Finally, what advice would you give to banks and financial institutions that are still in the process of preparing for Basel 3.1 compliance?
For me I do believe that firms should take into account the growing trend for regulators to collect the underlying granular data alongside calculated ratios and traditional templates, having a good grasp of your data and a supporting toolset is imperative to be fit for the future, these tools can then also be leveraged for internal management information reporting on what is often classed as ‘golden source’ data due to the high level of quality checks and scrutiny afforded to it.
As a final comment, whether considering either the business or technical changes, it would be wise to remember that the only certainty when it comes to regulation is change, and whilst there will no doubt be a period of stability following the implementation of the final rules, if past history is anything to go by there will be more to come. For now, though, the focus must be on understanding the impacts of the Basel 3.1 changes, both financially and operationally, and ensuring that you have aligned your strategy, operating model, data, reporting and people optimally to achieve compliance.
For additional insights, watch the replay of our recent webinar "Unlocking Basel 3.1: Navigating challenges and seizing opportunities in Regulatory Reporting"
Join our Regnology Showcase UK in London on May 14th & Leeds on May 15th. Connect with industry peers, explore the latest updates in RegTech and regulatory reporting for the UK market and discover how Regnology supports you throughout your reporting journey.
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