On 22 May 2025, the PRA published consultation paper CP12/25, launching the first phase of its review of the Pillar 2A framework to address the impacts of Basel 3.1 standards, enhance transparency, and reduce regulatory burdens. The proposals focus on credit risk, operational risk, pension obligation risk, and market and counterparty credit risk, aiming to improve clarity, proportionality, and consistency:

Credit risk

The PRA proposes key changes to the Pillar 2A credit risk framework:

• Retire the IRB benchmarking methodology, which will become unsuitable after Basel 3.1 implementation. Two new systematic methodologies will address undercapitalisation risks.
• Introduce expectations for firms to use credit scenario analysis in their ICAAPs to address idiosyncratic risks not captured under Pillar 1 or the systematic methodologies.
• Streamline reporting by decommissioning FSA077 and FSA082 templates and simplifying FSA076, reducing data points from 326 to 78.

Operational risk

The PRA proposes clearer expectations for operational risk scenario analysis in ICAAPs, requiring firms to capture low-frequency, high-severity events at a 99.9% soundness standard. The PRA will:

• Provide more detail on how it sets Pillar 2A capital, considering factors such as business models, ICAAP quality, and peer comparisons.
• Introduce good practices for operational risk measurement frameworks, influencing reliance on ICAAP submissions.
• Remove AMA-related requirements from FSA072–075 templates, reflecting the AMA’s retirement under Basel 3.1.

Pension obligation risk

The PRA proposes to:

• Remove the two PRA-prescribed stress scenarios for Pillar 2A pension risk, reducing reporting burdens without affecting risk assessments.
• Reduce reporting for fully bought-in pension schemes or those with a funding ratio of at least 130%, requiring only limited disclosure of residual risks.

Market risk and counterparty credit risk

The PRA proposes to:

• Update methodologies for assessing market risk, including illiquid risks, gap risks, intraday risks, and syndicated loan underwriting risks, while clarifying ICAAP reporting requirements.
• Expand expectations on residual risks from credit risk mitigation, wrong-way risk, settlement risk, and tail risks, ensuring alignment with supervisory and market practices.

Next steps

The consultation closes on 5 September 2025. Changes to pension risk and market/counterparty credit risk will take effect from 2 March 2026. Other proposals will align with Basel 3.1 implementation. A second consultation (Phase 2) will follow to review individual methodologies in more detail.