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Regulatory Frameworks

This section provides detailed information on the regulatory frameworks supported by the UK Credit Risk RWA Calculator.

Overview

UK credit risk capital requirements are based on international Basel standards, as implemented by the Prudential Regulation Authority (PRA). The calculator supports two frameworks:

Framework Status Effective Period Primary Regulation
CRR (Basel 3.0) Active Until 31 Dec 2026 UK CRR, PRA Rulebook
Basel 3.1 Planned From 1 Jan 2027 PRA PS1/26

Regulatory Hierarchy

graph TD
    A[Basel Committee] --> B[Basel 3.0 Standards]
    A --> C[Basel 3.1 Standards]
    B --> D[EU CRR/CRD IV]
    C --> E[PRA PS1/26]
    D --> F[UK CRR Onshored]
    F --> G[Current UK Rules]
    E --> H[Future UK Rules]

    style G fill:#90EE90
    style H fill:#FFE4B5

Key Regulatory Documents

Current Framework (CRR)

Document Description Link
UK CRR EU 575/2013 as onshored legislation.gov.uk
PRA Rulebook - CRR Firms PRA rules for CRR firms prarulebook.co.uk

Future Framework (Basel 3.1)

Document Description Link
PRA PS1/26 Basel 3.1 final rules bankofengland.co.uk
PS1/26 Appendix 1 Basel 3.1 regulations bankofengland.co.uk
PS1/26 Appendix 17 Basel 3.1 template guidance bankofengland.co.uk
BCBS CRE Standards Basel Committee credit risk standards bis.org

Framework Selection

The calculator automatically applies the correct rules based on your configuration:

from datetime import date
from rwa_calc.contracts.config import CalculationConfig

# For current CRR rules
config = CalculationConfig.crr(reporting_date=date(2026, 12, 31))

# For Basel 3.1 rules
config = CalculationConfig.basel_3_1(reporting_date=date(2027, 1, 1))

Key Differences Summary

Feature CRR Basel 3.1
1.06 Scaling Factor Applied to all IRB Removed
Output Floor None 72.5% of SA equivalent
SME Supporting Factor 0.7619/0.85 tiered Removed
Infrastructure Factor 0.75 flat Removed
PD Floors 0.03% uniform 0.03%-0.10% differentiated
A-IRB LGD Floors None 0%-25% by collateral

Detailed Framework Documentation

UK-Specific Deviations

The UK has implemented certain deviations from Basel standards:

Institution Risk Weights

Under CRR, UK institutions apply a 30% risk weight for CQS2 institutions (vs. 50% standard Basel):

CQS Standard Basel UK CRR
CQS1 20% 20%
CQS2 50% 30%
CQS3 50% 50%

Threshold Currency Conversion

EUR-denominated thresholds in regulations are converted to GBP:

Threshold EUR Amount GBP Amount (@ 0.88)
SME turnover EUR 50m GBP 44m
SME exposure EUR 2.5m GBP 2.2m
Retail threshold EUR 1m GBP 880k

The calculator automatically handles these conversions using the configured FX rate.

Compliance Considerations

Audit Trail

The calculator maintains full audit trails for regulatory compliance: - All calculation inputs are logged - Intermediate results are available - Errors and warnings are accumulated (not thrown) - Results can be exported for review

Validation

Input data is validated against regulatory schemas: - Exposure class constraints - Rating scale mappings - Threshold compliance - Required field validation

Documentation

All calculations reference specific regulatory articles: - CRR Article numbers for current rules - CRE chapter references for Basel 3.1 - PRA rulebook cross-references

Next Steps