New rules for banks aim to promote investment in UK economy

The Prudential Regulation Authority (PRA) has proposed new rules for banks and building societies to ensure competitiveness in the financial system and promote investment in the UK economy.

Proposed reforms are part of the internationally agreed Basel 3 framework and will mark an end to capital reforms introduced in response to the 2008 financial crisis and bring the UK financial sector in line with global standards. Changes also look to provide the certainty industry will need to invest for growth.

Chancellor of the Exchequer Rachel Reeves welcomed the reforms to rules and is set to meet with the Governor of the Bank of England and CEOs of the largest UK banks and building societies to discuss the PRA’s proposals.

Chancellor of the Exchequer Rachel Reeves said:?

“Today marks the end of a long road after the 2008 financial crisis.?

“Britain’s banks have a vital role to play in helping businesses to grow, getting infrastructure built and supporting ordinary peoples’ finances.?

“These reforms will strengthen the resilience of our banking system and deliver the certainty banks need to finance investment and growth in the UK.”?

Economic Secretary to the Treasury Tulip Siddiq said:?

“These new rules bring the UK in line with international standards while supporting the dynamism of the UK economy.?

“This is a balanced package that promotes the competitiveness of the UK banking system as well as economic growth.”?

The PRA’s new rules, set to come into force from 1st January 2026, including those already announced in December 2023, will require banks and building societies will have to maintain sufficient capital against risks to avoid another 2008-style crash, but also include measures to focus on growth and investment. This regime will also make it easier for smaller banks and building societies to lend by minimising the number of calculations they are required to make and introducing a single capital buffer.

Other key changes made by the PRA will: 

• Lower its proposed capital requirements for lending to small and medium-sized businesses (SMEs). This will mean lending to SMEs continues to be supported, helping to deliver the government’s ambition to make the UK the best place in the world to start and grow a business.  
• Lower its proposed capital requirements for infrastructure projects, ensuring no increase on current requirements and supporting the UK’s transition to net zero.? 
• Streamline the approach banks can take to mortgage lending, by simplifying the approach to valuing residential property.