UK Finance Response: HMT’s OPRR Draft SI and PRA CP3/26 - Industry Backs the Framework with Targeted Asks
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UK Finance broadly supports the OPRR's preservation of CRR equivalence outcomes while pressing for clarity on covered bonds and the FSMA model transition timeline.
Context:
UK Finance submitted a formal response to both HM Treasury's draft Overseas Prudential Requirements Regime (OPRR) Statutory Instrument (technical comments deadline 2 April 2026) and the PRA's parallel Consultation Paper CP3/26 (which also closed 2 April 2026). The response reflects the collective view of the UK banking and financial services industry on one of the most structurally significant regulatory changes of the Basel 3.1 era: the transition from CRR-based equivalence provisions to a new FSMA model framework.
The OPRR is designed to preserve the substantive outcomes of the existing CRR equivalence regime, allowing UK firms' exposures to overseas counterparties in recognised jurisdictions to continue to receive favourable prudential treatment, while restating those provisions in a form that fits the post-Brexit UK legal architecture. For firms, the practical question is whether the transition is genuinely neutral (preserving existing treatments without disruption) or introduces new friction through definitional changes, scope differences, or operational uncertainty.
UK Finance's overarching position is one of broad support for the framework and its objectives, combined with specific technical concerns on: (i) covered bonds, the OPRR's treatment of exposures to overseas covered bonds remains unresolved, and UK Finance pressed HMT to include covered bond recognition in the initial OPRR scope rather than treating it as a phase-two matter; (ii) the interaction between the OPRR and the draft CRR Definitions Regulations, where firms need assurance of definitional continuity; and (iii) operational implementation timelines given the simultaneous implementation of Basel 3.1 from January 2027, any ambiguity in the OPRR transition needs to be resolved well in advance of year-end 2026.
Rules and Guidelines:
UK Finance's response focused on three rule-level concerns. First, on the two-track 'deemed designated' and 'express designation' structure of the OPRR: UK Finance supported the automatic deemed designation of currently equivalent jurisdictions, but flagged that the express designation process must be operationally efficient — a firm-by-firm or transaction-by-transaction engagement with PRA for novel exposures would be unworkable. Second, on PRA Rulebook amendments: UK Finance supported CP3/26's approach of updating twelve Rulebook parts, but pressed for clear guidance on transition, particularly for COREP reporting, where the 31 December 2026 year-end is the first filing under the new taxonomy. Third, on Pillar 2: UK Finance noted that SoP 5/15 amendments should not inadvertently alter the basis for existing Pillar 2 add-ons, and pressed the PRA to confirm that no material change to capital requirements is intended through the minor SoP amendment.
On covered bonds specifically, UK Finance argued that excluding overseas covered bonds from the initial OPRR scope creates a cliff-edge for firms with covered bond portfolios that currently receive favourable LCR liquidity treatment under the CRR equivalence framework. Without an OPRR designation mechanism for covered bonds, those positions would face higher liquidity and capital charges from January 2027. UK Finance called for either inclusion within the initial OPRR or a transitional provision maintaining existing CRR treatment pending a subsequent designation process.
Businesses Affected:
UK banks and building societies with cross-border CRR capital exposures, the OPRR directly affects how overseas counterparty risk weights are calculated.
Asset managers and insurance companies with significant overseas covered bond holdings are most affected by the scope gap on covered bonds.
Regulatory capital, treasury, and compliance teams are responsible for preparing the January 2027 Basel 3.1 reporting submissions under the new taxonomy.
Legal and regulatory advisory teams advising clients on the interaction between the OPRR SI, CRR Definitions Regulations, and PRA Rulebook changes.
Next Steps:
Review the UK Finance response and any PRA policy statement when published, which will confirm whether covered bond concerns have been addressed through a transitional provision or scope inclusion.
Begin COREP reporting system updates for the new PRA taxonomy (v4.0.0) now. The year-end 2026 reporting date is the first submission under the new framework, and systems need to be tested well in advance.
Identify any overseas covered bond positions currently receiving favourable CRR LCR treatment. Assess the impact of the scope gap on liquidity coverage ratio calculations from January 2027 if no transitional provision is confirmed.
Engage directly with the PRA on any firm-specific Pillar 2 concerns related to the SoP 5/15 amendments. The PRA has indicated that no material change is intended, but firms should verify against their current add-on structure.
Source | HM Treasury | HMT’s Overseas Prudential Requirements Regime
