PRA Proposes Automatic Indexation of 128 Regulatory Thresholds

The Prudential Regulation Authority proposed on 7 October 2026 that 128 regulatory thresholds across banking, insurance and credit unions increase automatically in line with UK nominal Gross Domestic Product, replacing the manual, ad hoc updates that currently take place. The proposal is set out in consultation paper CP13/26, “Updating regulatory thresholds: An autopilot approach”, published alongside a Bank of England news release. The first automatic update would take effect on 1 July 2031, with further updates every five years thereafter.

The thresholds determine which regulatory rules apply to firms, how those rules apply, and what firms must report to the PRA. The largest in-scope threshold is the £320 billion total assets threshold for detailed capital reporting; the smallest is a £7,500 threshold covering amounts owed to a credit union by an individual. Other significant thresholds include the size of an insurer subject to Solvency UK and the Small Domestic Deposit Takers (SDDT) regime total assets threshold. The consultation is relevant to banks, building societies, designated investment firms, insurers, credit unions and third-country branches, and may also interest Financial Conduct Authority (FCA) solo-regulated firms and members of groups subject to PRA requirements on a consolidated basis.

The PRA grouped the 128 thresholds by principal regulatory function. Of the total, 31 (24%) set a regulatory perimeter or definition, 52 (41%) concern reporting, 8 (6%) concern internal governance, policies and procedures, 25 (20%) concern methodologies and approaches, and 12 (9%) concern lending, funding and investment flexibility.

Indexation Metric, Formula and Timeline

The PRA proposes UK nominal GDP, published by the Office for National Statistics, as the indexation metric because it captures both changes in prices and real economic growth, which the Consumer Prices Index or real GDP growth alone would not. PRA analysis of firm-level regulatory data found that cumulative nominal GDP growth of 85.4% between 2009 and 2024 fell within the central distribution of asset growth observed across 114 banks and 41 life insurers, which the PRA states supports nominal GDP as a common metric across sectors.

Under the proposed formula, each threshold’s base amount would be multiplied by the ratio of reference-year nominal GDP to base-year nominal GDP, using a single fixed base year of 2026 across the framework. The final threshold would be set as the higher of the previous threshold and the rounded indexed value, so thresholds would not fall if nominal GDP declines, and updated values would be rounded to two significant figures before being reflected in the Rulebook or policy publications. Once the framework is adopted, future indexation rounds would proceed under the finalised methodology without further consultation at each update, through a rule instrument and an indexation statement of policy.

An initial three-year indexation period would bring the first update forward, followed by a recurring five-year cycle. Under the proposed timeline, the first update would use 2029 as the reference year, with a data cut-off of 1 October 2030 and indexation outcomes communicated before 31 December 2030, giving firms a six-month implementation window before the 1 July 2031 effective date. The next update would take effect on 1 July 2036.

Estimated Impacts, Exclusions and Next Steps

The PRA states that fixed nominal thresholds drift from their original calibration as the economy grows and prices change, creating “prudential drag” in which an increasing number of firms become subject to additional requirements, or existing requirements become more conservative, than intended. The package is expected to benefit all firms, but particularly small and medium-sized firms hovering under regulatory thresholds.

Katharine Braddick, Deputy Governor for Prudential Regulation at the Bank of England and CEO of the PRA, said: “This modernisation will significantly help financial services firms plan for the future, offering crucial stability and predictability, while also preventing out of date thresholds becoming restrictive barriers to growth.”

On costs, the PRA estimates that where indexation allows a firm to avoid reporting an entire template, it may save in the region of £80,000 per year per template, as well as one-off implementation costs. Earlier PRA estimates put average annual reporting costs at £43,000 per template for small firms and £119,000 for medium firms, plus a £50,000 one-off implementation cost per template. Applying the historic ten-year nominal GDP growth rate to current firms’ total assets, the PRA estimates an average of 14 banking entities would cross applicable total asset thresholds over the next ten years if those thresholds remained fixed. Its illustrative scenarios range from £0.2 million to £14.5 million in aggregate annualised savings per year over ten years, depending on assumed instances of thresholds not being crossed. Fewer than 10% of in-scope thresholds operate in the opposite direction, where indexation could increase requirements, including certain UK Solvency II Standard Formula thresholds and two thresholds governing whether a borrower qualifies as a high-net-worth borrower under the PRA’s buy-to-let underwriting expectations. The PRA concludes the proposal’s benefits are likely to outweigh its costs, while noting firms face one-off familiarisation and systems costs and recurring adjustment costs at each indexation point.

The PRA excluded thresholds where automatic updating would undermine policy intent, where changes cannot be delivered through PRA processes, where thresholds are not expressed as nominal amounts, or where changes could materially alter prudential outcomes. A discussion paper section of CP13/26 seeks evidence on further thresholds, including credit risk thresholds that affect Internal Ratings Based models (among them the £880,000 retail exposure condition, the £440 million large-corporate revenue criterion and the £440 past-due materiality threshold), liquidity thresholds linked to credit risk, fixed sterling issue-size thresholds used in high-quality liquid asset eligibility, and thresholds jointly owned with the FCA covering remuneration, whistleblowing and the Senior Managers and Certification Regime.

The Bank of England, as the UK resolution authority, introduced a similar indexation approach for the total assets thresholds in its Minimum Requirement for Own Funds and Eligible Liabilities (MREL) statement of policy in July 2025, with a three-year frequency. Its next update remains scheduled for the first half of 2028, and the Bank has confirmed to the PRA that, subject to feedback received on this consultation, it expects to align the frequency of MREL threshold updates with the PRA cycle thereafter. Financial Policy Committee buffer thresholds for Other Systemically Important Institutions, and the leverage ratio retail deposits threshold raised from £50 billion to £75 billion under PS22/25, are not in scope. The PRA’s existing commitment to review the SDDT criteria by the end of 2028 and its Future banking data review would proceed on their communicated timelines. The CP also notes that the US Federal Deposit Insurance Corporation applies CPI-W indexation to a more limited set of regulatory thresholds, ordinarily every two years.

The consultation opened on 7 October 2026, and responses to both the consultation and the discussion paper are due by 7 February 2027; responses on jointly owned thresholds will be shared with the FCA unless respondents request otherwise. The CP includes draft PRA Rulebook changes, a draft indexation statement of policy and lists of proposed in-scope thresholds. The paper states it meets a commitment set out in Sam Woods’ “Competing for growth” speech to consider a systematic, cross-sector approach to indexing thresholds, and notes the Financial Policy Committee welcomed the uprating of some regulatory thresholds in its December 2025 assessment of bank capital requirements. The PRA discussed the proposal with Scale-up Unit firms at a June 2026 roundtable, where the firms supported it, engaged its Cost Benefit Analysis Panel twice during development and consulted the PRA Practitioner Panel. The announcement builds on recent PRA reforms including capital-neutral Basel 3.1 implementation, the Strong and Simple framework for smaller firms, March 2026 liquidity reform proposals and ring-fence reforms consulted on in May 2026.