WASHINGTON, May 17 -- Rep. Elijah Cummings, D-Maryland, issued the following news release:

Maryland's bipartisan congressional delegation has written a joint letter to Secretary of the Treasury Steve Mnuchin and Secretary of Health and Human Services Alex Azar in support of Maryland's waiver for a state reinsurance program, which was authorized by the Maryland General Assembly earlier this year. Reinsurance is a reimbursement system that protects insurers from very high claims by having a third party (the federal or state government) pay part of the insurance company's claims once they pass a certain amount.

"The Governor and both Democratic and Republican leaders strongly support this effort to address premium costs and access to affordable healthcare in our state. The Maryland Insurance Administration estimates that the State Reinsurance Program would lower premium rates market-wide by as much as 30 percent and would lead to a reduction in federal payments of advance premium tax credits," the Maryland lawmakers wrote in their letter.

The letter to Treasury and HHS was signed by the full federal delegation, including U.S. Senators Ben Cardin and Chris Van Hollen, Congressmen Steny H. Hoyer, Elijah Cummings, C.A. Dutch Ruppersberger, John P. Sarbanes, Andy Harris, M.D., John K. Delaney, Anthony G. Brown and Jamie Raskin.

Earlier in May, the Maryland Insurance Administration (MIA) released the 2019 proposed rates for silver level health plans sold on the individual market. CareFirst has requested a premium rate increase of 18.5 percent for their HMO plans and a premium rate increase of 91.4 percent for their PPO plans. Kaiser Permanente requested a premium rate increase of 37.4 percent. These rates do not reflect the possibility of a state reinsurance program. MIA estimates that a state reinsurance program could have a premium reduction impact of 30 percent, which could result in 2019 rates being lower than 2018 rates.

The full letter follows and can be found at this link (https://urldefense.proofpoint.com/v2/url?u=https-3A__www.cardin.senate.gov_download_waiver-2Dreinsurance-2Ddelegation-2Dletter-2Dsigned&d=DwMF-g&c=L93KkjKsAC98uTvC4KvQDTmmq1mJ2vMPtzuTpFgX8gY&r=fnPuzqS42voPZ-GjrbdUOY2PlhUqgpoLWmMWgtDlo0eHwh2FFg2FFlEtTMeBnr1g&m=5cA-jJGfMXlfQx_58YTwjMqBPWdQ8VR8peNpMy72YTI&s=1x5n0HvC905jTfMvRe71KabdZT4zik2cGDHbgecoZ04&e=).

May 17, 2018

The Honorable Steven Mnuchin

Secretary of the Treasury

Department of the Treasury

1500 Pennsylvania Avenue, NW

Washington, DC 20220

The Honorable Alex Azar

Secretary of Health and Human Services

Department of Health and Human Services

200 Independence Avenue, SW

Washington, DC 20201

Dear Secretary Mnuchin and Secretary Azar,

We write to request that the U.S. Department of the Treasury and the U.S. Department of Health and Human Services grant Maryland's application for a Section 1332 State Innovation Waiver as soon as possible. We urge that this process include careful and thorough consideration of key stakeholder's input such as the Maryland Medical Society.

Earlier this year, the Maryland General Assembly voted to establish a state-based reinsurance program, the Maryland State Reinsurance Program. The Governor and both Democratic and Republican leaders strongly support this effort to address premium costs and access to affordable healthcare in our state. The Maryland Insurance Administration estimates that the State Reinsurance Program would lower premium rates market-wide by as much as 30 percent and would lead to a reduction in federal payments of advance premium tax credits. By contrast, without federal approval, rates for many individual market plans could increase substantially.

The matter is urgent because the Maryland Insurance Administration must finalize the approval of the individual market rates by September 1, 2018. Accordingly, on behalf of our constituents, we urge you to complete your consideration of Maryland's waiver application as soon as possible.

Sincerely,

The following information was released by the Bank of England:

1: Executive summary

1.1 Regulatory thresholds are quantitative measures used to determine when or how specific prudential requirements apply to firms, often with the aim of supporting proportionate prudential treatment below the threshold. Over time, fixed nominal thresholds can drift away from their original calibration as the economy grows and prices change. This can create 'prudential drag', where an increasing number of firms become subject to additional requirements or existing requirements become more conservative, as thresholds gradually tighten in an unintended way. As a result, the thresholds may no longer reflect the Prudential Regulation Authority's (PRA) original policy intent or risk appetite.

1.2 This consultation paper (CP) proposes a transparent, rules-based framework that would automatically update in-scope regulatory thresholds every five years. The PRA proposes that the first automatic update for thresholds under this new framework would take place on 1 July 2031. The framework would change the way many thresholds are maintained across PRA rules and guidance. The PRA would move away from the current ad hoc, policy-by-policy approach to a more systematic and predictable cross-policy methodology.

1.3 Automatic updates to thresholds based on nominal growth in the economy would avoid unintended tightening in the regulatory regime over time and improve proportionality across the framework. The PRA considers that the proposal would support competition, reduce barriers to growth for financial sector firms and improve the provision of services to the UK economy. Firms growing faster than the wider economy would still move across indexed thresholds and become subject to the associated requirements, helping to maintain their financial and operational resilience.

1.4 The PRA considers that the benefits of the proposal are likely to outweigh the costs. Firms may incur initial costs from familiarising themselves with the framework and, where relevant, updating systems, policies and procedures. They may also face recurring costs at each indexation point. However, predictable updates on a single date should support business planning and reduce ongoing costs by allowing firms to make related governance and reporting changes together. The PRA and firms should benefit from fewer ad hoc policy interventions in the future to update thresholds solely to maintain their intended calibration.

1.5 The PRA recognises that not all regulatory thresholds are suitable for automatic indexation and is therefore consulting on which thresholds should be in scope.

1.6 Subject to the framework being adopted, future indexation exercises would be implemented in accordance with the finalised methodology, without requiring the PRA to revisit the underlying policy judgement at each update and without further consultation in the indexation rounds.

1.7 Alongside the proposals in this CP, the PRA is also seeking views on a further set of thresholds through the discussion paper (DP) section below. In particular, the PRA welcomes evidence from firms on the costs and benefits of including these thresholds in the framework. This feedback will help inform the PRA's decision on whether to consult on bringing them into the framework in future.

1.8 The proposed framework is a significant part of the PRA's work to modernise its policy framework, by building in some automatic future proofing in the PRA's regime. While different thresholds apply to different types of PRA firms, the proposed package is relevant to PRA-regulated firms and other firms subject to PRA requirements.

2: Overview

2.1 This CP sets out the PRA's proposal to introduce a framework for automatic indexation (the framework) of regulatory thresholds (thresholds) across PRA policy, including the PRA Rulebook, supervisory statements (SSs) and statements of policy (SoP).

2.2 Specifically, the PRA proposes to:

introduce automatic indexation for a specified set of fixed nominal thresholds (which are expressed in fixed, numerical figures that are not adjusted for factors like economic growth or inflation, eg 50 billion total assets) identified by applying the proposed scoping criteria;

apply a consistent timeline and indexation methodology across the framework, including the use of UK nominal Gross Domestic Product (GDP) as the indexation metric; and

introduce a dedicated indexation SoP setting out how the PRA intends to operationalise practical aspects of the framework.

2.3 This CP introduces draft changes to the PRA Rulebook (Appendix 1), a draft SoP on automatic indexation of thresholds (Appendix 2) and a list of proposed thresholds for inclusion in the framework (Appendix 3 and Appendix 4).

2.4 The PRA also invites views, in a separate DP section below, on thresholds where the costs and benefits to firms of indexation are less clear to the PRA. These thresholds are not currently being proposed for inclusion in the framework but may be in future. This will be subject to further consideration based on evidence and feedback from stakeholders, as well as any feedback received on the wider package being consulted on in the CP.

Scope

2.5 This consultation is relevant to firms and other persons that are, or may become, subject to thresholds. Depending on the threshold, this may include banks, building societies, designated investment firms, insurers, credit unions and third-country branches. The proposal may also be of interest to Financial Conduct Authority (FCA) solo regulated firms and to firms that are members of groups subject to PRA requirements on a consolidated basis.

Background

2.6 This CP meets the PRA's commitment to consider a systematic, cross-sector approach to indexing thresholds across its regime to avoid prudential drag, as set out in the Competing for growth speech. Under the current approach, the PRA reviews and updates individual thresholds on an ad hoc basis where this is considered necessary or appropriate.

2.7 In December 2025, the Financial Policy Committee (FPC) published Financial Stability in Focus: The FPC's assessment of bank capital requirements and welcomed the uprating of some regulatory thresholds as one of the steps being taken to improve the efficiency and proportionality of the capital framework.

2.8 The Bank and the PRA have recently updated a number of thresholds, including those relating to the resolution regime (PS10/26), the capital buffers for Other Systemically Important Institutions (O-SIIs), and the leverage ratio framework (PS22/25). These changes are intended to reflect nominal growth in the economy since their introduction and to maintain the intended calibration and proportionality of the relevant frameworks.

Case for action

2.9 The proposal in this CP addresses feedback from industry on regulatory thresholds received through recent major PRA and Bank policy initiatives. Firms said that uncertainty about when and if they would be subject to requirements can make planning harder, possibly restraining lending and balance-sheet growth. They also noted that without regular updates, thresholds could become more restrictive over time than originally intended.

2.10 Thresholds are an important tool for supporting the tailored and proportionate application of PRA requirements across the diverse population of firms the PRA regulates. Well-calibrated thresholds help align the requirements and associated costs that firms face with the risks they pose to the PRA's objectives and the UK economy.

2.11 The PRA's thresholds have been introduced and amended over many years through domestic policy initiatives, legislation brought into UK law from the EU, and measures implementing international standards. As a result, thresholds have different origins, calibration dates and underlying policy contexts, and were not designed as a single population subject to a common approach to indexation.

2.12 In the absence of timely updates, as noted by firm feedback, fixed nominal thresholds may become unintentionally more restrictive over time. Where thresholds relate to firm size, their calibration may drift as prices and the economy grow. Firms may grow in nominal terms without a corresponding increase in their relative size or systemic importance.

2.13 Other thresholds determine requirements such as the capitalisation of certain types of lending (eg house prices or the size of a loan), or how some insurers calculate capital requirements for asset exposures above a certain size. These values may also increase in nominal terms without a corresponding increase in the underlying risk. This can result in prudential drag, as firms become subject to higher prudential standards resulting in additional or more intensive requirements.

2.14 Some static thresholds may also create or accentuate cliff-edge effects for firms approaching them. These effects are likely to be proportionately greater for smaller and growing firms, for which the incremental costs associated with crossing a threshold may represent a larger share of overall operating costs. If the PRA does not update thresholds that tend to provide more proportionate treatments to smaller firms, then competition in the financial sector will weaken unintentionally.

2.15 The PRA's current, primarily ad hoc, approach to updating thresholds enables it to prioritise thresholds that are particularly important or impactful but does not provide systematic or regularly recurring updates across the PRA's policy. As a result, some thresholds may remain unchanged for extended periods.

2.16 The timing and scale of ad hoc updates will as a result likely be difficult for firms to anticipate. This uncertainty about future requirements and existing calibrations makes it more difficult for firms to plan and grow with confidence. Economic evidence and the PRA's experience indicate that regulatory thresholds can influence firms' growth, balance-sheet management, lending, investment decisions and other business decisions. Firms may therefore retain additional resources, constrain growth or alter their activities solely to avoid crossing a threshold.footnote [1]

2.17 These effects may create unnecessary barriers to growth and effective competition, therefore creating a mismatch between prudential requirements and the size of the underlying risks the requirements seek to address. Low levels of competition may also constrain the provision of financial services in some more niche segments of the market. Without action, some firms will face a higher cost of doing business than is necessary to meet the PRA's requirements.

Proposed framework and high-level impacts

2.18 The PRA proposes a new framework to automatically update eligible nominal thresholds using a common methodology and timeline. In scope thresholds would be adjusted to reflect cumulative growth in nominal GDP, with the first update effective from 1 July 2031, and further updates every five years. The PRA considers that this systematic, predictable and transparent approach to updating certain thresholds would help address prudential drag.

2.19 By indexing thresholds at a predetermined frequency, the proposal would reduce the risk of firms becoming subject to more burdensome requirements solely because of nominal growth in the economy. The PRA also considers that using a consistent and publicly available measure produced by the Office for National Statistics (ONS), would provide greater predictability about future threshold values. The proposed framework would also reduce the need and cost of repeated policy interventions and consultations for both firms and the PRA, where the purpose is solely to maintain threshold calibration.

2.20 The proposal is therefore expected to support a proportionate regulatory framework and effective competition, while preserving the underlying prudential intent of the affected policies. It should also reduce barriers to growth for small and mid-sized firms and make the UK regulatory framework more agile and risk based. In short, it would contribute to modernising the framework, enabling firms to plan for the future.

2.21 In response to feedback received at a roundtable with the Scale-up Unit firms,footnote [2] and as part of the proposed draft indexation SoP (Appendix 2), the PRA would publish a consolidated list of all thresholds within scope of the automatic indexation framework, for information and ease of access. The draft indexation SoP would also provide firms with an accessible overview of the scope of the framework and how in-scope thresholds have evolved over successive indexation rounds. This would assist existing, new and incoming firms to understand when the different parts of the prudential regime start to apply to them, enabling a simpler and more accessible regulatory framework for firms operating in the UK.

2.22 The diagram and explanations below summarise the high-level principal channels through which the proposal is expected to affect firms, the PRA and the wider economy. More detail and explanation are included in the PRA's cost benefit analysis (CBA).

Box A: Impact summary of automatic indexation of regulatory thresholds

The impacts set out in the diagram above are explained below.

Impacts on the PRA

Operational savings of automatic indexation: Reduced need for ad hoc policy interventions and consultations to update eligible thresholds.

Operational costs of automatic indexation: implementing and maintaining the framework.

Impacts on PRA firms

Reduced prudential drag: Thresholds remain proportionate over time, helping firms avoid undue regulatory costs, arising from UK nominal GDP growth.

Maintenance of firm safety and soundness: Firms and activities that grow relative to the wider economy will continue to cross thresholds.

Increased transparency and predictability: Greater certainty about how and when thresholds will change supports firms' business planning.

Lower policy engagement costs: Fewer ad hoc threshold reviews reduce firms' need to review and respond to associated PRA consultations.

Implementation and maintenance costs: Firms may incur costs when updating systems, policies and procedures to reflect newly indexed thresholds.

Consequential impacts on markets and the UK economy

Auto-indexation is expected to support more effective competition, more effective capital allocation and, as a result, be supportive of UK economic growth.

2.23 The impact of automatic indexation will depend on each firms' proximity to individual thresholds, their growth, the requirements associated with crossing each threshold, the timing of updates relative to the baseline and nominal GDP growth.

Implementation

2.24 The PRA intends to implement the framework before the first automatic adjustment to in-scope thresholds takes effect, which is proposed for 1 July 2031. Further detail on proposed implementation timelines is provided as part of the PRA's proposal and the draft indexation SoP (Appendix 2).

Responses

2.25 The PRA invites responses to the proposal set out in this consultation by 7 February 2027. See the Responding to the Consultation section for details on how to respond and for information on how the PRA handles your personal data. The PRA invites feedback on the proposed framework, including the list of proposed in-scope thresholds, design and potential impacts on firms and markets, to inform the development of final policy.

2.26 The PRA also welcomes feedback on the DP section by 7 February 2027. Respondents may provide feedback on both the CP and the DP in a single response but are asked to indicate clearly which comments relate to the CP, and which relate to the DP. Responses to the DP relating to the Joint PRA and FCA thresholds section will also be shared with the FCA unless respondents request otherwise.

3: The PRA's proposal: Introducing a framework for automatic indexation

3.1 The PRA proposes to introduce a framework for the automatic and periodic indexation of in-scope thresholds contained in the PRA Rulebook as well as others contained in PRA guidance (ie SSs and SoP). Applying the framework, the PRA has identified a set of in-scope thresholds that it is proposing are subject to indexation. The framework would help maintain the current calibration of in-scope thresholds over time by periodically updating them using a common indexation methodology and timeline. The PRA considers that this approach would allow the maximum number of threshold values to evolve consistently across policy areas and over time, in line with changes in the broader economy, while limiting volatility and operational burden for firms and the PRA.

3.2 For thresholds in the PRA Rulebook, indexation would need to be implemented through a rule instrument that defines the formula, frequency, scope and update mechanism (Appendix 1), which will then update the PRA Rulebook automatically and without further consultation. The PRA considers that, compared to threshold updates that are determined through ad hoc individual, ad hoc policy reviews, an automatic rules-based approach would provide greater certainty, consistency and predictability for firms, while reducing the need for repeated threshold-specific interventions solely to maintain calibration. The automatic indexation mechanism is only intended to cover the part of threshold calibration related to changes in prices and real economic growth, and the PRA still expects to undertake periodic reviews of thresholds when evaluating its risk appetite.

3.3 The draft indexation SoP (Appendix 2) sets out how the PRA intends to apply the indexation framework overall, including to in-scope thresholds that sit outside the PRA Rulebook, such as those contained in PRA guidance. The draft indexation SoP explains that the PRA intends to update threshold values contained in PRA guidance in line with the same mechanism and on the same timeline that would apply to in-scope Rulebook thresholds. Future changes to thresholds in PRA guidance would take effect when the PRA publishes the amended documents on its website.

3.4 To support transparency and predictability, the draft indexation SoP also provides additional guidance on how the PRA would operationalise practical aspects of the framework. Once the framework is implemented, updates to in-scope thresholds contained in the PRA Rulebook and PRA guidance would ordinarily occur automatically in accordance with the draft indexation SoP's approach. Box B summarises the key aspects of the PRA's proposed approach to automatic indexation.

Box B: Overview of key aspects of proposed indexation approach

The PRA uses scoping criteria to determine which thresholds to propose for automatic indexation.

The PRA indexes in-scope thresholds using UK nominal gross domestic product (GDP) published by the ONS.

The PRA uses a simple indexation formula that applies universally to all in-scope thresholds with a single, fixed base year of 2026.

The framework operates on a recurring five-year indexation period (after an initial one-off three-year indexation period).

The PRA will provide notification in advance of updated thresholds taking effect through public communication, supported by the SoP.

There is a six-month implementation window for stakeholders to prepare after the PRA's communication and before updated thresholds take effect.

3.5 Once the framework is finalised following consultation, the in-scope PRA Rulebook thresholds and their base amounts would be listed in the draft rule instrument (Appendix 1), while the in-scope thresholds contained in PRA guidance and their base amounts would be listed in the draft indexation SoP (Appendix 2). The draft indexation SoP would also contain, for information and ease of access, a consolidated list of all in-scope thresholds and their base amounts, together with relevant information on their treatment under the framework. This would provide firms with a single source of information on the thresholds subject to indexation and greater transparency on the scope and evolution of the framework, and support effective planning.

Scope of thresholds eligible for automatic indexation

3.6 The PRA's starting point was that fixed nominal thresholds that can be updated through a consistent methodology should be considered eligible for automatic indexation, unless there is a clear reason to exclude them from the proposed framework. Thresholds may, for example, not be suitable for automatic indexation where they are set in legislation or by another authority, where they are linked to a non-nominal measure, such as a percentage or count, or where the chosen indexation metric would not be an appropriate measure to maintain a threshold's intended calibration. There may also be cases where automatically updating a threshold could undermine the original policy intent, create unintended prudential consequences, or interact with wider policy reviews. There may also be cases where the cost-benefit of automatic indexation is unclear, and those are included in the DP section below.

3.7 The PRA therefore proposes to exclude the following thresholds from the framework:

where automatic updating without further policy judgement would be inappropriate and would undermine the policy intent;

where threshold changes cannot be delivered through PRA processes;

thresholds that are not expressed as nominal amounts; and

where changes could materially alter prudential outcomes and require policy judgement, these will continue to be reviewed through the PRA's usual policymaking process.

The PRA considers that, taken together, these considerations form helpful criteria to support a transparent and proportionate approach to automatic indexation. The proposed criteria are presented and described in the draft indexation SoP.

3.8 The scoping criteria can be applied on a case-by-case basis, considering the characteristics and policy intent of individual thresholds. On this basis, the PRA has identified 128 thresholds across the PRA Rulebook and PRA guidance that it proposes for inclusion in the framework these are listed in Appendix 3 and Appendix 4.

3.9 The PRA has grouped each of these thresholds into categories to support the CBA analysis. The categories reflect the principal regulatory function of each threshold. Where a threshold could fall within more than one category, the PRA has assigned it to the category that best reflects its primary role. The categories and their populations are listed below, with further explanation provided in the CBA section.

3.10 Indexation would generally reduce the risk that firms become subject to stricter prudential requirements solely because of nominal GDP growth. However, some thresholds work in the opposite direction, meaning that increasing their value could increase firms' requirements or reduce firms' flexibility.

3.11 For example, increasing certain thresholds within the UK Solvency II Standard Formula could, in some cases, increase the resulting Solvency Capital Requirement. This does not make them unsuitable for indexation if it would maintain their intended prudential calibration over time. The PRA notes that fewer than 10% of the proposed in-scope thresholds are expected to operate in this way. The PRA has considered these thresholds in its cost benefit analysis below.

3.12 The PRA has identified a small number of thresholds where the case for automatic indexation is less clear, including because the implications may be more complex or costly. The separate DP section below seeks evidence to inform any future proposal to bring these thresholds within the framework. The PRA also sets out in the DP a non-substantive change to the formula in Article 153(4) of the Credit Risk: Internal Ratings Based Approach (CRR) of the PRA Rulebook to facilitate indexation.

Interactions with other frameworks

3.13 In developing its proposals, the PRA has considered how this proposed framework interacts with other frameworks, including those set by the Bank, the Financial Policy Committee (FPC) and the FCA.

Bank of England: MREL statement of policy

3.14 The Bank fo England (the Bank), as the UK resolution authority, introduced a similar indexation approach in July 2025 for the total assets thresholds in its Minimum Requirement for Own Funds and Eligible Liabilities (MREL) statement of policy. This included a three-year update frequency, with changes made as necessary to take account of changes in nominal economic growth. The Bank's first update is due in the first half of 2028, to take account of the impact of nominal economic growth between end-2024 and end-2027.

3.15 When the Bank finalised its MREL policy, it said that it would consider consistency with methodologies used to update other Bank/PRA regulatory thresholds. The Bank has confirmed to the PRA that, subject to the feedback received on this consultation, it expects to align the frequency of MREL threshold updates with the PRA's automatic indexation update cycle. The Bank will also consider whether other aspects of the PRA's methodology are relevant to MREL thresholds, recognising that the indicative nature of those thresholds may mean some elements are not appropriate.

3.16 This approach aims to ensure a simple and coherent approach across the regulatory framework and facilitate firms' business planning. The Bank's next MREL threshold indexation update remains scheduled for the first half of 2028. Thereafter, the Bank intends to update its MREL thresholds for indexation while the PRA updates its thresholds for indexation.

FPC: O-SII buffer framework

3.17 The PRA has also considered how the proposed indexation framework may interact with FPC's existing O-SII buffer framework and the changes to the retail deposits threshold for the leverage ratio. The FPC has previously reviewed threshold calibrations within its macroprudential framework. In 'An FPC Response 2024 O-SII buffer framework review', the FPC confirmed its intention to assess the thresholds as part of its regular reviews of the framework, which will take place at least every three years. The FPC also confirmed that it may choose to conduct off-cycle reviews that could cover a review of thresholds if deemed appropriate, including to avoid significant increases in thresholds. These thresholds would therefore not be in scope of the proposed indexation framework.

3.18 The PRA's policy statement (PS) 22/25 Leverage Ratio: Changes to the retail deposits threshold for the application of the requirement, confirmed an increase to the retail deposits threshold for application of the leverage ratio requirement from 50 billion to 75 billion, with a three-year averaging mechanism for the calculation of firms' retail deposits. These commitments would be unaffected by this consultation, and these thresholds would therefore not be in scope of the framework.

3.19 The separate DP section below seeks views on how the proposed indexation framework would interact with certain thresholds that operate across or interact with PRA and FCA regulatory frameworks.

Interaction with ongoing PRA policy reviews

3.20 The PRA acknowledges commitments made prior to this consultation to review certain thresholds. In PS15/23 The Strong and Simple Framework: Scope, Criteria, Liquidity and Disclosure Requirements, the PRA committed to reviewing the Small Domestic Deposit Takers (SDDT) criteria including the calibrations of the thresholds within the criteria, no later than the end of 2028. In DP1/26 Future banking data, the PRA also committed to reviewing what data it collects, from which firms and at what frequencies to identify efficiency opportunities. The proposed inclusion of thresholds covering smaller firms and reporting in the proposed automatic indexation framework would not alter these commitments. The PRA considers that including them in scope of the measures covered in this consultation paper would ensure the benefits of consistency, transparency and predictability continue to apply while those reviews are undertaken. The reviews would proceed within their previously communicated scope and timelines, taking account of any indexation of the relevant thresholds.

3.21 Beyond these specific reviews, the PRA will consider interactions with other policy developments as they progress through the policy lifecycle. Relevant developments may affect individual thresholds or their suitability for inclusion in the framework. The PRA will take account of any such developments when finalising the scope of the framework post consultation.

Future changes to scope of the proposed framework

3.22 The proposed framework would not replace ad hoc policy evaluation or new development. This is because it only deals with updating the part of the thresholds related to inflation and growth, and not to the PRA's risk appetite. Decisions to introduce or remove thresholds from the framework or amend thresholds that are already in scope to adjust the PRA's risk appetite can continue to be made in line with the PRA's usual policymaking process.

3.23 A key benefit of the proposed rules-based approach to automatic indexation is that it establishes a consistent framework for indexing and updating all eligible thresholds as the PRA Rulebook and policy framework continues to evolve. New thresholds can be brought into scope of the framework and existing in-scope thresholds can be amended as part of ad hoc policy evaluation. Any proposal to add, remove or amend an in-scope threshold in PRA rules would require a corresponding amendment to the rule instrument that establishes the framework. This process would be subject to the PRA's usual statutory requirements and public law duties following the approach set out in SoP1/25 The PRA's approach to policy.

3.24 The PRA's default expectation is that new or amended fixed nominal thresholds would fall within the scope of automatic indexation where possible, subject to the same scoping criteria and policy judgements applied in this consultation. All thresholds subsequently added to the framework would be subject to the same indexation methodology and timelines as thresholds already in the framework. The draft indexation SoP sets out how the PRA would assess and operationalise future changes to scope, including how new or amended thresholds would be integrated into the framework.

Indexation methodology

Metric

3.25 The PRA proposes to use UK nominal GDP growth as the indexation metric. Nominal GDP growth captures both changes in prices and real economic growth. Together, prices and real economic growth capture the broadest measure of how fast the economy, and lending by firms would be expected to be expanding. The PRA therefore considers nominal GDP the most appropriate measure for maintaining the calibration of a diverse range of thresholds as the wider economy grows. The data is published by the ONS and is publicly available and independently produced, supporting transparency.

3.26 The PRA considered alternative measures, including the Consumer Prices Index (CPI) or real GDP growth. CPI would account for changes in consumer prices but not changes in real economic activity nor changes in prices beyond the consumer sector, while real GDP growth would account for changes in economic activity but not prices. Nominal GDP growth captures both components and therefore provides a broader measure of the nominal economic growth that can cause fixed monetary thresholds to drift from their intended calibration. Figure 1 contains a stylised illustration of how an initial 10 threshold would have evolved under the three measures using historic data.

3.27 Over the period illustrated, nominal GDP indexation would have produced a larger cumulative uplift than either CPI or real GDP indexation as it reflects both increases in prices and real economic growth. The stylised comparison is not intended to identify the measure that produces a specific uplift, but to illustrate the typically different economic effect captured by each measure, based on historic data.

3.28 The PRA also considered whether nominal GDP growth provides an appropriate common measure for thresholds that apply to both the banking and insurance sector. A review of the relevant literature identified channels through which nominal economic growth is associated with financial-sector activity.footnote [3] Higher economic activity may increase credit demand, savings and demand for insurance, contributing to growth in bank assets, bank funding and insurance premiums. The figure below summarises these conceptual channels.

Figure 2: Illustrative channels linking nominal GDP growth to financial-sector activity

3.29 These channels support the use of nominal GDP growth as an economy-wide benchmark, but do not imply that the assets or activities of each individual firm will grow at the same rate as nominal GDP. Firm-level outcomes will vary according to business models, market conditions, corporate activity and firm-specific developments. Instead, the aim is to choose the broadest and most representative single measure to build simplicity into the framework that can capture the widest range of circumstances.

3.30 In addition to relevant literature, the PRA also considered firm-level regulatory data: the figures below compare the distribution of cumulative asset growth among banksfootnote [4] and eligible life insurers between 2009 and 2024 with cumulative nominal GDP growth over the same period. The vertical axis shows firms' cumulative asset growth and the chart is wider where more firms experienced the same level of growth over that 15-year period. The red horizontal line shows cumulative nominal GDP growth over the same period, illustrating how firms' asset growth compares with growth in the wider economy.

3.31 The PRA's analysis in the figures above shows variation in asset growth across firms and sectors. However, the cumulative nominal GDP growth over the period, at 85.4%, falls within the central distribution of observed asset growth for both banking and life-insurance firms, rather than towards either end of the distribution. This indicates that nominal GDP growth is broadly representative of the range of asset growth experienced by firms and is not significantly out of line with the outcomes observed in either sector. This supports its use as a simple, common metric across the framework. The PRA therefore considers this evidence to be consistent with the literature and theory, while recognising that it will not replicate the exact growth of each individual firm's activities.

Formula

3.32 The proposed indexation formula below uses a fixed (static) base year for the first and future indexation calculations, and all future automatic threshold updates will reflect nominal GDP growth since the base year. The PRA will publish the values of each threshold in the base year. The proposed formula is easy to apply and operationalise universally for all in-scope thresholds. It also ensures that all ONS revisions to nominal GDP data since the base year are reflected in each indexation round. The alternative approach of cumulative growth since the last updating would not encompass all ONS revisions because it would lock in and carry forward data estimates that have since been revised.

3.33 The PRA proposes to use a single base year across the framework (as opposed to using unique base years for individual thresholds). The PRA considers that using a single base year supports a consistent, clear and simple approach for all in-scope thresholds, reducing complexity for firms and the PRA.

3.34 The proposed formula would not reduce thresholds if nominal GDP falls. The framework is intended to preserve threshold calibration against long-run nominal growth, rather than to recalibrate thresholds automatically during periods of economic weakness.

3.35 The PRA proposes to round the value of updated, in-scope thresholds to two significant figures (SF) before reflecting them in the Rulebook or policy publications. Indexation may otherwise produce non-round amounts that imply a false degree of precision and make thresholds less straightforward for firms to apply. The PRA considered existing rounding conventions and the impact of rounding to one or three significant figures (illustrated in the table below) but found that rounding to two significant figures achieved overall sensible rounding outcomes across the wide range of in-scope thresholds. While rounding could affect the point at which firms move into or out of scope where a firm sits close to a threshold, this is inherent in any approach that converts an indexed calculation into a legally operable threshold.

3.36 The PRA considered whether rounding should vary by individual threshold or threshold type, including approaches used in other frameworks, but identified no potential drawbacks to a single convention that would outweigh the benefits of a simple, predictable and legally operable update process.

Indexation timelines (base year, frequency and effective date)

3.37 The PRA proposes to use 2026 as the base year. This base year aligns with the development of the framework and allows future updates to in-scope thresholds to be calculated by reference to threshold values as currently calibrated. The PRA considers this an intuitive starting point that provides a transparent basis for applying indexation over time.

3.38 The PRA notes that for thresholds implemented or last reviewed before the proposed base year, indexation would not be backdated to the point in time at which the threshold was implemented or last reviewed. The PRA is not proposing a blanket, retrospective uplift of existing thresholds. Thresholds have different origins and evolutions, and in some cases, there is not a clear and unambiguous date from which retrospective indexation should apply. The proposed common base year would instead provide a clear and consistent starting point for indexation across the framework. This approach would not prevent the PRA from separately reviewing or recalibrating an individual threshold through its usual policymaking process were it considered to be out of line with the desired level. Any such ad hoc policy evaluation would be additional to, and separate from, the proposed automatic indexation framework.

3.39 To operationalise the proposed 2026 base year in a simple and consistent manner, the PRA proposes a transitional treatment for thresholds taking effect in 2027 or 2028. Examples of thresholds to be introduced in this timeframe are PS1/26 Implementation of Basel 3.1: Final rules, PS3/26 Restatement of CRR requirements 2027 implementation final and PS4/26 The Strong and Simple Framework: The simplified capital regime for Small Domestic Deposit Takers (SDDTs). As an exception, these thresholds' effective-date values would be used as the base amounts for future indexation. This means the PRA would only calculate and publish 2026-equivalent base amounts for new thresholds that are introduced or amended in 2029 or later. The PRA considers that a blanket transitional exception would reduce complexity during the initial years of the framework, by recognising thresholds already consulted on at the time of this CP. The PRA also recognises that nominal GDP data needed to calculate a 2026-equivalent base amount may not be fully available when a policy is made during the transition period. The draft indexation SoP sets out the proposed approach to base amount calculation in more detail.

3.40 The PRA considered how frequently in-scope thresholds should be updated. To inform its assessment, the PRA reviewed historical nominal GDP data to compare how an illustrative threshold would have evolved using two-, three-, five- and seven-year update periods. Figure 5 shows the resulting threshold paths and annual nominal GDP growth over the period analysed.

3.41 The PRA considers that shorter indexation periods would keep thresholds more closely aligned with changes in nominal GDP between updates. However, shorter periods would also result in more frequent changes to regulatory threshold values, requiring firms and the PRA to monitor, assess and, where relevant, implement updates more often. This would cause adjustment costs to arise more frequently, including where updated values affect firms' systems, models, policies and procedures, or existing permissions and waivers. Longer periods would provide a more stable regulatory timetable but could result in greater interim drift and larger individual adjustments, particularly following sustained periods of high nominal GDP growth.

3.42 The balance of these effects is likely to vary across thresholds and firms. It will depend on the purpose and operation of individual thresholds, the types and sizes of firms affected, and the nature and scale of any changes that firms may need to make when threshold values are updated. However, the PRA considers that applying a common frequency across in-scope thresholds is important to the consistency, simplicity and predictability of the framework, enabling firms and the PRA to plan for automatic indexation on a common timetable rather than manage multiple threshold-specific cycles.

3.43 The PRA has not considered an automatic over-ride that could bring forward indexation updates following periods of particularly high levels of nominal GDP growth. The PRA does not deem a mechanical over-ride necessary but can still introduce an over-ride through its usual policy process at a later stage.

3.44 The PRA therefore proposes an initial three-year indexation period so that firms can benefit from the first update sooner. As this would only bring forward the first automatic update, rather than increase the frequency of updates, the shorter initial period would not result in added operational burden on firms or the PRA compared with a five-year period. After the initial update, the PRA proposes that the framework should then operate on a recurring five-year indexation period to reduce volatility and operational costs. On balance, the PRA considers that a five-year cycle would generally provide sufficiently regular updates to limit prudential drag, while avoiding the more frequent regulatory changes and implementation activity associated with shorter cycles. The PRA welcomes views on the proposed five-year frequency, including the associated costs and benefits when compared to other frequencies.

3.45 Once the proposed framework is implemented, in-scope thresholds would ordinarily update automatically with the first proposed update taking effect on 1 July 2031 and subsequent updates taking effect every five years thereafter. Table 3 illustrates the PRA's proposed timeline.

3.46 The proposed timeline allows initial ONS data revisions to UK nominal GDP data to feed through before updated thresholds are calculated. It also facilitates the PRA's process for calculating and communicating indexation outcomes after each indexation period, as described in more detail in the draft indexation SoP.

3.47 While firms will be able to directly monitor ONS data to calculate the indexed thresholds, the proposed effective date facilitates a six-month implementation window after indexation outcomes are communicated by the PRA and before new thresholds take effect. The PRA considers that the proposed implementation window would provide firms with sufficient advance notice of updated threshold values before they take effect, enabling them to make any necessary systems or reporting adjustments.

PRA objectives, cost benefit and 'have regards' analysis

The PRA's primary objective

3.48 The PRA considers that the proposal would advance its primary objectives of safety and soundness and provide appropriate protection for insurance policyholders by supporting the proportionate application of prudential requirements over time. Automatic indexation would help preserve the intended calibration of in-scope thresholds as prices and the economy grow, often reducing the risk that firms become subject to additional requirements without a corresponding increase in their underlying risk or systemic importance. Similarly, for requirements that they are already subject to and where the outcome is determined by a nominal threshold, it ensures that such requirements do not become more or less conservative over time without a corresponding change in their underlying risk.

3.49 The proposal is not intended to change the underlying prudential purpose or calibration of the affected policies. Firms whose activities, risk profile or systemic importance change relative to the wider economy would continue to cross indexed thresholds and become subject to the associated requirements. The PRA has also assessed individual thresholds for their suitability for automatic indexation and excluded those where automatic updating could materially undermine their policy intent or prudential outcomes. The PRA therefore considers that the proposal would maintain appropriate prudential standards while supporting their consistent and proportionate application.

The PRA's secondary objectives

3.50 The PRA considers that the proposal would advance its secondary objectives by reducing prudential drag and helping to preserve the proportionate application of regulatory requirements over time.

3.51 Automatic indexation would facilitate the secondary competition objective by helping ensure that some firms are not brought into scope of additional requirements solely because of economy-wide growth, allowing them to expand before crossing eligibility thresholds and incurring associated costs. These benefits may be greater for smaller and growing firms, for which the incremental costs associated with crossing a threshold may represent a larger share of overall operating costs. As a result, both competition and competitiveness would benefit.

3.52 However, firms of all sizes should benefit from the automatic indexation of thresholds relating to the calibration, rather than the scope of application, of prudential requirements.

3.53 Greater transparency and predictability should help firms anticipate regulatory transitions, plan and execute their business strategies more effectively, and allocate capital and other resources more efficiently. This may reduce incentives for firms to constrain otherwise efficient growth, alter their activities or retain additional headroom solely to avoid an uncertain threshold transition. By reducing these distortions, the proposal may support more effective competition and allow firms to deploy resources into, among other things, activities supporting economic growth.

3.54 These competition and proportionality benefits would also facilitate the PRA's secondary competitiveness and growth objective. A transparent and predictable framework for maintaining thresholds would help ensure that the UK prudential framework remains responsive as prices and the economy grow. This can support the attractiveness of the UK as a place to establish and grow a financial-services business, including for internationally active firms and new entrants. A dynamic and forward-looking regulatory framework, which provides greater transparency and clarity about when regulatory requirements will apply, would support firms' financial planning and business decisions.

3.55 These proposals may reduce the risk that firms become subject to additional requirements or that requirements that they are already subject to become more conservative solely because thresholds have not kept pace with nominal growth. Indexation could therefore free up capital and other resources for more productive uses, including supporting additional lending to the wider economy.

3.56 The scale of these effects is uncertain and will vary across firms and thresholds. The Cost benefit analysis section explains the principal sources of this uncertainty and assesses the likely impact channels.

3.57 The PRA considers that the proposed framework would facilitate competitiveness and growth while maintaining alignment with relevant international standards. Although the proposal includes thresholds in policies that implement international standards, it would preserve their intended prudential calibration as the economy grows and would not alter the substance or policy intent. The PRA has excluded thresholds from the proposed framework, or reserved them for further consideration, where it could not be satisfied that automatic indexation would maintain that alignment without further policy judgement, or where the costs relative to benefits of inclusion are unclear.

Significant factors to which the PRA has 'had regard'

3.58 In developing its proposal, the PRA has had regard to its framework of regulatory principles. The PRA considers the most significant factors to be proportionality of our regulation, the Legislative and Regulatory Reform Act 2006 (LRRA) principles of good regulation, the transparent exercise of the PRA's functions, publication of information, efficient use of resources and the growth and competitiveness grouping of have regards. The effects of the growth and competitiveness considerations are set out in paragraphs 3.47 to 3.54. The remaining considerations are summarised below.

Proportionality of our regulation and LRRA principles of good regulation

3.59 The principle of proportionality of our regulation strongly informed the proposed scope of the framework. Although the risk of fixed nominal thresholds becoming misaligned over time is common across the PRA's policy framework, individual thresholds serve different functions and may affect firms, sectors and business models differently. The PRA therefore assessed thresholds individually and proposes to include them in the scope of the framework only where automatic indexation would be consistent with their underlying policy intent. Thresholds have been excluded, or reserved for further consideration, where automatic indexation could be inappropriate, disproportionate or have unintended prudential consequences. The PRA also had regard to the LRRA principles of good regulation when developing the framework. These principles informed the decision to adopt a common and consistent methodology and timetable, publish updated values in advance, and target automatic indexation at thresholds for which it is appropriate.

Transparent exercise of the PRA's functions and publication of information

3.60 The PRA's consideration of transparency and the publication of information informed the proposed operation of the framework. The scope, methodology and timing of indexation would be established in advance, and updated threshold values would be published before they take effect.

Efficient use of resources

3.61 The PRA's consideration of the efficient use of resources informed the proposed common methodology and indexation cycle. A systematic rules-based approach would not require re-consultation at each indexation round and should reduce the need for separate policy interventions and consultations whose sole purpose is to maintain the calibration of individual thresholds. In choosing an initial three-year indexation period followed by a recurring five-year cycle, the PRA has sought to balance the benefits of timely indexation against the implementation and recurring adjustment costs for firms and the PRA.

Cost benefit analysis

Approach

3.62 The PRA has assessed the expected costs and benefits of the proposal on a proportionate basis, reflecting the number and diversity of the thresholds in scope. Where reasonably practicable and proportionate, the PRA has used available data, evidence from previous consultations and illustrative scenarios to provide quantitative context. Where robust quantification is not possible, the PRA has assessed the direction and likely scale of impacts qualitatively.

3.63 The case for action and the high-level channels through which the proposal is expected to have an impact are set out in the Background section in the Overview. The analysis below states the baseline and then assesses: the benefits from reduced prudential drag, including the impact channels associated with the threshold categories; the benefits of greater transparency and predictability; implementation and recurring adjustment costs; impacts on the PRA; market, competition and growth effects; and the overall balance of costs and benefits.

3.64 The PRA has grouped in-scope thresholds according to their principal regulatory function as set out in Table 1 in the PRA's proposal and assessed the expected impact channels for each category. This is supported by threshold-level qualitative assessments and targeted quantitative analysis where appropriate.

Baseline

3.65 The baseline is that the proposed framework is not introduced and the PRA continues its current practice of reviewing and, where appropriate, updating thresholds on an ad hoc basis through its existing policymaking processes. Under this approach, thresholds are considered on a policy-by-policy basis, without any certainty over timing. Updates require separate policy intervention and, where thresholds are contained in PRA rules, public consultation.

3.66 It is not possible to estimate precisely when individual thresholds would be updated under the baseline. The PRA is more likely to prioritise thresholds that are particularly important or impactful, while some lower-impact thresholds could remain unchanged for extended periods of time. Examples of impactful thresholds that the PRA has previously reviewed or is prioritising for future review include the SDDT criteria (PS15/23), UK Solvency II thresholds (PS2/24), and the Leverage Ratio retail deposit threshold (PS22/25). The PRA assumes that, in aggregate, in-scope thresholds would be updated less systematically and less frequently under the baseline than under the proposed five-yearly indexation framework. The baseline does not, however, assume that thresholds would remain fixed indefinitely.

3.67 Relative to the baseline, automatic indexation may allow some firms to remain below a threshold for longer, delaying the point at which additional requirements apply. The scale of this benefit will depend on the extent to which thresholds are updated earlier under the proposal than under the baseline, the firm's growth and proximity to the threshold, and the requirements associated with crossing each threshold.

Benefits from reduced prudential drag

3.68 The principal benefit of the proposed framework is that more systematic indexation would help preserve the intended calibration of in-scope thresholds as prices and the economy grow. Relative to the baseline, this would reduce the likelihood that firms become subject to additional or more intensive requirements solely because of nominal growth, without a corresponding change in the activity, risk or other factor that the relevant threshold is intended to capture. Depending on the threshold concerned, indexation may therefore allow firms to avoid or delay incremental reporting, governance, operational, capital or other compliance costs that they would otherwise incur if the threshold had not been updated to reflect nominal economic growth.

3.69 The proposed framework is intended to maintain, rather than change, the underlying prudential purpose of the affected policies, while giving firms greater certainty about how thresholds will change. Indexation would not prevent firms whose activities, risk profile or systemic importance grow relative to the wider economy from crossing thresholds and becoming subject to the associated requirements. In a small number of cases, less than 10% of in-scope thresholds, increasing a threshold may itself increase a requirement for firms or reduce their flexibility. These impacts are considered separately below. The PRA considers that regardless of threshold impact, indexation would preserve the intended policy calibration and is necessary to maintain a consistent and dynamic prudential framework.

3.70 The nature and scale of the impact will depend on the regulatory function of each threshold and the requirements that apply on either side of it. To support a proportionate assessment, the PRA has grouped in-scope thresholds according to their principal regulatory function. Table 1 in the PRA's proposal sets out the number and proportion of proposed in-scope thresholds in each category. The analysis below explains the principal impact channels within each category when prudential drag is reduced.

Benefits from reduced prudential drag: Regulatory perimeter of a regime or definition

3.71 This category contains 31 thresholds where their principal function is to determine whether a firm falls within a particular regulatory regime or definition within the prudential framework. Crossing such a threshold may alter the set of requirements that applies to the firm.

3.72 Where a firm grows broadly in line with the economy, indexation will allow it to remain within the regulatory treatment intended for firms of its relative scale. Where a threshold determines entry into an entire regime, the resulting benefit could be material because the firm would avoid or delay the main costs associated with that regime, together with related reporting, governance or operational costs.

3.73 For example, indexing relevant thresholds in the Strong and Simple framework for the SDDTs could allow an SDDT to remain within the scope of the regime if it grows broadly in line with the economy. This could preserve savings across capital requirements and operational processes, including reduced reporting and less frequent Internal Liquidity Adequacy Assessment Processes and Internal Capital Adequacy Assessment Processes (ILAAP and ICAAP respectively). The PRA previously estimated material direct net benefits of the SDDT regime for in-scope firms, including 0.4 million 1.4 million of administrative savings per firm over the next 10 years. In addition, the PRA estimated that the aggregate capital stack for SDDT firms as a whole would reduce by 0.6 percentage points.footnote [5] These figures illustrate the potential difference in the costs associated with the regimes on either side of a threshold, rather than the specific benefit of indexation. The benefit of indexation would depend on whether, and how much earlier, the relevant threshold is updated under the proposal than under the baseline, and if a firm's growth crosses the threshold.

Benefits from reduced prudential drag: Reporting

3.74 The PRA has identified 52 in-scope reporting thresholds, of which 42 apply to the banking sector (banks, building societies, designated investment firms and credit unions), and 10 apply to insurers. Reporting thresholds determine the scope of information that firms must provide to the PRA, and/or the frequency of that reporting. Where indexation avoids or delays a firm or exposure crossing one of these thresholds, the firm may avoid or delay incurring new costs relating to data extraction, systems, assurance, governance and submission. The PRA expects these to be among the most direct and consistent benefits of the proposal. Depending on the specific threshold requirements, these savings could also represent a reduction in administrative burden for impacted firms.

3.75 The scale of any savings will depend on the number of firms and exposures that might be affected in the future based on the interaction of automatic indexation and firms' own behaviour and growth as well as the reporting requirements associated with each threshold. Based on past PRA estimates, where a firm would not report an entire reporting template due to indexation, it may save in the region of 80 thousand per year per reporting template, as well as saving on one-off implementation costs. For reference, as part of its CP21/25 Future banking data review: Deletion of banking reporting templates, the PRA estimated average annual reporting costs per template of 43 thousand for small firms and 119 thousand for medium firms, and a one-off implementation cost of 50 thousand per template. The length of time for which this benefit would accrue depends on when the firm would have crossed the threshold in the absence of indexation as well as if and when a given threshold would have been reviewed and updated under the PRA's current ad hoc approach.

3.76 To help provide an illustration of the potential number of firms affected, the PRA applied the historic ten-year nominal GDP growth rate to current PRA firms' total assets. On this basis, an average of 14 banking entities would cross applicable total asset thresholds over the next 10 years if those thresholds remained fixed. This does not account for firms' actual future growth or behavioural responses, and does not indicate how many would avoid reporting an entire template.

3.77 Table 4 illustrates the potential scale of savings under different assumptions of how many firms are impacted over the next ten years. The PRA notes that some thresholds do not determine whether a firm is required to report an entire template, but rather whether or how it should include individual exposures in its reporting. The PRA expects that the benefit to firms of indexing these thresholds would be less, but still positive.

3.78 This category contains eight thresholds with the principal function to determine when firms become subject to additional requirements relating to internal governance, policies or internal processes. Where indexation avoids or delays a firm crossing one of these thresholds, it may avoid or defer incurring costs relating to staff time, external advice, reviews and changes to internal policies and controls. The scale of any saving will vary by threshold and firm and may be proportionately greater for smaller firms.

3.79 One example is a threshold used to determine whether a UK Solvency II firm is required to obtain an external audit of its Solvency and Financial Condition Report. Where indexation delays a firm crossing this threshold, the PRA expects that a firm may benefit from avoiding or deferring the costs associated with commissioning and supporting the audit process.

Benefits from reduced prudential drag: Methodologies and approaches

3.80 The 25 thresholds in this category determine the methodologies or approaches that a firm, or in some cases the PRA, may use to calculate or assess a prudential requirement or policy approach. For firms, this may include eligibility to use a simplified calculation or modelling approach. For the PRA, thresholds may inform how it applies a supervisory methodology or fulfils a regulatory role.

3.81 In other cases, the methodology or approach itself may use a threshold to determine the prudential requirement. For example, the calculation of capital requirements for an exposure sometimes depends on the size of the exposure or the aggregate amount owed by the borrower.

3.82 For thresholds that determine whether firms are eligible to use particular approaches, indexation may prevent or delay firms moving outside the relevant eligibility boundary solely as a result of nominal growth, preserving their ability to choose the approach best suited to the scale and complexity of their activities. Where firms retain discretion over whether to use an eligible approach, the PRA expects this optionality to benefit firms where they judge that the operational, compliance or capital benefits exceed the associated costs.

3.83 For example, firms with derivatives businesses below a specified threshold may choose to use the simplified approach to calculate counterparty credit risk exposure values. Indexation may allow a firm experiencing nominal growth in this area to remain eligible for that approach for longer. This could avoid or delay the systems, data, modelling, governance and staff costs associated with moving to a more complex methodology.

3.84 For other thresholds, crossing the threshold may automatically change the methodology or approach that applies. In these cases, the impact of indexation would depend on the relative costs and benefits of the treatments on either side of the threshold. Where a threshold determines directly a prudential treatment (eg a risk weight for an exposure of a certain size), indexation may prevent a change in the resulting prudential requirement solely as a result of nominal growth rather than a change in risk. In these cases, the impact of indexation would depend on the nature of a firm's portfolio and the specific role the threshold plays in the overall methodology or approach.

3.85 Finally, some thresholds inform the PRA's own methodologies and approaches in respect of the use of its powers or the fulfilment of its obligations. One example is the threshold for daily notional turnover within the PRA's depth, liquidity, and transparency assessment within the UK Solvency II framework. While the PRA is not bound by these thresholds, indexation of the indicative threshold amounts may help to ensure the PRA's approach remains consistent as nominal values change. This may benefit firms through more stable and proportionate policy or supervisory outcomes over time and benefit the PRA by reducing the need for case-by-case adjustments solely because fixed thresholds have become misaligned over time.

Benefits from reduced prudential drag: Lending, funding and investment flexibility

3.86 There are 12 thresholds in this category, which determine the scale or circumstance in which firms may undertake particular lending, funding or investment activities before additional restrictions or requirements apply. By increasing threshold values in line with nominal economic growth, indexation would help preserve firms' ability to undertake these activities without becoming subject to additional restrictions or requirements solely as a result of economy-wide growth. This may provide firms with greater flexibility to allocate their balance sheets in line with their business strategies and risk appetites.

3.87 For example, increasing the fixed monetary threshold within the large-exposures framework could allow some banks to undertake larger exposures to institutions or investment firms before the monetary limit becomes binding. This may provide additional funding or lending flexibility and reduce the need to restructure or restrict otherwise appropriate transactions solely because of nominal growth. This in turn gives firms more flexibility over their business model and risk appetite and may increase lending in the economy. The scale of this benefit will depend on whether the relevant threshold currently constrains firms' activities and whether firms would use the additional capacity.

Benefits from transparency and predictability

3.88 The proposal would provide firms with greater transparency and predictability about how and when in-scope thresholds would change. In-scope thresholds would be updated using a predefined methodology and based on publicly available UK nominal GDP data, with updated values published in advance of implementation. This would allow firms to monitor the underlying measure and anticipate the likely direction and scale of future changes.

3.89 The PRA expects this benefit to be greatest for firms that are close to or approaching a threshold, particularly small and medium-sized firms for which the costs associated with crossing may be proportionately greater. Greater certainty should help firms anticipate future regulatory transitions, incorporate them into business planning and allocate resources more efficiently. It may also reduce the precautionary actions firms take in response to uncertainty, such as retaining additional headroom below thresholds, incurring costs from contingency planning, constraining growth or altering otherwise efficient business decisions.

3.90 The PRA discussed the general idea of the proposal with firms participating in a roundtable with Scale-Up Unit in June 2026. These firms supported the proposal and indicated that greater transparency and predictability would help them plan and execute their business strategies more effectively.

Benefits from reduced administrative burdens

3.91 The proposals are expected to reduce operational compliance costs, including administrative burdens, for some firms where indexation delays them crossing thresholds that trigger additional reporting or other obligations. The impacts will depend on nominal GDP growth, firms' future growth, their proximity to individual thresholds and when those thresholds would otherwise have been updated. Given the number of assumptions required, the PRA has not quantified these impacts separately.

Thresholds that become more restrictive when indexed

3.92 Most in-scope thresholds determine when additional requirements or restrictions apply and would become less restrictive as their values increase. However, less than 10% of the proposed in-scope thresholds are currently assessed to operate in the opposite direction, such that indexation could increase requirements or reduce firms' flexibility. For example, increasing some of the thresholds within the UK Solvency II Standard Formula could, in specific cases, lead to an increase in the resulting Solvency Capital Requirement for affected insurers.

3.93 For banks, one example relates to two thresholds that determine whether a borrower qualifies as a high-net-worth borrower for the purposes of the PRA's expectations for underwriting buy-to-let mortgage contracts. Indexing these thresholds would mean that fewer borrowers qualify for the treatment than if the thresholds remained fixed, potentially limiting when firms may take a borrower's wealth into account when assessing affordability. However, indexation would preserve the intended calibration and risk of the treatment as incomes and asset values grow across the wider economy.

3.94 The PRA expects these impacts to be concentrated among firms or activities close to the relevant thresholds. The thresholds remain in-scope to maintain their intended policy calibration and to prevent the associated requirement from becoming less restrictive over time solely because of nominal growth. The PRA has considered these potential costs in its overall assessment of the proposal.

Implementation and recurring adjustment costs

3.95 Firms may incur one-off costs from familiarising themselves with the new indexation framework and making any necessary changes to systems, policies and procedures. The scale of these costs is expected to vary according to the number of applicable thresholds, the complexity of the institutions and how firms currently monitor and operationalise thresholds. The PRA notes that, in most cases where indexation relaxes a regulatory constraint, firms would not be required to take any action if the change is not relevant to their business. For thresholds that relate to firm size, firms that do not expect to approach the relevant threshold could continue operating as they do currently and would therefore not incur additional costs as a result of the proposal. In these cases, the proposal provides additional optionality rather than creating a new obligation. The PRA recognises this will not be the case where thresholds are applied at a more granular level, such as to individual exposures, where indexation is likely to require changes to systems, policies and procedures for any firm engaging in the activity subject to such a requirement.

3.96 Costs may be more significant for individual firms where threshold values are embedded across multiple automated systems, but lower where firms monitor thresholds manually or can make changes through routine system maintenance. The PRA's CBA Panel indicated that impactful thresholds are generally already actively managed, which may limit implementation costs. However, less impactful thresholds may be embedded within IT systems and could be more cumbersome to update, particularly for smaller firms. Additionally, feedback received from a roundtable with Scale-up Unit firms indicated that monitoring indexed thresholds would not create material costs beyond those associated with monitoring static thresholds. The PRA does not hold sufficiently detailed information to estimate the aggregate impact of these costs precisely. The PRA invites respondents to provide evidence on their likely nature and scale.

3.97 Firms would also incur costs at subsequent indexation points from incorporating updated values into relevant systems and processes. The PRA expects these costs to be lower than the initial implementation costs where firms have adapted their systems to accommodate periodic updates. Firms would be able to monitor the publicly available nominal GDP data published by the ONS, while the PRA would publish the final updated threshold values in advance of their effective date. Together with the predetermined timetable and proposed implementation period, this should allow firms to plan for updates and incorporate them into ordinary system, governance and policy-update cycles. The proposed five-year cycle would limit how frequently these recurring costs arise.

3.98 Over the long term, the PRA considers that firms will incur less costs from a reduced need to review and respond to separate consultations where the sole purpose of the change is to maintain the nominal calibration of a threshold. This reduction in longer-term costs could in time outweigh the initial costs.

Financial and operational resilience

3.99 The PRA has qualitatively assessed the high-level impact of indexation for all of the thresholds proposed for inclusion and excluded thresholds where automatic updating could materially undermine policy intent or prudential outcomes. Analysis of a sample of thresholds measured in total assets also suggests that the number of firms close to those thresholds and thus likely to be affected immediately by indexation would be limited. The proposed implementation arrangements and continued policy review would provide further safeguards against unintended prudential effects.

3.100 Taken together with the assessment of nominal GDP growth as an appropriate common indexation measure, the PRA expects the proposal to preserve the intended prudential calibration of the affected policies without weakening firms' financial or operational resilience.

Impacts on the PRA

3.101 The PRA would incur one-off costs to establish the framework and ongoing costs from monitoring its operation, calculating and publishing updated values, and implementing changes at each subsequent five-yearly indexation point.

3.102 Indexation may delay firms becoming subject to additional reporting requirements, helping to maintain reporting at a level proportionate to their relative size or activity. The PRA would retain its wider supervisory information-gathering powers where further information is needed.

3.103 The costs to the PRA are expected to be offset by operational benefits relative to the baseline. Updating thresholds currently requires separate policy development, governance and, where thresholds are contained in PRA rules, public consultation. The proposed framework would enable in-scope thresholds to be updated using the published methodology without a separate consultation at each indexation point, reducing the resources required for repeated threshold-specific interventions. The PRA has not quantified these operational reductions in cost because the resources required for a threshold-specific policy intervention will vary according to the nature and complexity of the relevant change.

3.104 The PRA recognises the risk that automatic indexation could reduce the attention given to the continued appropriateness of individual thresholds. Automatic indexation would not replace the PRA's wider approach to reviewing its rules and policies (as described in SoP1/25 The PRA's approach to policy), which would continue to consider whether individual thresholds and their underlying requirements remain appropriate. The framework and the supporting draft indexation SoP would also provide a more comprehensive view of the thresholds subject to indexation and regular opportunities to identify potential misalignments requiring further policy consideration.

Market impacts, competition and growth

3.105 As set out in the secondary-objectives analysis of the PRA's proposal, the proposed framework may support effective competition and growth by reducing prudential drag and unnecessary barriers to firms' expansion. Thresholds may affect firms' behaviour where crossing them creates additional costs, binding limits or cliff-edge effects. Greater predictability and more systematic indexation may reduce incentives for firms to constrain otherwise efficient growth, retain unnecessary balance-sheet headroom or alter their activities solely to remain below a threshold. In a small number of cases, indexation may increase requirements or reduce firms' flexibility. This will help preserve the original policy intent and calibration of those thresholds, maintaining the intended alignment between regulatory requirements and the underlying risks they are designed to address.

3.106 Reducing unintended distortions may support more efficient allocation of capital and other resources and strengthen competitive pressure, particularly where smaller or growing firms face proportionately greater costs from crossing thresholds. These effects may in turn support lending and wider economic growth.

Overall assessment

3.107 The PRA considers that the benefits of the proposal are likely to outweigh the costs. By maintaining the intended calibration of thresholds as the economy grows, the proposal would reduce prudential drag while preserving the underlying prudential purpose of the affected policies. This would allow some firms to avoid or delay incurring additional costs. The PRA has also taken account of the small number of thresholds for which indexation may increase requirements or reduce firms' flexibility. Firms whose activities, risk profile or systemic importance grow relative to the wider economy would continue to cross indexed thresholds and become subject to the associated requirements. The PRA therefore expects the proposal to benefit firms while maintaining their financial and operational resilience.

3.108 The proposal should also facilitate effective competition by reducing unnecessary barriers to firms' expansion and providing greater transparency and predictability about future threshold changes. These benefits cannot be quantified robustly, but are supported by economic theory, relevant literature and engagement with firms. Greater certainty would help firms plan more effectively and allocate capital and other resources more productively.

3.109 Firms may incur implementation and recurring adjustment costs. However, the PRA expects these costs to be outweighed by the benefits of avoiding or delaying the additional compliance costs associated with prudential drag, alongside the wider benefits of greater predictability. Longer-term, indexation may even provide recurring benefits for firms where they would not need to review and respond to consultations regarding updating individual thresholds solely to maintain calibration. The scale of these effects will vary across firms and thresholds and cannot be estimated precisely. Key sources of uncertainty include future nominal GDP growth, individual firms' proximity to thresholds (or where thresholds are applied at a more granular level, the proportion of their exposures which are affected by a given threshold) and behavioural responses and the timing of updates under the baseline. The PRA invites evidence from respondents to inform its final assessment.

CBA panel engagement

3.110 The PRA engaged the CBA Panel twice during the development of the CBA: first to obtain early input on the proposed analytical approach, and subsequently to review the near-final assessment. The Panel supported the proportionate approach taken, including the focus on the main channels through which the proposals may generate costs and benefits. They particularly welcomed the categorisation of thresholds and the use of charts and wider evidence to support the analysis. The Panel's principal feedback on the near-final CBA was as follows:

Indexation timelines: The Panel recommended that the PRA explained more clearly the costs and benefits for the proposed five-year cycle. In response, the PRA has strengthened its explanation of the balance between maintaining threshold calibration and limiting the frequency and costs of regulatory change.

Presentation of the analysis: The Panel suggested improvements to the tables, charts and structure of the CBA. In response, the PRA has reflected these points where appropriate.

3.111 The Panel also reflected on how thresholds might be reviewed outside automatic indexation and on approaches in other jurisdictions. The PRA clarified that automatic indexation would not replace its usual policy development, evaluation and rule-review processes, through which individual thresholds may be reviewed or amended where appropriate. It also noted the Federal Deposit Insurance Corporation's framework, which applies CPI-W indexation to a more limited set of regulatory thresholds, ordinarily every two years. See the FDIC's final rule on adjusting and indexing certain regulatory thresholds.

4: The PRA's discussion paper

4.1 The PRA has identified a small number of thresholds where further evidence and stakeholder feedback would help inform its assessment of whether automatic indexation would be appropriate. This is because the cost-benefit of inclusion looks less clear cut. These include, for example, thresholds that impact IRB modelling, liquidity thresholds that interact with credit risk thresholds, and thresholds that operate across or interact with the PRA and FCA frameworks. The implications of indexing these thresholds may be more complex than for other thresholds because they could affect firms' modelling, systems, governance arrangements or wider regulatory interactions, and may give rise to additional operational costs which need weighing against the benefits of indexation.

4.2 This DP is intended to support early engagement on these thresholds and to gather evidence before the PRA reaches a view on whether, and how, they should be brought within the automatic indexation framework. The PRA therefore welcomes views on the potential inclusion of these thresholds, the relevant costs and benefits, and any implementation or policy implications. Where appropriate, the PRA envisages consulting on any specific proposals to include these thresholds at a later stage.

Next steps and responses

4.3 The PRA invites responses to the proposal set out in this discussion paper by 7 February 2027. See Responding to the Discussion Paper for details on how to respond and for information on how the PRA handles your personal data.

Credit risk thresholds that impact Internal Ratings Based (IRB) models

4.4 This chapter explores the potential implications of indexing certain thresholds within the credit risk framework that impact IRB models. Under the IRB approach, firms use their own internal models to estimate the riskiness of their exposures and calculate regulatory requirements, subject to regulatory review and approval.

4.5 There are several credit risk thresholds that do not impact IRB models, or for which indexation does not pose specific complexities. These have been included within scope of the CP. However, for thresholds that interact with the design and calibration of IRB models, or are related to such thresholds, the implications of indexation may be more complex and could give rise to material implementation costs or operational challenges. The PRA invites views on these considerations and potential outcomes, in order to inform its assessment of the merits of indexing these thresholds.

4.6 The PRA has categorised some of the key considerations associated with the indexation of thresholds that impact IRB models and has outlined them below. Further detail on the individual thresholds that the PRA has identified as requiring additional consideration is set out in Table A at the end of this chapter and in Appendix 5.

Consideration 1: Thresholds affecting the performance of IRB models

Impact of indexation on the performance of IRB models

4.7 The PRA considers that there are two broad categories of thresholds that may introduce additional burdens for IRB models:

thresholds affecting the scope of what can be modelled; and

thresholds affecting the application of the definition of default.

4.8 In respect of thresholds affecting the scope of what can be modelled, the scope of what a firm using the IRB approach can model depends on both restrictions set out in the PRA Rulebook and the scope of the firm's IRB permission. The PRA considers that both factors could be impacted by threshold indexation. Changes to thresholds over time could alter the scope of firms' models relative to the scope for which they were designed and calibrated. For example:

indexation of the revenue criterion in the financial corporates and large corporates' exposure sub-class definition would impact the set of exposures for which loss given default (LGD) and exposure at default (EAD) modelling is available, as PRA rules do not permit the advanced internal ratings based (AIRB) approach to be used for exposures in this exposure sub-class; and

indexation of the exposure criteria in the qualifying revolving retail exposures sub-class definition would change the set of exposures in the associated 'roll-out class', and roll-out classes are often used to define the scope of IRB modelling in firms' permissions.

4.9 In respect of thresholds affecting the application of the definition of default, some thresholds relate to the definition of default. Firms' estimates of probability of default (PD), LGD, and EAD depend on the event of default. For example:

Indexation of the threshold relating to the determination of whether a credit obligation past due is material for non-retail exposures would directly impact which exposures are determined to have defaulted.

Indexation of thresholds affecting the classification of retail exposures will also affect the application of the definition of default. For non-retail exposures, default is defined at the obligor level. For retail exposures, firms may choose instead to define default at facility level.

4.10 Indexing these thresholds could have several practical implications for PD, LGD or EAD models and may require firms to:

change the set of exposures to which a model is applied;

change the set of exposures that are treated as being in default in a firm's live implementation; and

redevelop or recalibrate the model due to the implications outlined above.

4.11 As such, changes to the scope of IRB models or the definition of default could have implications for model performance and calibration. Firms may therefore need to assess whether existing models remain appropriate and whether historical calibration data continues to be representative following any threshold update. Depending on the outcome of that assessment, firms may need to recalibrate model parameters, or in more significant cases, redesign the models to ensure that they remain accurate, robust and compliant with regulatory requirements. This might also include applying for PRA permission to make the required changes.

4.12 The PRA recognises that for some of these thresholds, the effect of indexation on Risk Weighted Assets (RWAs) is not clear. The overall impact will depend, among other things, on the extent to which indexation affects firms' PD, LGD and EAD models, the interaction between those model components, and firms' accounting practices. Given these firm-specific considerations, indexation could lead to either an increase or decrease in RWAs.

4.13 The PRA considers that its assessment of its proposals in the CP section against its objectives and 'have regards' would be generally applicable to these IRB thresholds. But in light of the potential additional challenges detailed above, it is first seeking respondents' views to inform whether it would be appropriate to extend the proposed indexation approach to these thresholds.

Q1: Do you have views on the IRB modelling considerations outlined above? What would be the expected impact of indexation on model outputs and, ultimately, capital requirements?

Q2: Do you have views on the likely costs and benefits of the PRA indexing the thresholds discussed in this chapter?

Q3: Do you have any views on whether there are different considerations for the thresholds affecting the scope of what can be modelled and the thresholds affecting the application of the definition of default?

Practical considerations for the indexation of IRB thresholds

4.14 If the PRA were to introduce indexing of the relevant thresholds, it would need to consider issues relating to the timing and practicalities of these factors. There may also be practical challenges regarding how indexed thresholds would be implemented within the IRB framework. For example, firms and the PRA would need to determine how and when firms would be required to update model specifications to reflect indexing where they use nominal values, and how historic data would be adjusted. This would include assessing how the PRA's current approval requirements for IRB model changes would be applied (for example, firms are currently required to seek such permission for all changes to the definition of default), and the PRA's approach to permitting firms to include indexation-related changes into their IRB model remediation plans.

4.15 The PRA has not seen sufficient evidence that indexing these thresholds less frequently would be an appropriate approach to reducing the burden associated with updating IRB models. However, the PRA invites industry's views on if such an approach may be appropriate and its potential costs and benefits. For example, the PRA could index these thresholds every 10 or 15 years, rather than the proposed five. This could reduce the frequency of model changes and associated implementation costs for firms.

4.16 However, longer periods between indexation could result in thresholds becoming more detached from the policy intention to maintain the intended level of prudence. A longer indexation period could also introduce additional complexities and unintended consequences. In particular, where some thresholds are indexed at a five-year frequency, and others at 10 or 15 years, this could increase operational and modelling complexities for firms, as systems, processes and governance arrangements would need to accommodate differing update cycles.

Q4: Do you have views on the practical considerations of indexation of IRB thresholds?

Q5: What is the estimated operational cost (including implications on model development, calibration, performance and monitoring) associated with updating these thresholds in IRB models every five years?

Q6: Do you have views on whether reducing the indexation frequency (eg to 10 or 15 years) would materially reduce the burden for updating models? Do you consider that any benefits from less frequent indexation would outweigh the costs?

Consideration 2: Thresholds impacting consistency between the IRB approach and the Standardised Approach (SA)

4.17 For SA thresholds, where firms apply a standardised set of risk weights to their exposures rather than relying on their own internal credit risk models, the PRA recognises that there would still be costs to firms in implementing and operationalising these changes. However, the PRA considers that the implications of indexation are more straightforward given that there are no modelling complexities. The PRA therefore considers that the relative costs of indexation are likely to be lower for SA thresholds, and the PRA has proposed to index several SA thresholds in its consultation paper.

4.18 However, some SA thresholds are aligned with IRB thresholds. If, based on the responses to this DP, the PRA decided to consult on altering its general approach to indexation for IRB thresholds, the PRA would need to decide whether to also consult on maintaining the alignment between SA and IRB.

4.19 The PRA recognises that the general approach to indexation may be more appropriate for SA thresholds when viewed in isolation. However, if thresholds were indexed differently across the two approaches in order to reflect the greater complexities for indexing IRB thresholds, this would lead to additional operational costs and generate additional complexity. This would be the case both where firms use a mix of the IRB approach and the SA, and where firms are calculating capital requirements that would apply under the output floor. That said, there are already differences between the SA and IRB frameworks, including in relation to retail exposures boundaries and the definition of default. Therefore, such divergence may not be so material and the PRA welcomes views on this. The PRA also recognises that different approaches to indexation for related SA and IRB thresholds may also impact competition between firms using the SA and IRB approach.

Q7: To what extent would divergence between SA and IRB thresholds generate additional costs for firms with IRB permissions? To what extent would this impact the overall costs and benefits of indexing SA thresholds?

Q8: To what extent would divergence between SA and IRB thresholds impact competition?

Broader considerations

4.20 As part of its broader consideration of thresholds that interact with firms' IRB models, the PRA also welcomes feedback on the potential implications of indexing SME-related thresholds. While some of these thresholds share the complexities outlined above, the PRA recognises the particular importance of SME lending in supporting economic growth and therefore considers it is important that these thresholds don't inadvertently tighten over time. The PRA notes that, as part of the CP, it is proposing to index a threshold used in the calculation of the Small and medium-sized enterprise (SME) lending adjustment given it does not share the complexities set out above.

4.21 The PRA also notes that the current SME definition is aligned with similar SME definitions in wider UK legislation and government policy, which are not subject to automatic indexation. Indexing these thresholds might therefore cause misalignment between SME definitions used for different regulatory and policy purposes. The PRA considers that such misalignment may be appropriate provided it does not introduce significant additional complexity and therefore costs for firms. The PRA invites views on the importance of aligning its rules with how SMEs are defined more broadly for other purposes.

Q9: What other factors should the PRA consider when assessing whether to index the thresholds discussed in this chapter, including any implications for the PRA's objectives and 'have regards'?

Table A: Credit risk thresholds that impact IRB models

PRA Rulebook reference

Threshold descriptor

Explanation of threshold

Considerations for which the threshold is relevant

Credit risk: Standardised Approach (CRR) Part Article 123(1)(b)(ii) and Article 123A(1)(b)(ii)

Qualifying conditions for retail and regulatory retail exposures 880,000.

Exposures to SMEs are to be classified as retail exposures if, among other things, the total amount owed (excluding secured by real estate) does not exceed 880,000. Exposures to both individuals and SMEs must also meet this condition, among other things, to be classified as regulatory retail exposures.

Consideration 2: Thresholds impacting consistency between the IRB approach and the SA.

Credit risk: Internal Ratings Based Approach (CRR) Part Article 147(4C)(b)(ii)

Revenue criteria in the financial corporates and large corporates exposure sub-class definition 440 million.

'large' corporates with annual revenue of more than 440 million (and which are not specialised lending) are assigned to the financial corporates and large corporates exposure subclass.

Consideration 1: Thresholds affecting the performance of IRB models (this threshold affects the scope of IRB models).

Consideration 2: Thresholds impacting consistency between the IRB approach and the SA.

Credit risk: Internal Ratings Based Approach (CRR) Part Article 147(5)(a)(ii)

Retail exposure class criteria for SMEs 880,000.

Exposure to SMEs is to be assigned to the retail exposure class if, among other things, the total amount owed (excluding exposures secured by real estate) does not exceed 880,000.

Consideration 1: Thresholds affecting the performance of IRB models (this threshold affects both the scope of IRB models and the definition of default).

Credit risk: Internal Ratings Based Approach Part Article 147(5A)(c)

Qualifying Revolving Retail Exposures Exposure sub-class criteria 90,000.

Retail exposures are assigned to the qualifying revolving retail exposure subclass if, among other things, the largest aggregate nominal exposure to a single individual, out of all aggregate nominal exposures to individuals in the sub-portfolio is 90,000 or less.

Consideration 1: Thresholds affecting the performance of IRB models (this threshold affects the scope of IRB models).

Credit risk: Internal Ratings Based Approach Part Article 153(4)

Minimum value of the Size parameter 'S' used in the corporate IRB risk weight formula 4.4 million.

The minimum amount of the annual revenue used to determine the Size parameter used to adjust the coefficient of correlation in the IRB risk weight formula for exposures to corporates.

This threshold is related to the Definition of SME threshold below.

Credit risk: Internal Ratings Based Approach (CRR) Part Article 153(4)

Maximum value of the Size parameter 'S' used in the corporate IRB risk weight formula 44 million.

The maximum amount of the annual revenue used to determine the Size parameter used to adjust the coefficient of correlation in the IRB risk weight formula for exposures to corporates.

This threshold is related to the Definition of SME threshold below.

Credit risk: Internal Ratings Based Approach (CRR) Part Article 178(2)(da)(i)

Determination of whether, for non-retail exposures, a credit obligation past due is material 440.

With certain exceptions, a default is considered to have occurred with regard to a particular obligor where the obligor is more than 90 days past due on a material credit obligation. For non-retail exposures, a credit obligation past due is considered to be material if the total sum of all amounts past due is greater than 440.

Consideration 1: Thresholds affecting the performance of IRB models (this threshold affects the definition of default).

Consideration 2: Thresholds impacting consistency between IRB and SA.

Glossary Part

Definition of SME 44 million.

An SME is a micro, small or medium enterprise with an annual turnover of no more than 44 million.

Under the credit risk framework SMEs receive specific treatments relative to general corporates (including via the SME lending adjustment in Pillar 2A).

Consideration 1: Thresholds affecting the performance of IRB models (this threshold affects the definition of default).

Consideration 2: Thresholds impacting consistency between IRB and SA.

Footnotes

Note: Credit Risk thresholds shown in Table A are applicable as of 1 January 2027.

Q10: What are your views on the potential benefits and challenges of indexing the thresholds described in Table A? Do the benefits outweigh the costs?

Liquidity policy thresholds

4.22 As part of the PRA's consultation on a framework for automatic indexation, the PRA proposes indexing several thresholds in the Liquidity Parts of the PRA Rulebook. However, some liquidity thresholds are linked to or interact directly with credit risk thresholds. For example, the definition of retail deposits for the purposes of calculating outflows under the liquidity coverage ratio (LCR) and available stable funding under the net stable funding ratio (NSFR). These thresholds are outlined in Table B.

Consideration 1: Thresholds impacting consistency between credit risk and liquidity frameworks

4.23 The PRA recognises that some liquidity thresholds are aligned to credit risk thresholds and are relevant in circumstances set out in the credit risk rules. If, based on the responses to this DP, the PRA decided to consult on altering its general approach to indexation for IRB thresholds, the PRA would need to consider whether to also consult on maintaining the alignment between liquidity and credit risk thresholds.

4.24 The PRA recognises that the general approach to indexation may be appropriate for liquidity thresholds when viewed in isolation. However, depending on the PRA's approach for the credit risk thresholds, the PRA would need to consider how to approach the related liquidity thresholds. If thresholds were indexed differently between the liquidity and credit risk rules this could lead to additional operational costs and generate additional complexity. These complexities may be particularly significant if the PRA takes a different approach to indexing thresholds between the credit risk SA and IRB rules. The PRA is therefore seeking views in this DP on whether the current alignment of the thresholds identified in Table B should be maintained by applying the same indexation approach as that adopted for the corresponding credit risk thresholds, and whether any further amendments would be required to ensure that the liquidity and credit risk rules interact appropriately.

Table B: Liquidity thresholds linked to the credit risk framework

PRA Rulebook reference

Threshold descriptor

Explanation of threshold

Considerations for which the threshold is relevant

Liquidity (CRR) Article 411(2)

(definition of 'retail deposit')

Retail deposit definition 880,000

Liability to a natural person or SME that qualify for the retail exposure class under the Standardised or IRB approaches for credit risk, and where the aggregate deposits by the SME or company on a group basis do not exceed 880,000.

Consideration 1: Thresholds impacting consistency between the credit risk and liquidity frameworks.

Liquidity (CRR) Article 428(1)(g)(ii)

Exposures to small corporates 880,000

Identifies non-renewable loans and receivables that require separate NSFR reporting for which borrowers are corporates that qualify for the treatment set out in Article 153(4) and aggregate deposits from the client or connected group are below 880,000.

Consideration 1: Thresholds impacting consistency between the credit risk and liquidity frameworks.

Q11: What are your views on the potential benefits and challenges of maintaining alignment between the liquidity and credit risk thresholds described in Table B?

Consideration 2: Materiality of having fixed sterling currency issue size thresholds

4.25 The PRA is seeking views on the issue size thresholds relevant to the treatment of covered bonds and certain corporate securities under Articles 10, 11 and 12 of the LCR (CRR) Part of the PRA Rulebook. These thresholds form part of the criteria used to determine the eligibility of these instruments as high-quality liquid assets (HQLA). The thresholds are outlined in Table C.

4.26 The current issue size thresholds related to certain covered bonds and corporate securities in the LCR (CRR) Part of the PRA Rulebook were established when euro-denominated amounts were converted into fixed sterling values following the UK's withdrawal from the European Union. Since implementation of the sterling values certain factors, such as moves in foreign exchange rates, have changed the eligibility of the assets and market conditions and international issuance practises have evolved. Given these factors, the implications of indexation may be more complex and not align to market practices, therefore, the PRA is not proposing for these thresholds to be in scope for indexation at this time.

4.27 The PRA welcomes views on whether the fixed sterling issue thresholds cause a divergence in HQLA treatment of the covered bonds or corporate securities, and if there are any significant practical or prudential implications for managing liquidity risk from the foreign exchange-rate movements. The PRA is also interested in whether firms assess the issue size at the time of issuance, on an ongoing basis, or at the reporting date.

4.28 The PRA has not reached a view on the materiality of these issues and is not proposing policy changes at this stage. The PRA does not have sufficient evidence that this poses a material risk to the PRA's objectives to make changes to the policy. The purpose of this discussion is to gather evidence, both qualitative and quantitative, on how the liquidity framework is operating in practice.

Consideration 2: Materiality of having fixed sterling currency issue size thresholds.

Q12: Do respondents have any views on the issuance-size thresholds in Articles 10, 11 and 12 of the LCR (CRR) Part of the PRA Rulebook, specifically if they impact the liquidity treatment for covered bonds and corporate securities, including those issued in non-sterling currencies?

Joint PRA and FCA thresholds

4.29 Certain thresholds operate across or interact with PRA and FCA regulatory frameworks in different ways. Some are specified separately in the two regulators' requirements, while others are set within one regulator's framework and cross referred to in the other's framework. They may also interact with related thresholds and proportionality arrangements applying to solo regulated firms.

4.30 This section considers whether certain thresholds that operate across or interact with the PRA and FCA's framework relating to remuneration, whistleblowing, and the Senior Managers and Certification Regime (SMandCR) should be included in the PRA's proposed approach to indexation. The PRA and FCA have worked closely together in the development of this chapter and considering options for indexing these thresholds. These thresholds generally determine the application or proportionate intensity of particular requirements by reference to the size of a firm or, in some cases the remuneration of an individual. Indexation could help preserve the intended calibration of these thresholds by reducing the risk that firms or individuals move between regulatory treatments solely because fixed nominal amounts have not been updated over time. Table D identifies the thresholds that the PRA considers could potentially be indexed and explains their purpose and current application.

4.31 However, applying the PRA's proposed indexation approach to thresholds that operate across or interact with the PRA and FCA frameworks raises additional considerations. These include the potential for divergence between PRA and FCA requirements, the relationship between thresholds applying to dual-regulated and solo-regulated firms, and whether the possible methodology is appropriate.

4.32 The PRA and FCA have established arrangements for coordination and information sharing. However, each regulator remains responsible for decisions within its own framework and must assess the implications of threshold indexation in light of its own objectives, statutory responsibilities and regulated population. The FCA would need to consider any changes to its requirements in light of its own statutory objectives, regulatory framework and firm populations.

4.33 The PRA therefore invites views on these considerations and on the thresholds identified in Table D, and the potential impact of indexation.

4.34 The remainder of this chapter considers three issues:

consistency between PRA and FCA requirements;

alignment across dual-regulated and solo-regulated firms; and

the suitability of specific thresholds for indexation.

Consideration 1: Consistency between PRA and FCA requirements

4.35 The PRA and FCA have different objectives and regulate overlapping but distinct firm populations. Consequently, even where thresholds operate across both rulebooks, they may support different policy objectives and have different substantive effects. A threshold that remains appropriate from a prudential perspective may not necessarily remain appropriate from a conduct, consumer protection or market integrity perspective. Equally numerical differences between the two frameworks may not necessarily result in incoherent regulatory outcomes where they reflect the regulators' respective objectives, populations of firms or policy approaches.

4.36 The implications of indexation may also depend on how a threshold is reflected in the two regulatory frameworks. Some thresholds are specified separately by each regulator, while others are set in one regulator's framework and cross referred to in the other. Where thresholds are specified separately, different decisions could result in direct numerical divergence. Where one regulator's framework cross refers to the other's requirements, the numerical threshold may remain aligned, although its policy effects under the two regimes could still differ.

4.37 If the PRA indexes a threshold and the FCA does not (or vice versa), a firm, activity or individual could fall within scope of requirements under one regime but not under the other. This could alter the substantive regulatory treatment of dual-regulated firms, increase complexity of determining which requirements apply and reduce the benefits of numerical or operational alignment. Firms may also incur additional operational costs associated with monitoring, compliance and implementation.

4.38 Divergence could arise even where both regulators were to change corresponding thresholds if they use different metrics, base years, update frequencies or rounding conventions. Differences in effective dates could also result in temporary divergence, even where the regulators intend to reach an aligned outcome. The relevant question may therefore be whether consistency requires identical thresholds and indexation mechanisms or whether different approaches could be justified where they preserve coherent regulatory outcomes and remain appropriately aligned with each regulator's objectives and the PRA welcomes views on this.

Q13: What would be the consequences if the PRA and FCA adopted different approaches, methodologies or timetables for indexing joint or related thresholds?

Consideration 2: Alignment across dual-regulated and solo-regulated firms

4.39 Separate from consistency between PRA and FCA requirements applying to dual-regulated firms, indexation may affect the relationship between dual-regulated firms and FCA solo-regulated firms. Some types of thresholds are common to a broader population than just dual-regulated firms. Indexing a joint threshold may therefore have implications beyond the immediate population of firms to which it applies and may affect the relationship between dual-regulated firms and solo regulated firms. This would not necessarily produce inappropriate outcomes, as different treatment may reflect differences in firms' regulatory status, activities or risk.

4.40 For example, remuneration requirements apply across different prudential and conduct regimes and include different thresholds or proportionality mechanisms for different categories of firm. The FCA's dual-regulated firms Remuneration Code operates alongside separate remuneration frameworks applying to other FCA regulated populations. Indexing thresholds within the dual-regulated framework could therefore affect their relationship with thresholds or proportionality arrangements applying under those other regimes.

4.41 Similarly, SMandCR thresholds for dual-regulated firms interact with broader frameworks that determine the proportionate application of governance and accountability requirements across the wider firm population. Indexing a joint threshold may therefore affect how these frameworks interact over time. Notably, thresholds applying to dual-regulated firms operate alongside FCA thresholds used to distinguish between different categories of solo regulated firm, including for example, thresholds relevant to Enhanced firm status which the FCA increased in 2026 in line with inflation with no changes to the broader dual-regulated thresholds.

4.42 These interactions are particularly important where groups contain a mixture of FCA solo regulated and dual-regulated entities. In these cases, changes to a joint threshold could possibly result in different firms within the same group becoming subject to different requirements despite undertaking similar activities or presenting comparable characteristics. Different treatment may be justified by an entity's regulatory status, activities or risk profile. However, indexation could create unintended divergence if related thresholds evolve using different methodologies or according to different timetables.

4.43 The PRA is interested in understanding whether indexation could have unintended consequences for the relative treatment of firms across different regulatory populations. It also welcomes views on whether consistency with related FCA or PRA regimes is particularly important for any specific threshold, and whether preserving wider alignment may outweigh the benefits of applying automatic indexation.

Q14: If any of the joint thresholds in Table D were indexed could this create any unintended consequences arising from differences in treatment of dual-regulated and solo regulated firms, including entities within the same group?

Consideration 3: Suitability of specific thresholds for indexation

4.44 The suitability of indexation may differ between types of thresholds depending on their purpose and the measure on which they are based. Firm level thresholds based on total assets generally determine the proportionate application of requirements according to the size of a firm. The PRA considers that nominal GDP provides an appropriate basis for indexing these thresholds because it offers a broad measure of changes in nominal economic activity.

4.45 The SMandCR and whistleblowing thresholds identified in Table D are firm level proportionality thresholds. Subject to any of the interactions described under Consideration 2, the PRA's provisional assessment is that these thresholds have a relatively clear relationship with the general rationale for indexation. Leaving a size-based threshold fixed could result in firms moving into a more intensive regulatory regime because of nominal growth rather than a corresponding change in their relative size, activities or risk profile.

4.46 Additional issues arise within the remuneration framework because some of its thresholds perform different functions. Remuneration thresholds can broadly be divided into firm level thresholds such as those based on total assets and thresholds linked to the remuneration of individual material risk takers. The PRA considers that remuneration thresholds based on firm level assets could fall within the general case for nominal GDP indexation described above. Additional considerations may arise for thresholds linked to individual remuneration. These thresholds determine whether an individual benefits from less stringent treatment or how particular remuneration requirements, such as deferral, apply to an award. Thresholds linked to individual remuneration may not move in line with nominal GDP in every period. Additionally, the PRA and FCA previously used CPI when increasing a 500,000 remuneration threshold to 660,000 as part of the 2025 remuneration reforms. However, this exercise was intended to preserve the real value of the previous threshold not to continually recalibrate against economic growth.

4.47 The PRA's provisional assessment is that there may be benefits from applying a consistent and predictable approach across all thresholds within the PRA's framework. Applying the common nominal GDP methodology would reduce the risk of pay linked thresholds becoming unintentionally more restrictive because they remain fixed, while avoiding the need to select and maintain a separate indexation metric for these thresholds.

4.48 The PRA however recognises that an imperfect relationship between nominal GDP and remuneration could cause a threshold to move differently from the pay distribution to which it applies. The PRA therefore welcomes evidence on whether any specific pay linked threshold has features that would make application of the proposed common methodology materially inappropriate.

Q15: Do you agree that the thresholds identified in Table D are suitable for indexation using the proposed nominal GDP methodology?

The threshold relates to the amount of a firm's on and off-balance-sheet trading-book business and contributes to determining the proportionate application of remuneration requirements.

Consideration 3: Suitability for indexation.

Remuneration Part and SS2/17 Remuneration

Threshold linked to individual remuneration: 660,000

The threshold affects how specified remuneration requirements apply to individual Material Risk Takers or their remuneration awards, including the application of relevant deferral requirements. The amount appears in several related rule and supervisory provisions.

Consideration 3: Suitability for indexation.

Q16: What are your views on the potential costs and benefits of indexing the thresholds described in Table D? Do you think that the benefits outweigh the costs?

Decision making and next steps

4.49 The PRA and FCA will continue to work closely together in considering the issues discussed in this chapter. Where a change would require or have implications for FCA requirements, the FCA would determine the appropriate next steps under its regulatory framework. The PRA welcomes evidence on implementation costs, operational impacts, unintended consequences and any other relevant considerations.

5: Additional information for the consultation paper

Consultation

5.1 The PRA Practitioner Panel was consulted about the proposal in this CP.

Impact on mutuals

5.2 The proposal would affect mutuals through the indexation of thresholds that apply to them. The PRA has not identified any significantly different impact on mutuals compared with other firms. However, the benefits may be proportionately greater for smaller mutuals where the costs associated with crossing a threshold represent a greater share of their overall operating costs. The proposed methodology and timetable would apply consistently across all in-scope thresholds.

Equality and diversity

5.3 In developing its proposal, the PRA has had due regard to the equality objectives under s.149 of the Equality Act 2010. The PRA considers that the proposal does not give rise to equality and diversity implications because the proposed framework does not differentiate between firms or individuals on the basis of any protected characteristic.

Other factors to which the PRA has 'had regard'

5.4 In developing this proposal, the PRA has had regard to the FSMA regulatory principles and the aspects of the Government's economic policy as set out in the HMT recommendation letter from November 2024. The PRA has set out its views on the 'have regards' it considers significant in paragraphs 3.55 to 3.58.

5.5 The PRA has had regard to other factors as required. Where analysis has not been provided against a 'have regard', it is because the PRA considers that 'have regard' to not be a significant factor for this proposal.

6: Responding to the consultation

Your personal information

6.1 By responding to the consultation and/or the connected DP, you share personal data with the Bank (including the PRA), which may include your name, contact details, (including, if provided, details of the organisation you work for), and opinions or details offered in the response itself. For more information about how the PRA handles responses to PRA consultations see PRA consultations and discussion papers your personal data. You have several rights under data protection laws in relation to data held about you. For further information on exercising these rights, including how to contact our Data Protection Officer, view our full privacy notice.

6.2 The PRA will share responses to this consultation and the connected DP with the FCA. They will also review the responses and may also contact you to clarify aspects of your response.

Responses

6.3 The PRA invites responses to the proposal set out in this consultation and/or the connected DP by 7 February 2027.

6.4 Please indicate in your response if you believe the proposal in this consultation paper is likely to impact persons who share protected characteristics under the Equality Act 2010, and if so, please explain which groups and what the impact on such groups might be.

6.5 The PRA will publish a general summary of responses to this consultation and is required to include respondents' names if consent is given. When responding, please clearly indicate whether or not you consent to the PRA publishing your name, and/or the name of your organisation, as a respondent to this CP. Please make it clear if you are responding as an individual or on behalf of an organisation. Consent can be withheld or withdrawn at any time. If you wish to withdraw your consent to the PRA publishing your name, please contact the PRA using the contact details set out below. If you do not give consent to the PRA publishing your name, the PRA may still collect, record and store your response in accordance with the information provided above.

6.6 Please address any comments or enquiries to CP13_26@bankofengland.co.uk.

See, for example, Bouwman, Hu and Johnson (2018), Differential bank behaviors around the DoddFrank Act size thresholds. Journal of Financial Intermediation (for banks), and Becker, Opp and Saidi (2022), Regulatory Forbearance in the U.S. Insurance Industry: The Effects of Removing Capital Requirements for an Asset Class. Review of Financial Studies (for insurers).

Scale-up Unit firms are defined as fast-growing, innovative regulated firms. The Scale-up Unit is a joint initiative by the PRA and the FCA to support these firms by providing a dedicated channel for technical regulatory support and engagement as they scale.

Examples include:

Rousseau and Wachtel (2011), What is Happening to the Impact of Financial Deepening on Economic Growth? Economic Inquiry;

Hartmann, Herwartz and Walle (2012), Where enterprise leads, finance follows. In-sample and out-of-sample evidence on the causal relation between finance and growth. Economics Bulletin; and

Christophersen and Jakubik (2014), Insurance and the Macroeconomic Environment. EIOPA working paper.

Data: Individual bank assets are from the Historical Banking Regulatory Database Banking (HiBRD Banking, de-Ramon et al 2017). Captures 114 individual banks over the period 20092024.

PS20/25 The Strong and Simple Framework: The simplified capital regime for Small Domestic Deposit Takers (SDDTs).