On 19 June 2026, the PRA published CP9/26 – Basel 3.1: Adjustments to the internal model approach (IMA) for market risk. The consultation proposes a series of targeted amendments to the Internal Model Approach (IMA) under the Fundamental Review of the Trading Book (FRTB), responding to longstanding industry concerns that the economics and operational complexity of pursuing IMA approval have discouraged firms from adopting internal models.
CP9/26 comes as other major jurisdictions are also recalibrating FRTB-IMA. The EU has introduced temporary relief across parts of the market risk framework, including several IMA-related measures, while the US Basel III Endgame re-proposal would make internal models easier to use in several areas.
The PRA has noted that a “surprisingly small number” of firms had planned to adopt IMA, while the FCA has separately observed that no FCA investment firms currently use, or have applied to use, market risk internal models. Against this backdrop, the PRA is seeking to recalibrate the IMA framework through targeted amendments that enhance proportionality, lower barriers to entry, maintain alignment with international developments and encourage wider IMA adoption.
Key proposals include extending the profit and loss attribution test (PLAT) monitoring period to three years, easing the risk factor eligibility test (RFET) for less liquid risk factors, introducing a more nuanced non-modellable risk factor (NMRF), improving aggregation between IMA and ASA portfolios, and simplifying the treatment of collective investment undertakings (CIUs). Taken together, these proposals have the potential to change the strategic business case for IMA for a wider range of firms. The consultation closes on 18 September 2026, with the revised IMA rules proposed to take effect on 1 January 2028.
In this article
What does this mean?
The CP9/26 is a targeted consultation focused solely on the market risk IMA. It does not reopen the wider Basel 3.1 package, with the PRA confirming that all other Basel 3.1 reforms remain on track for implementation from January 2027.
Rather than fundamentally redesigning FRTB-IMA, the consultation seeks to improve the proportionality and operational viability of the UK framework while maintaining robust prudential standards. More importantly, it may materially change the economics of pursuing IMA approval for firms that had previously concluded the costs and uncertainty outweighed the benefits.
The most significant proposals are summarised below.
1. Extending the PLAT monitoring window to ease the transition
PLAT has historically been one of the principal barriers to IMA adoption because persistent test failures can result in desks moving from IMA to ASA capitalisation. The PRA proposes extending the PLAT monitoring period from one year to three years, so failures of the dual tests (Spearman or Kolmogorov-Smirnov) would not automatically make a desk ineligible for IMA. This will allow firms and supervisors to monitor performance over a longer period before supervisory action is considered. This aligns broadly with the EU's temporary 2027–2029 measures, while remaining more conservative than the US re-proposal, which goes further by removing the Spearman correlation test – a test industry has frequently identified as a key barrier to IMA adoption.
The policy objective is not to weaken PLAT, but to reduce short-term cliff-edge effects whilst retaining it as a key supervisory monitoring tool. For firms, this materially reduces the risk that temporary attribution issues undermine the longer-term investment case for IMA approval.
2. Adjusting the Risk Factor Eligibility Test (RFET) for illiquid assets
RFET has also been a significant practical barrier because firms must demonstrate sufficient observable prices for risk factors to remain modellable. The PRA proposes reducing the minimum number of verifiable prices from 24 to 16 for risk factors with liquidity horizons greater than 20 days, whilst introducing proportional treatment for new issuances during their first year (by allowing pro-rating).
This closely mirrors the US proposal, while the EU has gone further by temporarily allowing modellability with as few as two verifiable prices, subject to conservative liquidity horizon adjustment.
This should make IMA more feasible for less liquid and newly issued instruments, while keeping the focus on data quality and governance. For many firms, this could materially increase the proportion of trading activities that become viable under IMA.
3. Targeted adjustments to the non-modellable risk factors (NMRF)
Arguably the most strategically significant proposal concerns the treatment of NMRFs.
The PRA proposes introducing a new category of Type 1 NMRFs for risk factors that meet qualitative data standards but fall short of the quantitative RFET requirements. These would be allowed to remain in the Expected Shortfall (ES) model, improving recognition of hedging and diversification relative to a complete exclusion from the model whilst attracting an additional NMRF capital charge (because these risk factors lack sufficient verifiable prices). Importantly, the capital add-on is more risk sensitive as it allows for diversification benefits (with zero correlation assumption) across these risk factors.
Rather than treating RFET failure as a hard boundary between modellable and non-modellable risks, the proposal allows qualifying risk factors to remain in the ES model with an NMRF add-on, reducing cliff-edge effects while preserving prudence.
The PRA is also proposing operational simplifications to the NMRF framework, including aligning the NMRF stress period with the ES stress period, reducing the calculation frequency for Type 2 NMRFs to monthly, and removing the distinction between idiosyncratic and non-idiosyncratic NMRFs.
4. Recognising diversification across IMA and ASA portfolios
For firms operating mixed IMA and ASA portfolios, the PRA proposes introducing a marginal ASA adjustment based on total ASA capital less the ASA capital relating to IMA-approved positions.
This is directionally aligned with the US re-proposal, which also seeks better recognition of diversification between modelled and non-modelled positions. The EU has not introduced an equivalent aggregation adjustment, instead relying on broader temporary FRTB relief measures.
The proposal should improve the economics of phased IMA adoption by reducing artificial capital increases as firms progressively migrate trading desks into IMA.
5. Collective Investment Undertakings (CIUs) look-through threshold introduced
The PRA proposes simplifying the IMA treatment of CIUs. Under PS1/26, firms could only apply IMA to CIU positions without modelling each underlying holding separately where they could fully look through to the CIU’s underlying positions. CP9/26 proposes to replace this with a 90% de minimis look-through threshold. This means that firms could include CIU positions in IMA where at least 90% of the underlying holdings by value can be looked through on a quarterly basis, with the residual position capitalised under the ASA.
Although more conservative than both the UK's existing ASA treatment and the EU's temporary 50% threshold, this represents a meaningful reduction in operational burden for firms with material fund exposures where complete look-through has historically been difficult to achieve.
International context
The consultation should also be viewed against an increasingly divergent international landscape. While the EU has introduced broad, but temporary FRTB relief measures and the US has proposed more structural changes to internal models, the PRA has taken a different approach. Rather than reopening the UK Basel 3.1 framework more broadly, it has focused on the principal practical barriers to IMA adoption while remaining closely aligned with the Basel framework. The result is a targeted recalibration intended to improve competitiveness and proportionality without fundamentally changing the prudential architecture of UK FRTB-IMA.
What do firms need to do?
Banks should reassess their IMA strategy and desk-level scope, refreshing IMA versus ASA decisions, capital impacts and phased migration plans in light of the proposed reforms.
Banks should use the proposed three-year PLAT monitoring period as an active remediation window before PLAT becomes binding.
Boards and senior management should mobilise a cross-functional CP9/26 programme covering strategy, modelling, technology, governance and consultation response.
Banks should treat the consultation period as an opportunity to re-evaluate their broader IMA strategy, rather than approaching it as a purely technical exercise. For many firms, the most important consequence of the proposals is not the individual policy changes themselves, but that the overall economics of pursuing IMA approval may now warrant reassessment. Decisions that were previously considered settled may need to be revisited.
Firms should therefore refresh their IMA versus ASA business case, reassess desk-level scope, and revisit phased migration plans in light of the proposed PLAT, RFET, NMRF and mixed IMA/ASA changes.
The proposed three-year PLAT monitoring period should be used as an active remediation window. Banks should use this period to strengthen front-office and risk-theoretical P&L alignment, improve valuation and market data controls, review desk structures, and enhance management information to identify emerging PLAT weaknesses before the test becomes binding.
Firms should also move quickly to assess the operational and technology implications of the proposed Type 1 NMRF treatment. While the proposal may reduce artificial capital inflation for certain less liquid but well-controlled risk factors, it will require clear eligibility criteria, robust approval governance, model validation challenge, and changes to capital engines to support ES integration and the zero-correlation capital add-on.
Finally, firms should mobilise a coordinated response across Front Office, Market Risk, Finance, Model Risk, Data, Technology and Regulatory Policy. Boards and senior management should be engaged early to oversee strategic IMA decisions, capital impacts, implementation risk and any consultation response ahead of the 18 September 2026 deadline.
“CP9/26 is a constructive development for banks. It signals that the PRA is willing to recalibrate areas of the framework and support the UK’s objective of maintaining a competitive global trading environment. The key management question is whether these changes materially improve the economics and feasibility of IMA for the bank’s trading book perimeter. The firms that act early will be best positioned to shape the consultation outcome, optimise capital strategy and execute a credible transition to the 2028 IMA regime.”
Richard Hubbard
Director, PwC
Next steps
The Banks should use the consultation period to determine whether these proposals fundamentally change the strategic case for IMA approval, quantify the resulting capital and operating model impacts, and accelerate remediation where IMA becomes commercially viable.
Our Traded Risk & Financial Services practice supports firms across the full FRTB lifecycle – from strategic IMA business case assessments through to PLAT and NMRF framework design, model development, validation and managed-service execution.
For a briefing or tailored CP9/26 impact assessment, please contact your usual PwC relationship lead.
Contacts
Richard Hubbard
Saurabh Shah
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