The Bank of England is contemplating a six-month delay in the implementation of the final round of Basel reforms, in response to extensive industry feedback.

The Basel reforms, initiated after the 2008 financial crisis, introduced new minimum standards for liquidity and capital requirements, with the goal of global regulatory enhancement.

Negotiations surrounding these reforms have persisted for several years, and after some delays, regulators had initially set a start date for implementation at the beginning of 2025. However, this summer, US regulators opted to extend the implementation deadline until July 2025, aligning with the Prudential Regulation Authority's (PRA) current considerations.

The PRA, which oversees UK banks' financial stability, is also contemplating a reduction of six months in the five-year phasing-in period. This adjustment aims to synchronize the UK's implementation timeline with that of the US. The decision underscores the substantial feedback received during the consultation process, reflecting the controversial nature of the Basel reforms.

The reform implementation has sparked criticism in various regions. In the US, regulators were criticized for adopting the most conservative interpretation of the rules among major economies. Meanwhile, in the EU, regulators were accused of being too lenient with banks. In the UK, prominent figures, including Natwest's Chief Financial Officer Katie Murray and outgoing chair Sir Howard Davies, voiced concerns about the reforms' adverse effects on the UK economy and the competitive positioning of UK banks.

Numerous banks have expressed specific apprehensions about the regulations' impact on small business lending. Current rules would eliminate preferential treatment for small businesses, a change that banks argue could significantly reduce financing opportunities for SMEs.

Richard Davies, CEO of Allica, a challenger bank specializing in business lending, welcomed the delay, interpreting it as a sign that regulators are heeding the concerns raised by various SME finance market participants. However, Lee Doyle, co-chair of the bank industry sector at law firm Ashurst, emphasized the need for continued momentum and clarity in the proposal discussions, cautioning against prolonged delays and uncertainty in the process. Photo by Katie Chan, Wikimedia commons.