What Basel 3.1 Actually Is
Basel 3.1 (also referred to as the "Basel 3.1 output floor" or informally as "Basel Endgame" in US commentary) is the final phase of the post-2008 Basel III capital reforms. It substantially rewrites the way banks calculate risk-weighted assets (RWAs) across credit risk, market risk, credit valuation adjustment (CVA), operational risk and the treatment of internal-model outputs. The single most-discussed element is the output floor — internal-model RWAs cannot fall below 72.5 per cent of the RWAs that would be calculated under the standardised approach — but the framework has many other moving parts.
The UK is implementing Basel 3.1 through PRA rules that give effect to the Bank for International Settlements framework, with UK-specific calibrations that HM Treasury and the PRA have consulted on since 2022. The go-live date has been moved several times — originally 1 January 2025, then 1 January 2026, and now confirmed at 1 January 2027 with a phased transitional application of certain elements.
Who Is Actually in Scope
The regime applies to PRA-authorised firms — UK banks, building societies and PRA-designated investment firms. It does not apply directly to:
- Payment institutions authorised under the Payment Services Regulations 2017.
- E-money institutions authorised under the Electronic Money Regulations 2011.
- FCA-regulated investment firms that are not PRA-designated (subject to a separate MIFIDPRU / IFPR-derived regime).
- Cryptoasset firms now being brought within FSMA under the newly-published crypto rules (see our earlier piece).
The direct scope is narrower than the discussion around Basel 3.1 often suggests. A neobank with a UK banking licence is in scope; a large e-money firm with a payment services licence is not. The distinction is who authorises the firm and under what regime — PRA and CRR-successor for banks, FCA and PSD2/EMR for e-money and payments.
The Indirect Impact for Fintechs Not in Scope
Even for a fintech CFO whose firm is not in scope, three specific channels of impact are worth planning for.
Bank Partner Behaviour
Most non-bank fintechs rely on partner banks for safeguarding, correspondent accounts, sterling accounts, or BIN sponsorship. Under Basel 3.1, the partner bank's RWA treatment of the relationship may change. Specifically:
- Unrated corporate exposures — including deposit facilities held for e-money safeguarding — face a specific RWA treatment that in many cases is materially different from the current CRD IV regime.
- Off-balance-sheet exposures for BIN sponsorship or issued cards face revised credit conversion factors.
- Some previously-favourable treatments for intra-group or sponsored fintech relationships are being narrowed.
The likely effect is that partner banks reprice, retighten covenants, or reduce concentration limits on their fintech exposures through H2 2026 and into 2027. Fintechs that rely on a single partner bank should have a second banking relationship in flight before the transition, not after the partner announces terms changes.
Corporate Borrowing Terms
For fintechs with a corporate revolving credit facility (RCF) or a term loan from a UK bank, the pricing and terms of that facility reflect the bank's RWA cost of the exposure. Basel 3.1 changes that RWA cost for many corporate exposures, particularly for unrated borrowers, revolving facilities and cross-border exposures.
The specific implication for a fintech borrower renewing a facility that matures through 2027 is that the pricing conversation will involve a specific "Basel 3.1" line item on the bank side. Facilities agreed before the transition may be repriced at renewal or on the trigger of pricing-review provisions. Locking in favourable terms now for facilities that would otherwise mature into the Basel 3.1 window is a reasonable defensive move.
Banking Licence Calculus
For a fintech that has been considering a UK banking licence, Basel 3.1 changes the calculation materially. The RWA regime under Basel 3.1 is more demanding than the current framework for many typical fintech asset profiles — consumer lending, SME lending, mortgage products. This affects the capital that has to be raised for authorisation and the ongoing capital consumption at scale.
Firms currently in the authorisation process should have modelled Basel 3.1 explicitly; firms considering entry should factor it into the go / no-go decision. The alternative — pursuing an e-money licence and building deposit-taking through partner arrangements — is materially different in capital cost.
"For most fintechs, Basel 3.1 is not a direct compliance obligation. It is a change in the environment in which your partner banks operate, which flows through into pricing, terms and relationship availability. The CFO who ignores it because 'it does not apply to us' finds the impact at the next facility renewal or partner-bank conversation."
Six-Month Actions Before 1 January 2027
Concrete items for the fintech CFO to work through in the six months before Basel 3.1 goes live for their banking partners:
- Map every material banking relationship. Which banks provide which services (safeguarding, correspondent, RCF, BIN sponsorship, custody). Include contract renewal dates.
- Test optionality on every material relationship. Have a second option in scoping conversation for each. Do not wait for the incumbent to announce revised terms.
- Review corporate borrowing facilities. Check pricing-review triggers, refinance dates, and covenant baskets. Where a facility matures in 2027, decide whether to refinance early to lock in pre-transition terms.
- Model the balance sheet impact of any Basel 3.1-sensitive activity. For firms with meaningful lending, guarantee or off-balance-sheet exposures, the specific RWA impact of the change on the partner bank should be understood.
- For firms in the banking authorisation process, refresh the capital plan. Under Basel 3.1 rules rather than the current framework.
- Board briefing. A single-page summary of Basel 3.1, direct scope, indirect impact channels, and specific actions being taken. This is what a well-informed board expects to see.
Key Takeaways
- Basel 3.1 goes live for PRA-authorised firms in the UK on 1 January 2027 after successive delays.
- Direct scope: banks, building societies, PRA-designated investment firms. Not payment institutions, e-money institutions, or FCA-only investment firms.
- Three indirect channels for fintechs: partner bank behaviour on safeguarding and BIN sponsorship, corporate borrowing terms for RCF and term loans, and the capital calculus for firms pursuing a banking licence.
- Six-month actions: map all material banking relationships with renewal dates; test optionality; review facilities maturing in 2027; model the balance sheet impact; refresh capital plan for firms in banking authorisation; brief the board.
- The output floor at 72.5 per cent of standardised RWA is the most-discussed element but not the only one. Credit risk RWAs, market risk (FRTB), CVA and operational risk are all being revised.
- Fintechs that rely on a single partner bank should have a second banking relationship in flight before the transition, not after.