UK and European banks progress Basel III reform programmes despite rising regulatory compliance costs and data challenges

• UK banks lead European and US peers in preparing for Basel III compliance by significant margin
• But cost of regulatory compliance is on the rise, with expenditure estimated to reach £7bn across the UK and European market

UK and European headquartered global banks are reporting strong progress towards Basel III compliance, well ahead of the January 2025 implementation deadline, according to new EY research. The Basel III framework seeks to strengthen the resilience of the banking system, headlined by a standardization of approach to credit risk, credit valuation adjustment risk, and operation risk. 

EY’s research – which covers 51% of UK, 27% of European and 29% of US headquartered banks by assets – finds that all of the UK banks surveyed, nearly two-thirds (61%) of European banks, and 57% of US banks have now mobilised a Basel III reform programme. Going a step further, half of UK banks (50%), nearly a fifth (17%) of European banks, and 29% of US banks are using Basel III reforms to accelerate and deliver significant and transformational data management, technology and operating model change across their organization.

However, although progress is being made, the survey also found that 83% of UK banks and 67% of European banks are yet to determine their approach to allocating the capital impact of the standardized floor brought in by Basel III reforms – a core requirement of the regulation. It is unlikely the standardized floor will be applicable in the US.

The survey also found that, while all banks surveyed have appointed an executive sponsor to their reform programmes, there is divergence around whether the responsibility sits within the finance or risk function. Half of UK banks, a third of European banks, and 29% of US banks have appointed a sponsor or accountable executive responsible for Basel III reforms in finance; under a fifth (17%) in the UK and Europe have appointed a sponsor in risk; and 33% of UK banks, 44% of European banks and 57% of US banks have organized joint responsibility across the two functions.

Nigel Moden, EMEIA Banking & Capital Markets Leader at EY, comments: “Banks across Europe – particularly in the UK – are well underway with their progress towards the Basel III implementation deadline. This is a major reform, just over 18 months away, and it is positive that so many firms are tracking to schedule. At a time of active regulatory focus and change, banks across Europe have an opportunity to go beyond minimum compliance thresholds and use the current window to drive wider strategic transformation across their organization.”

Rising costs and quality of data in focus

The quality and availability of data required to comply with Basel III was identified as the most significant challenge to delivery of the reforms for 60% of UK banks monitored and 33% of European banks.

Costs are also an area of challenge, and there is significant divergence in banks’ experience of the costs associated with the implementation of Basel III reforms. Two thirds (67%) of UK banks report an increase in costs of Basel III reforms over the last 12 months, relative to just 22% of European banks. 57% of US banks report a cost increase.

Under a fifth (17%) of UK banks estimate that the end-to-end costs for delivering the Fundamental Review of the Trading Book (FRTB) – the comprehensive suite of capital rules brought about by Basel III Reforms – will be sub-US$10m, relative to 76% of European banks and 29% of US banks. Half (50%) of UK banks anticipate that FRTB delivery costs could end up in the range of US$100-200m+, relative to just 6% of European banks and 29% of US banks.

Jared Chebib, EMEIA Basel III Leader and Banking Partner at EY, comments: “As we move nearer to the compliance deadline, we expect costs, resources and the demands presented by implementation to ramp up. Organizations must identify and allocate senior sponsorship to key elements of the reform programme to ensure that momentum is maintained towards the deadline – even as global regulators continue to finalise their position.

“Over the 35 years since the first Basel framework was introduced, regulatory standards have continually evolved. This continues to affect capital and risk management regimes across Europe’s largest banks. Over the next 18 months, delivery of the Basel III Reforms will be critical to maintaining the global position, competitiveness and economics of Europe’s banking sector. Accelerating progress on key elements of complex implementation programmes – particularly around new risk-weighted calculation frameworks – must now be the priority for regulation, operations, risk and executive teams across the region’s leading banks.”  

Notes to Editors

• EY conducted a Basel III readiness survey of 45 global banks across 17 markets, 19 of which are categorised as Global Systemically Important Banks (G-SIBs). The data used for this press release includes those headquartered in the UK and Europe, which includes 8 G-SIBs.
• The research was conducted in February and March 2023.