December Global Regulatory Brief: Risk, capital and financial stability

The Global Regulatory Brief provides monthly insights on the latest risk and regulatory developments. This brief was written by Bloomberg’s Regulatory Affairs Specialists.

Recent periods of financial stress and the proliferation of risks across the financial system are fueling the development of regulatory initiatives to strengthen requirements and promote international best practice. The following policy developments represent a sample of wider regulatory and policy coverage available to Bloomberg Terminal customers. Run REGS <GO> to find out more or contact your Bloomberg representative to learn more:

• UK: PRA details Basel 3.1 Market Risk implementation schedule
• Australia: APRA phases out AT1 capital instruments
• UAE: Enacts new AML law
• New Zealand: FMA updates insider trading guidance

Prudential Regulation Authority (PRA) sets out timings and priorities for Basel 3.1 Market Risk implementation

The PRA has confirmed its approach to implementing the market-risk (FRTB) component of Basel 3.1, with most of the regime taking effect in January 2027 and the modelled approach (IMA) deferred to January 2028. Basel 3.1 remains a core element of the UK’s post-crisis risk-measurement reforms, with the PRA committed to finalizing the package without reopening substantive policy issues. This update is based on a speech delivered by Phil Evans, PRA Executive Director, at the ISDA conference.

Context

The remarks outline the near-final stage of the UK’s Basel 3.1 process, designed to address deficiencies exposed during the global financial crisis. The UK has already consulted on the core package, and the speech confirms that remaining steps involve final rulemaking and operational readiness rather than further policy changes.

Key takeaways

• Implementation dates confirmed:
  • Q1 2027: The bulk of the Basel 3.1 market-risk rules take legal effect January 2027.
  • Q1 2028: The Internal Model Approach (IMA) has been delayed and will not come into force until January 2028 – allowing time for alignment with other major jurisdictions.

• The FRTB’s significance is underscored by the three key Global Financial Crisis (GFC)-related weaknesses it was designed to address:
  • The trading book / banking book boundary was too subjective; the FRTB introduces a much clearer boundary.
  • The existing internal model approach missed important risks and was a mix of add-ons over time; the FRTB makes this more coherent.
  • There was no risk-sensitive standardized approach, limiting supervisors’ ability to challenge model use; the FRTB greatly improves the standardized approach.
• IMA challenges remain: Questions remain around the practicalities of the IMA approval bar, including the P&L Attribution Test. Ongoing model development is supplying data for potential future refinements.
• Industry-engagement continues: To aid firms, the PRA will host recurring Banking Policy Roundtables (three per year), bringing together firms, trade-bodies and regulators to clarify aspects of the new rules – without re-opening the package. The first market-risk-focused Roundtable under this initiative has already taken place.

Next steps

• The PRA will publish its final rulebook in Q1 2026, once the statutory instrument required to enact the rules has progressed through the relevant processes under the HM Treasury.

PRA will conduct Pillar 2A resets to avoid double-counting of capital where risks were previously captured under internal models.

APRA finalises changes to phase out Additional Tier 1 capital instruments

The Australian Prudential Regulation Authority (APRA) has finalised consequential amendments to its bank prudential framework to phase out Additional Tier 1 (AT1) capital instruments – also known as hybrid bonds – as eligible regulatory capital.

Background

On 21 September 2023, APRA had released a discussion paper on the challenges of using AT1 capital instruments in a potential bank stress scenario in an Australian context. This came after the Council of Financial Regulators (CFR) had flagged that ‘international experience has highlighted the importance of crisis management tools, including Additional Tier 1 capital operating as intended and guarantee schemes being able to provide depositors timely access to funds’.

On 10 September 2024, APRA released a discussion paper that outlined potential amendments to APRA’s prudential framework to ensure that the capital strength of the Australian banking system operates more effectively in stress. This included proposing to replace bank-issued AT1 capital instruments with more reliable and effective forms of regulatory capital.

In December of last year, APRA had confirmed its decision to phase out AT1. That was accompanied by a letter whose purpose it was to confirm APRA’s approach, minimise uncertainty, and to support an orderly transition. Among others, APRA made clear that it would further consider the impact of the removal of AT1 on other prudential requirements and determine whether any amendments should be proposed.

On 8 July of this year, APRA had released a consultation paper on implementing APRA’s decision to phase out AT1 capital instruments. The paper also proposed consequential amendments to APRA’s prudential and reporting frameworks.

Today, APRA confirmed that existing AT1 will be phased out gradually to ensure an orderly transition and limit any immediate impacts on issuers or investors. APRA expects all AT1 issued by banks to be phased out by 2032.

There will be no changes to the existing legal terms, including subordination, of these outstanding instruments.

The regulator also made the accompanying changes to its prudential framework to facilitate the transition, including a reduction of the minimum leverage ratio requirement from 3.5 to 3.25%, measured on a Common Equity Tier 1 (CET1) capital basis, in order to avoid consequential tightening of the minimum leverage ratio. The new prudential standards and guidance will come into effect on 1 January 2027. APRA expects banks to be compliant with the updated reporting requirements for the March 2027 quarter reporting period.

The anticipated benefits of the phasing out of AT1 are:

• improved stabilization in a crisis and reduced contagion risk. International experience has shown that AT1 capital does not fulfil a stabilizing function in a crisis due to the complexities of using it and the risk of causing contagion;
• enhanced proportionality by lowering the cost of capital for smaller banks relative to larger banks; and
• reduced compliance costs for banks by simplifying the framework and removing a capital instrument that can impose additional design, marketing and issuance costs, particularly for small banks.

APRA will allow banks to replace AT1 predominantly with cheaper and more reliable forms of capital that would absorb losses more effectively in times of stress.

UAE enacts new AML law

The UAE has issued a new AML/CTF law, replacing the 2018 framework, and introducing significant updates to the UAE’s legal framework on AML/CFT and proliferation financing. It aligns the UAE’s laws more closely with Financial Action Task Force (FATF) standards and addresses identified gaps in risk-based supervision, enforcement powers, and virtual asset regulation. The law strengthens institutional coordination, clarifies liability for legal persons, and enhances the capacity for both domestic and international cooperation.

Key points and proposals

• Broader Definitions: Expanded definitions of money laundering, predicate offences (including tax crimes), and proliferation financing (Art. 2–3).
• Legal Person Liability: Legal persons are now directly liable for AML/CFT offences committed in their name or interest (Art. 4, 27).
• Virtual Assets: Explicit coverage of virtual assets and service providers, including reporting and licensing requirements (Art. 1, 19–20, 30).
• Beneficial Ownership: Strengthened transparency and disclosure obligations for beneficial owners, including criminal penalties for non-compliance (Art. 19, 35).
• Expanded Enforcement Powers: The Financial Intelligence Unit and law enforcement are granted enhanced powers for freezing, seizure, and undercover operations (Art. 5–9).
• Administrative Penalties: Supervisory authorities can impose fines up to AED 5 million per violation, with revocation of licenses for repeat or serious breaches (Art. 17).
• International Cooperation: Provisions facilitate rapid exchange of information and recognition of foreign confiscation orders (Art. 21–22).

Implications and next steps

The law entered into force two weeks after its publication (i.e. mid-October 2025). Executive Regulations will follow via Cabinet resolution to clarify implementation details. Businesses—especially financial institutions, DNFBPs, and virtual asset service providers—must prepare for stricter supervision, enhanced due diligence obligations, and proactive reporting requirements. Legal entities should update internal controls and compliance programs to align with the new law.

The NZFMA updates insider trading guidance

The FMA issues a revised educational information sheet on insider trading

The revised sheet replaces a previous report dated August 2025 and seeks to support stronger practice on insider trading across the investment industry, following industry engagement.

Further details

In its mid-year Financial Conduct Report, the FMA had signalled its concerns regarding insider trading, following a steady increase in insider trading referrals from NZ RegCo.

The information sheet outlines the view of the FMA on how the statutory prohibitions against insider trading under the Financial Markets Conduct Act 2013 may apply to situations where a person trades in a listed issuer (B) while in possession of non-public information relating to another listed issuer (A) – a practice sometimes referred to as ‘shadow insider trading’.

It replaces a previous report dated August 2025 titled ‘Shadow Insider Trading: Regulatory expectations and emerging conduct risk’.

Stated Louise Unger, Executive Director for Response and Enforcement:

“This information sheet is informed by industry feedback on the FMA’s approach following inquiries made by the FMA earlier in the year into the trading conduct of two institutional investors. The FMA decided to take an educative approach, rather than an intervention, to clarify for industry how the insider trading prohibitions may apply in these types of circumstances. We do not want the safeguards around this type of insider trading to deter legitimate market activity.

The updated November information sheet includes risk mitigation strategies that may help investors manage their risk.”