PRA Proposes Automatic Indexation of 128 Regulatory Thresholds to UK Nominal GDP, With the First Update in 2031

The Bank of England's Prudential Regulation Authority has proposed a rules-based way of keeping its monetary thresholds in step with the size of the economy. In consultation paper CP13/26, published on October 7, the PRA sets out a framework under which 128 fixed pound thresholds across banking, insurance and credit unions would be updated automatically rather than through one-off policy projects. The consultation, and an accompanying discussion paper on the thresholds the PRA is less sure about, close on February 7, 2027.

The problem the PRA is trying to solve is what it calls "prudential drag." Many requirements apply only above a certain size or limit. A firm may have to submit more detailed reports, meet different capital rules or accept stricter governance once it passes a threshold set in pounds. If those pound amounts never change, nominal growth pushes firms across the line even though their underlying risk may not have changed. Today the PRA corrects this through separate, ad hoc consultations, each of which takes time and attention from both the regulator and the industry.

The PRA's proposal covers 128 thresholds across its Rulebook, supervisory statements and statements of policy. By category, 31 concern the regulatory perimeter, 52 concern reporting (42 for banks and 10 for insurers), 8 relate to internal governance, 25 are used in methodologies and approaches, and 12 affect lending, funding and investment flexibility. The Bank's announcement offers examples at both ends of the scale. The largest is £320 billion of total assets, which triggers detailed capital reporting. The smallest is £7,500, the amount an individual can owe a credit union. Other thresholds decide when an insurer falls under the Solvency UK regime and which banks qualify for the Small Domestic Deposit Takers regime.

The mechanism is deliberately simple. Each threshold would be multiplied by the ratio of UK nominal GDP in a reference year to nominal GDP in a base year, using data from the Office for National Statistics. The PRA chose nominal GDP over consumer price inflation or real GDP because it captures both price changes and real growth, which better reflects how the scale of the financial system evolves. The base year would be 2026, with a transitional exception for thresholds that are scheduled to take effect in 2027 or 2028, whose values on their effective dates would become the base amounts. Results would be rounded to two significant figures, and thresholds would never be reduced if nominal GDP fell.

Timing is where the proposal is most distinctive, and where critics may push back. The first indexation would take effect on 1 July 2031, after an initial three-year period, using 2029 as the reference year. After that, thresholds would be updated every five years. The PRA argues that this cycle balances two costs: the recurring expense for firms of changing systems and reporting each time a threshold moves, against the risk of thresholds that fall too far behind the economy. Outcomes would be published before 31 December of the year before each update, which gives firms about six months to implement them. Rulebook changes would be made by rule instrument without a further consultation, and the thresholds in supervisory statements and statements of policy would be updated when the amended documents are published. There would be no backdated uplift for existing thresholds.

Not everything is in scope. The PRA excludes thresholds set in legislation or by another authority, thresholds not expressed as nominal amounts, such as percentages or counts, and those where automatic updating would undermine the policy intent or require judgement. The Financial Policy Committee's buffer thresholds and the £75 billion leverage ratio retail deposits threshold are excluded because they sit under other frameworks. A further group appears in a separate discussion paper because the PRA is uncertain about the costs and benefits, including thresholds linked to internal ratings-based models, liquidity measures that interact with credit risk, and joint PRA and FCA thresholds on remuneration, whistleblowing and the Senior Managers and Certification Regime.

The PRA also admits the framework will not always loosen rules. It estimates that fewer than 10% of in-scope thresholds could make requirements stricter or reduce flexibility when indexed, with Solvency II standard formula items and certain buy-to-let thresholds given as examples. That is an important detail for insurers, which would otherwise assume that indexation always works in their favour. On the PRA's own assessment, the benefits are likely to outweigh the costs: less prudential drag, more predictable planning, better support for competition and growth, and fewer consultations. The costs include one-off familiarisation and system changes, recurring work at each update, and possible tighter outcomes for a minority of thresholds. The PRA says it has not quantified several of the effects and has asked respondents for evidence.

Katharine Braddick, the Bank's Deputy Governor for Prudential Regulation, said the modernisation "will significantly help financial services firms plan for the future." Because the first update is not due until 2031, the near-term impact looks limited, and the consultation is the stage at which scope and methodology can still be shaped. The discussion paper's focus on joint PRA and FCA thresholds also suggests that coordination between the two regulators will matter.

For a smaller bank, insurer or credit union, the practical steps are straightforward. Check whether any threshold that currently shapes your obligations appears in the appendices of the consultation, work out whether it would rise or tighten after indexation, and decide whether to respond before February 7. For consumers and policyholders the effect is indirect, but the aim is to reduce regulatory friction for firms near a size boundary and so support competition.

This article summarises a consultation proposal, not a final rule. The framework could change before it is adopted, and anyone affected should read CP13/26 and the PRA's draft statement of policy directly.