Small Domestic Deposit Takers (SDDT) Regime

Senior management should focus on 3 areas when considering if the SDDT Regime makes sense for their institution:

• Quantify the impact of the SDDT Regime on their capital and liquidity requirements. The PRA has now published the final liquidity and capital guidance for SDDT firms and firms are expected to assess their capital stack and liquidity metrics. The final decision as whether to enter the SDDT regime can be taken once the firm has completed the quantitative impact assessment and obtained Board approval.
• Firms should review how SDDT will impact key prudential documentation regulatory returns. Firms should prioritise understanding the benefit of simplification to the NSFR and ALMM returns, Pillar 3 disclosures, ILAAP and potentially ICAAP.
• Firms will also need to assess the impact of the reforms on Strategy, Policies and Procedures and be aware of the potential impact into the model usage, business growth strategy and ongoing monitoring of eligibility of SDDT criteria.

The SDDT Regime can be an attractive alternative to small eligible banks as it offers the following benefits:

• Increased competitiveness: From a liquidity perspective, the SDDT Regime introduces the Retail Deposit Ratio (RDR) which aligns better with the funding composition of smaller banks. In practice, this allows retail-focus deposit takers to maintain lower liquidity holdings compared to the traditional Liquidity Coverage Ratio (LCR), thereby enhancing their competitive position.
• Reduced regulatory burden: Eligible institutions face less complex reporting and disclosure requirements (e.g. four subsections of the ALMM returns have been eliminated) making it easier for banks and building societies to meet their obligations.
• Cost savings: By reducing administrative overhead and compliance costs, firms can allocate resources more efficiently by focusing on developing area of the business such as innovation.

Eligible firms for this regime will generally be expected to meet the following criteria, though the PRA may exercise flexibility based on specific circumstances*.

• Size: Total assets on average over the past three years of no more than £20 billion.
• Domestic activity: The share of credit exposures located in the UK is at least 75% at all times and at least 85% on average over the past three years.
• Limited trading activity:
• Trading book business was equal to or less than both £44 million and 5% of total assets in recent months.
• Overall net foreign exchange position was equal to or less than 2% of own funds in recent months
• No positions in commodities or commodity derivatives.
• No Internal Ratings Based (IRB) approach. 
• Does not provide clearing, transaction settlement, custody or correspondent banking services to other banks and building societies unless they are members of the firm’s immediate group.
• Does not operate a payment system. 
• Does not have a non-UK parent.

*Firms can apply for a waiver/modification application form to bypass certain scope criteria. More details can be found on the BoE website.

The Single Capital Buffer (also known as SCB) will be the standalone replacement for the current Pillar 2B buffer framework. Currently, the buffer framework consists of the Capital Conservation Buffer, the Countercyclical Buffer and the PRA Buffer and totals a minimum of 4.5% RWAs. Three components would inform the SCB; Stress Impact; Risk Management & Governance assessment; and Supervisory Judgement. The SCB would need to be met entirely with CET1 capital and will be set at a minimum of 3.5% RWAs.

A Simplified Capital regime

SDDTs follow a proportionate capital framework designed to reduce modelling and reporting burden with respect to simplified RWA calculations, streamlined Pillar 2A, simplified Internal Capital Adequacy Assessment Process (ICAAP) expectations and reduced capital reporting.

• Simplified RWA calculations: SDDTs use a reduced standardised approach for credit, market, and operational risk, eliminating internal models and cutting down the number of exposure classes and data inputs.
• Streamlined Pillar 2A methodology: Pillar 2A is calculated using fewer risk categories, simpler capital add‑ons and more predictable.
• Simplified ICAAP expectations: ICAAP requirements are lighter, with shorter documentation, reduced scenario work, and a focus on core risks rather than full stress‑testing frameworks.
• Reduced capital reporting requirements Reporting is scaled back through fewer templates, less granular data, and lower submission frequency, easing the operational load on smaller firms.

Simplified Liquidity requirements

The liquidity regime is lighter and tailored to small domestic banks resulting in reduced liquidity reporting, simplified LCR/NSFR expectations, lower modelling burden and proportionate intraday liquidity expectations.

• Reduced liquidity reporting: SDDTs file fewer liquidity templates with less detail and lower reporting frequency, easing operational effort.
• Simplified LCR and NSFR expectations: SDDTs follow proportionate LCR/NSFR rules with simpler calculations and fewer adjustments than the full Basel framework.
• Lower modelling burden: Firms use basic behavioural assumptions and standardised stress factors instead of advanced liquidity risk models.
• Proportionate intraday liquidity expectations: Intraday requirements are scaled to smaller payment flows, with lighter monitoring and simpler reporting of positions.

A reduced reporting burden

The proposed approach would lead to a more streamlined regulatory reporting framework, including reduced COREP reporting templates, less granular data requirements for capital reporting, and a simplified set of Pillar 3 disclosure templates.

New governance and risk management expectations

The governance expectations are simple yet robust:

• Proportionate risk‑management systems aligned with size and complexity.
• Clear board oversight consistent with PRA Rulebook standards.
• Operational resilience requirements remain unchanged.
• Simplified recovery planning for eligible firms.

Overall, the SDDT capital regime provides a simplified and proportionate capital framework for small UK banks, with reduced complexity, lighter reporting, and no application of advanced Basel measures such as Internal Ratings Based (IRB) models or the output floor, as finalised in PS4/26. In contrast, Basel 3.1 (PS1/26) imposes the full, detailed global standards—including revised credit, market, and operational risk rules, enhanced Pillar 3 disclosures, and the 72.5% output floor—applying to all firms outside the SDDT regime.