UK Regulator Proposes GDP Indexation for 128 Financial Thresholds
The UK’s Prudential Regulation Authority (PRA) has proposed linking 128 regulatory thresholds to nominal gross domestic product (GDP), allowing them to adjust automatically rather than relying on occasional manual revisions. The plan aims to reduce compliance costs, improve regulatory proportionality and give financial services firms greater certainty when planning for growth.
The PRA supervises banks, insurers and credit unions. The thresholds covered by its proposal determine which rules firms must follow, how those rules apply and what information they are required to report to the regulator. Under the existing framework, the figures are updated on an ad hoc basis.
The regulator believes indexing the thresholds would help prevent outdated limits from imposing disproportionate obligations on businesses, while making it easier for firms to plan ahead and supporting growth across the UK financial services sector.
Thresholds range from £7,500 to £320 billion
The proposed changes cover a broad range of regulatory limits. The highest is the £320 billion total-assets threshold that triggers detailed capital reporting. At the other end is the £7,500 cap on how much an individual can owe a credit union.
Other thresholds include the point at which an insurer becomes subject to Solvency UK and the total-assets limit associated with the Small Domestic Deposit Takers regime.
If approved, the first adjustment would take effect on 1 July 2031, followed by updates every five years. The PRA said this interval is designed to balance the recurring costs firms face when thresholds change against the need to keep regulatory limits aligned with the wider economy.
Why nominal GDP was selected
The PRA chose nominal UK GDP, as published by the Office for National Statistics, as its benchmark because it captures both inflation and real economic growth. Alternatives such as the Consumer Price Index and real GDP growth reflect only one of these factors.
While the regulator expects all firms to benefit, it identified small and medium-sized businesses operating just below key thresholds as the main beneficiaries. Keeping limits aligned with economic growth could help prevent these firms from being drawn into more demanding regulatory regimes simply because existing thresholds have failed to keep pace with the economy.
The PRA said the changes are intended to support competition, business expansion and the provision of financial services across the UK. It is seeking feedback on the full package of proposals.
Katharine Braddick, PRA chief executive and Bank of England deputy governor for prudential regulation, said: “This modernisation will significantly help financial services firms plan for the future, offering crucial stability and predictability, while also preventing out of date thresholds becoming restrictive barriers to growth.