3.1 This chapter provides feedback to responses to Chapter 6 of consultation paper (CP) 16/22 - Implementation of the Basel 3.1 standards, which set out proposals to implement the Basel 3.1 standards for market risk. This chapter also sets out the Prudential Regulation Authority's (PRA) near-final policy on market risk following the consultation.

3.2 In CP16/22, the PRA proposed to implement the Basel 3.1 market risk framework, comprising three new methodologies: the simplified standardised approach (SSA); the advanced standardised approach (ASA); and the internal modelled approach (IMA). The new framework would replace the existing calculation methodologies and improve the risk sensitivity of market risk capital requirements. It included the following improvements compared to the existing approaches:

• a clearer definition of the scope of application of the framework, through a stricter delineation between positions that should be allocated to the trading book and non- trading book, and a specified treatment of internal hedges between the two books;

• improved methodologies for estimating market risk, including a more comprehensive standardised approach and a modelled approach that incorporates additional risk factors such as the liquidity of traded positions; and

• improved proportionality through the retention of a recalibrated version of the existing standardised approach as a simplified alternative for firms with a limited amount of derivatives activity.