Ahead of Risk Evolve 2026, Sajid Iqbal explores how Basel 3.1 is reshaping the way banks approach capital management. As regulatory reforms tighten modelling constraints and introduce new capital floors, institutions must rethink how they plan, allocate, and govern capital. He outlines the key challenges, strategic adjustments, and practical steps banks are taking to navigate the evolving regulatory landscape.

What is the most significant way Basel 3.1 is changing capital management compared to previous regulatory reforms? 

Basel 3.1 is shifting capital management away from being largely a “model optimisation” exercise and towards a “data, governance, and comparability” discipline. Strong internal models still matter, but the combination of tighter modelling constraints and the output floor means banks must manage capital through multiple lenses at the same time, modelled, standardised, and floored outcomes. In practice, this brings capital strategy closer to day-to-day business decisions, product pricing, hedging choices, and portfolio construction, which increasingly need to reflect which constraint is binding, rather than assuming internal models will always be the main lever.

Where are institutions seeing the biggest challenges from jurisdictional differences and phased implementation timelines? 

The biggest challenge is operating in “parallel regulatory realities” for an extended period. Different go-live dates varied supervisory expectations, and uneven interpretation of key topics creates friction for cross-border groups. This typically surfaces in three areas:

Consolidated versus local-entity capital planning,

Internal capital allocation and transfer pricing, and

Reporting and data architecture, because firms need consistent data definitions even when regulators prioritise different elements at different times.

How are shifts in risk-weighted assets and internal model treatment influencing capital planning decisions? 

Capital planning is shifting towards portfolio-engineering, relying less on model-based benefits. As model advantages diminish or are capped by floors, banks now focus on which approach yields the most stable and transparent capital outcomes across internal models, standardized methods, and floors. This trend encourages firms to reduce complexity where it no longer provides value, redesign or reprice the products with heavier standardised charges, and adopt more regime-based planning. Such planning accounts for significant changes in rates, volatility, and liquidity conditions that can impact the core capital drivers.

What practical steps are firms taking to integrate market and operational risk revisions into their overall capital strategy? 

The most effective approaches are pragmatic and operational.

First, banks are building an end-to-end “capital map” linking products and desks to risk drivers, RWAs, and ultimately pricing and limits, so regulatory changes translate into real decisions.

Second, many are strengthening capital steering governance, often through a dedicated forum aligned with ALCO or a capital committee, to move from reviewing numbers to agreeing on management actions (hedging, limits, portfolio repositioning, or targeted growth).

Third, there is a clear emphasis on data discipline, particularly for operational risk, because weak loss data, inconsistent taxonomy, and poor linkage to processes quickly become expensive under a more standardised and scrutinised regime.

What advice would you give to peers balancing regulatory compliance with capital efficiency as Basel 3.1 implementation progresses? 

I recommend viewing Basel 3.1 not as just a standalone compliance program but as a stress test for the business model. In practice, this means early identification of the most likely constraint (whether from internal models, standardised approaches, or the output floor) by portfolio. It also involves incorporating capital costs into pricing, limits, and performance metrics to encourage aligned behaviour, investing in clear explanations of drivers and management actions for boards and supervisors, and preserving flexibility through a detailed “capital levers” playbook, which includes hedging, portfolio reshaping, model strategy, funding mix, and booking decisions. When executed effectively, Basel 3.1 can serve as a competitive advantage rather than merely a cost burden.