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The waiting is over. In January, the Prudential Regulation Authority published its final Basel 3.1 rules (PS1/26 and its companion policy statements), confirming that the new regime takes effect on 1 January 2027 — with no further delays. Is your investment-backed lending infrastructure ready for the changes? After years of consultation, near-final rules and a postponement to watch developments in the US, UK banking regulators have drawn a line: firms now have certainty – and roughly six months more to act on it.  Within most banks, Basel 3.1 programmes are well advanced at the whole-firm level. But in our conversations with heads of lending, treasury and capital management across the UK private banking and wealth sector, one area consistently deserves closer attention: the capital treatment of Lombard lending, and specifically of the fund-heavy collateral portfolios that sit behind it. Get this right and Lombard lending remains one of the most capital-efficient products on the balance sheet. Get it wrong, and banks will find themselves holding Tier 1 capital against risk that, economically, simply isn’t there.    What’s changing with Basel 3.1? Basel 3.1 substantially rewrites the credit risk standardised approach, making it more risk-sensitive across the board. This is not just a standardised-approach story: under the new output floor, banks on internal models (IRB/AIRB) must run the standardised calculation in parallel, with capital ultimately floored at 72.5% of the standardised outcome once fully phased in. Nobody escapes the new mechanics. Within them, two changes matter most for Lombard lenders:  1. The collateral haircut framework is being recalibrated Under the Financial Collateral Comprehensive Method (FCCM), the supervisory haircuts applied to securities collateral are increasing: main index equities move from 15% to 20%, other recognised exchange equities from 25% to 30%, and gold from 15% to 20%. The “recognised exchange” framework, meanwhile, has already changed: since 1 July 2026, under PS6/26, overseas exchanges on the FCA’s ROIE register qualify automatically — with the revised haircuts following at Basel 3.1 go-live. Haircuts feed directly into risk-weighted assets (RWAs), so imprecision here flows straight through to a bank’s capital adequacy ratio.  2. The treatment of collective investment undertakings (CIUs) as collateral This is the most consequent change for Lombard books. Funds are the backbone of most private client portfolios, which makes them the backbone of most Lombard collateral pools. Under Basel 3.1, the haircut applied to a fund can be more than a broad-brush assumption: it can reflect the fund’s underlying assets, established through formal look-through.   What detail decides your capital outcome? The look-through approach (LTA) allows you to calculate RWAs by reference to what a fund actually contains, rather than assumptions about what it might contain. Where a bank has sufficiently frequent, verified data on the fund’s holdings, it applies a weighted-average haircut from the underlying assets. A broad-brush assumption is still permitted where full holdings data isn’t available — via the mandate-based approach — but on the same deliberately conservative terms as now, with the fund assumed to invest in the ‘worst possible’ assets, i.e. those attracting the harshest treatment. And where neither is achievable, the fallback is punitive. In our experience, this hierarchy is where most Lombard books are furthest from ready.    The commercial consequence is stark Two banks lending against exactly the same diversified equity fund can arrive at materially different RWAs — not because the risk differs, but because one has the data infrastructure to evidence what’s inside the fund and the other doesn’t. Multiply that across a Lombard book of hundreds or thousands of positions, revalued daily, and the gap between a look-through-capable lender and a fallback lender becomes a structural difference in bank capital consumption, return on equity and, ultimately, the pricing you can offer clients.  Funds-of-funds add a further layer still, requiring look-through at each level of the structure.  Illustrative example only with theoretical figures. Actual figures will vary based on individual context.     What banking regulators expect from you now after Basel 3.1 The PRA has been explicit that this is not a “wait for go-live” exercise. In its 2026 Dear CEO letter, the regulator stated that boards should seek assurance over the accurate calculation and reporting of their risk-weighted assets — both for the Pillar 2 rebasing data exercise and for Basel 3.1 implementation itself. ICAAPs submitted this year must include a Basel 3.1 impact assessment. Financial compliance, in other words, now reaches all the way down to whether the numbers coming out of your collateral systems can survive board-level and supervisory scrutiny.  For a business providing loans against investment portfolios, that translates into practical questions. Do you know, today, the precise composition of your collateral book by asset class, exchange eligibility and fund type? Can you obtain and refresh verified holdings data for every CIU you lend against? Can you evidence, position by position, why a particular haircut was applied — and reproduce that evidence for an auditor?    Why this is now a technology problem The funds look-through cannot realistically be done by hand. Manual or batch-based processes — spreadsheets refreshed monthly, haircuts applied at portfolio level, RWAs recalculated quarterly — were tolerable under the old regime. Under Basel 3.1, they leave capital on the table and audit risk on the books.  Modern bank compliance software changes the economics. Purpose-built Lombard infrastructure can ingest fund holdings data automatically, classify every underlying instrument against the recognised exchange and main index definitions, calculate weighted-average haircuts in real time, and embed jurisdiction-specific RWA calculation directly into origination and daily monitoring. The same real-time collateral monitoring that protects the bank operationally becomes the engine of capital efficiency, ensuring Tier 1 capital is deployed against genuine risk rather than data gaps.  We see this daily in our work with banks and wealth managers: moving a Lombard book from a conservative, data-poor capital treatment to a precise, evidenced one releases capital that can be redeployed into growth, returned to shareholders, or used to price lending more competitively.    Priority What to do Map the collateral book Quantify your exposure to CIUs and identify where look-through data is, and isn’t, currently available. Model the capital impact Run the book through the new FCCM haircuts and look-through hierarchy to